NCB and Samba mull mega merger as Saudi banking sector consolidates

NCB and Samba mull mega merger as Saudi banking sector consolidates
A customer withdraws cash at an NCB ATM in Riyadh. National Commercial Bank is Saudi Arabia’s biggest bank by assets. (Reuters)
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Updated 26 June 2020

NCB and Samba mull mega merger as Saudi banking sector consolidates

NCB and Samba mull mega merger as Saudi banking sector consolidates
  • The creation of one of the largest lenders in the region could herald a wave of consolidation among banks in the Gulf
  • The shareholders of Samba Financial Group would receive between 0.736 and 0.787 newly issued shares of NCB in exchange for every share they hold in Samba

RIYADH: The Saudi National Commercial Bank (NCB) is exploring a deal to acquire Samba Financial Group in what could be the Kingdom’s biggest takeover this year.

The combined entity would control assets of some $214 billion.

NCB, the Kingdom’s largest bank by assets, said it had entered into a framework agreement with Samba Financial Group “to negotiate definitive and binding terms of a potential merger of NCB and Samba Financial Group.”

The shareholders of Samba Financial Group would receive between 0.736 and 0.787 newly issued shares of NCB in exchange for every share they hold in Samba Financial Group, according to details of the proposed deal published on the Tadawul on Thursday.

The collapse of oil prices and the spread of the coronavirus pandemic is expected to trigger a wave of consolidation in the Gulf banking sector as lenders look to cut costs in response to a rapid economic slowdown. The Kingdom’s central bank, the Saudi Arabian Monetary Authority, has already announced some $27 billion in stimulus measures to support banks.

Should the deal be completed as planned, it would value each Samba Financial Group share at between SR27.42 and SR29.32, which represents a premium of 19.2 percent to 27.5 percent to the closing Samba Financial Group share price on Wednesday.

Mazen Alsudairi, the head of research at Al Rajhi Capital, said that the merger would create one of the biggest lenders in the Middle East.

NCB has a market value of almost $30 billion, more than double that of Samba.

HIGHLIGHTS

  • Entity would control $214 billion in assets.
  • No involuntary job cuts expected.
  • Due diligence to take four months.

One advantage of the merger is that both banks have low loan-to-deposit ratios compared with their peers, said Alsudairi.

“Samba has a low loan-to-deposit — below the 80 percent average of banks, while NCB has 70 percent of free deposits — above the 40 percent average of banks. This merger if completed will create a new banking entity that has both high free-deposits and a low loan-to-deposit, that will help it to grow in the future.” He said that the enlarged bank would hold almost a quarter of the loans in the entire Saudi banking system.

The pair plan to conclude the due diligence process and sign a definitive agreement within about four months.

NCB does not expect the proposed merger, if completed, to result in the involuntary redundancy of employees, it said.

NCB has appointed J.P. Morgan Saudi Arabia Company as its financial adviser, and Abuhimed Alsheikh & Alhagbani Law Firm as its legal adviser.