SABB and Alawwal agree to $5B merger
dubai — Saudi British Bank (SABB) and Alawwal Bank have agreed a merger to create Saudi Arabia’s third-biggest lender, in a $5 billion deal that marks the first major banking tie-up in the kingdom in two decades.
The agreement, announced by the two banks on Wednesday but still non-binding, would create a lender with assets of around $77 billion, and is seen strengthening the banking system as Saudi Arabia embarks on a plan to transform its economy and cut its dependence on oil revenues.
SABB is 40 per cent owned by HSBC Holdings and Alawwal is 40 per cent owned by RBS Holdings NV, a consortium that includes Royal Bank of Scotland (RBS), which has been trying to reduce its stake for some time. Selling a small stake in a larger merged entity could make it easier for RBS to find a buyer, sources close to the merger said.
If approved, the merger deal would see SABB acquire smaller peer Alawwal for 18.6 billion riyals ($4.96 billion). The boards of the two banks reached a nonbinding agreement on the share exchange ratio, subject to several conditions, the banks said in joint statements to the Saudi Arabian bourse.
“A binding agreement is yet to be entered into between Alawwal Bank and SABB,” they said. “Any binding agreement to proceed with the merger will be subject to a number of conditions, including Sama [the central bank], other regulatory authorities and the shareholders’ approval.”
Merger talks began last year but progress had taken longer than expected, partly because the regulatory environment for bank acquisitions in Saudi Arabia is relatively untested.