National Commercial Bank, Saudi Arabia’s largest lender by assets, is exploring a deal to acquire rival Samba Financial Group in what could become the biggest banking takeover this year, people familiar with the matter said.
The two lenders are in discussions about a combination, according to the people, who asked not to be identified because the information is private. They could make the merger plans public as soon as the next few days, the people said. Samba shares have fallen 26% this year, giving the bank a market value of about $13 billion.
Negotiations are ongoing, and talks could still drag on or fall apart, the people said. A representative for NCB declined to comment. A representative for Samba didn’t immediately respond to a request for comment.
Trading in NCB and Samba shares was halted on Thursday afternoon pending a “material disclosure.”
Saudi Arabia has been taking steps to shore up its banking sector from the double whammy of the coronavirus shock and lower oil prices. Lenders in the world’s largest oil exporter – already dealing with weak private sector loan growth – are expected to be hit hard as lockdown measures and lower government spending impact earnings and increase defaults.
$27 Billion Stimulus
The kingdom’s central bank, the Saudi Arabian Monetary Authority, has unveiled almost $27 billion in stimulus packages in recent months to support banks, help private sector employment and credit.
The combined bank would have total assets of about $210 billion, making it the third largest in the region behind Qatar National Bank QPSC and First Abu Dhabi Bank PJSC, according to data compiled by Bloomberg.
“Samba is likely to offer value to NCB with a strong franchise in large corporates and capital market operation,” said Edmond Christou, a banking analyst at Bloomberg Intelligence. “Samba has one of the best capital and liquidity position, and it has consistently managed its credit quality prudentially and its cost of risk below the industry. For Samba, this could mean better position in retail space and closer ties to public sector financing.”
Even before the coronavirus pandemic hit, the Middle East’s financial-services industry was witnessing a wave of consolidation as banks sought ways to improve competitiveness and boost capital amid slowing economic growth. Some of the biggest lenders in the United Arab Emirates have combined their operations.
In Saudi Arabia, there are almost 30 local and international lenders serving a population of more than 30 million people. The potential deal comes more than half a year after NCB abandoned plans to merge with Riyad Bank, a deal that would have created a bank with about $200 billion of assets.
HSBC Holdings Plc’s local affiliate Saudi British Bank completed its acquisition of Alawwal Bank, which was part-owned by Royal Bank of Scotland Group Plc, in June last year. The Public Investment Fund, the kingdom’s sovereign wealth fund, has been weighing which other institutions could be merged to increase scale and competitiveness in the banking sector, Bloomberg News has reported.
The PIF is the largest shareholder in both NCB and Samba, according to data compiled by Bloomberg. It owns about 44% of NCB and 23% of Samba, the data show.