Saudi banking mega merger reflects Kingdom’s reform agenda

Olaya District Street with Modern Buildings In Riyadh, Saudi Arabia. (Shutterstock)
Updated 05 October 2018
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Saudi banking mega merger reflects Kingdom’s reform agenda

  • Prominent Saudi businesswoman Lubna Al-Olayan will become the first woman to chair a publicly traded company in the Kingdom
  • Both the merger and the appointment of Al-Olayan are significant in the context of Saudi Vision 2030

LONDON: Saudi British Bank (SABB) and Alawwal bank have agreed to merge to create the third biggest lender in the Kingdom in the latest move toward banking industry consolidation.
Prominent Saudi businesswoman Lubna Al-Olayan will become the first woman to chair a publicly traded company in the Kingdom when she is appointed to the role at the enlarged lender that will have SR268 billion ($71 billion) in assets.
Both the merger and the appointment of Al-Olayan are significant in the context of Saudi Vision 2030, the country’s social and economic reform blueprint that has a major focus on developing the financial services sector as well boosting the representation of women on boards.
The proposed merger, which is still subject to shareholder and regulatory approval, coincides with a number of financial sector reforms in Saudi Arabia.
“Our bank will supply entrepreneurs with the financial tools needed to grow and create jobs and we will have enhanced capacity to underwrite large-scale transactions to support infrastructure and privatization projects,” said SABB Chairman Khaled Olayan.
No involuntary staff redundancies are expected as a result of the merger, the pair said in a statement on Thursday. Neither will there be any immediate change for customers as both banks will remain independent until the merger has completed.
Banks throughout the Gulf are mulling merger deals as the industry reacts to both changing economic realities and the advance of digital banking that is replacing many of the roles that previously required staff.
“When banks merge the key savings are on employee costs given the service oriented nature of this sector,” Mazen Alsudairi head of research at Al Rajhi Bank, told Arab News.
“So, as per the merger announcement and our calculations, around SR450 million to SR650 million are the savings expected in the future for the combined entity.”
Alawwal shares closed almost 3 percent higher on Thursday following the announcement while SABB closed about 1.1 percent lower.
SABB shareholders will own about 73 percent of the enlarged lender with Alawwal shareholders holding 27 percent.
SABB Managing Director David Dew will be the managing director of the combined entity.
The proposed merger comes as the Saudi banking sector emerges from four tough years as a low oil price, reduced government spending and payment delays took their toll on the banking sector, encouraging lenders to look at how they could cut costs.
“Given the current economic scenario, we don’t see any meaningful improvement in asset quality compared to the last quarter and thus expect provisions to be in the similar range as seen in the first couple of quarters,” Al Rajhi said in its sector report released last month.
The appointment of Al-Olayan to chair the enlarged bank follows other high profile moves by women to senior roles in the country’s financial services sector, including Sarah Al-Suhaimi who heads the Tadawul stock exchange.


Saudi Telecom Co. agrees royalty fees

Updated 17 December 2018
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Saudi Telecom Co. agrees royalty fees

DUBAI: Telecommunications operators Saudi Telecom Co., Etihad Etisalat (Mobily) and Zain Saudi Arabia said on Sunday that they had agreed with the government to a change in the calculation of their annual royalty fees.
The companies also said they had reached a deal with the government to settle disputed fees to be paid for previous years up to 2017. In return, the trio agreed to invest in upgrading their network infrastructure over the next three years.
The Kingdom has set specific goals to boost high-speed broadband Internet connectivity as part of its Vision 2030 plan to modernize the economy, including exceeding 90 percent of housing coverage in densely populated cities and 66 percent in other urban areas.
The operators said the agreement will involve an annual royalty of 10 percent of net revenue from telecommunications services starting from Jan. 1, 2018. Mobily said in addition it would also pay an annual license royalty equal to 1 percent of its annual net telecommunication revenues.
STC said the new calculation was compared to the previous fee of 15 percent of net revenues from mobile services, 10 percent of net revenues from fixed line services and 8 percent of net revenues from data services.
STC said the change would have a positive impact on its financial results during the fourth quarter of 2018, while Zain Saudi said it would mean a drop in its payment for the period Jan. 1 to Sept. 30 by SR220 million ($58.7 million).
Mobily said that starting from 2019 onwards, the impact represents an additional cost estimated to be in the range of SR450 to SR600 million per year over the next few years.
Zain Saudi Arabia said the expected financial impact from the settlement of its disputed annual royalty fees for the period 2009 to 2017 is expected to reach SR1.7 billion.
Mobily said its agreement to invest over the next three years would enable it to boost the quality of its fixed and mobile networks and to invest in the deployment of new technologies such as 5G.