M&A benefits to the Saudi banking sector
April 1 will be the first official legal step for the Kingdom’s newest bank, Saudi National Bank (SNB), which was created from the merger of the National Commercial Bank (NCB) and the Samba Financial Group (Samba).
SNB will be by far the largest bank in Saudi Arabia with more than SR896 billion ($239 billion) in total assets.
The new bank will create a preeminent financial institution with significant value creation potential for shareholders, customers and employees, support Vision 2030 and facilitate trade and capital flows with the region and the rest of the world.
It is worth noting that SNB not only will be the No. 1 bank in Saudi Arabia, with about 30 percent market share across all metrics, but it will benefit from the sharing of the best practices and the longstanding experience in the banking industry (locally and internationally) shared by both banks.
Ammar Al-Khudairy, the appointed chairman of SNB, said: “This is a historic milestone for the Saudi banking sector, which will now have a powerhouse that is truly a bank for all, that will unlock significant opportunities as a larger and exceptionally well-capitalized bank.”
Saeed Al-Ghamdi, the appointed CEO of the SNB, said: “The Saudi National Bank will deliver value, not just for our esteemed shareholders, customers and employees, but for the nation as a whole.”
Also, in March of this year, SABB and Alawwal banks announced the completion of a historic merger.
This is viewed as a transformational event for the Saudi banking sector, since it has created the third largest bank in the country with a combined asset of SR257 billion ($68.5 billion), SR168 billion ($44.8 billion) in customer loans, SR195 billion ($52 billion) in customer deposits and more than 1 million retail customers.
Lubna S. Olayan, chair of the merged bank, said: “We have combined two great banks, each with a rich history and legacy of playing key roles in the Kingdom’s development. Now our size, enhanced capabilities and fantastic talent will help us build on that history and legacy to become the bank of choice for a modern Saudi Arabia.
“We will be the best place to bank and the best place to work in the Kingdom, for a new generation of Saudi men and women and for the new era of development under Vision 2030.” It is worth noting that, prior to the merger of NCB and Samba and SABB and Alawwal bank, the banking sector in Saudi Arabia has not witnessed any mergers between any of the local banks since 1997, when it was decided to merge Saudi Cairo bank with United Saudi Commercial bank, with the latter later merged with Samba bank.
Despite the great benefits to the Saudi banking sector gained from the merger, there remains some concerns and apprehension among some financial analysts and economists regarding such mergers.
One of these concerns is related to the impact of the mergers on employees, as they could be subject to layoffs. Although I believe this is a valid concern, NCB and Samba banks have stated in their merger announcement that no involuntary staff redundancies are expected as a result of the merger and, likewise, SABB and Alawwal bank have stated the same.
Another concern is related to the potential monopoly that mergers would cause within the Kingdom’s banking sector. I do not believe that such concerns are valid, since the Saudi Central Bank (SAMA) has already granted 29 banking licenses so far and repeatedly expressed its willingness to grant more licenses to new banks, as long as they will add value to the Kingdom’s banking sectors and to its customers.
Despite the challenges attached to bank mergers, I believe that it will strengthen not only the merged banks’ financial positions and market share but the banking sector in total. This is because it will improve the sector’s economy of scale and place it in a better position to support the development needs of the national economy.
Also, I believe mergers between banks or non-banks will improve operational efficiency, since it will reduce redundancies. Furthermore, it will allow the merged banks to diversify their banking activities locally as well as internationally.
• Talat Zaki Hafiz is an economist, financial analyst and a board member of the Saudi Financial Association. Twitter: @TalatHafiz