How Saudi Arabia's $15.6bn Bank Merger Would Stack Up

The combination of National Commercial Bank and rival Samba Financial Group would create the third-largest lender in the Gulf Cooperation Council and a national champion to compete with regional players.

In what’s set to become the biggest banking takeover this year, Saudi Arabia’s largest lender by assets proposed to pay as much as $15.6 billion to acquire rival Samba.

The merged lender would have total assets of about $210 billion, making it the region’s largest behind Qatar National Bank QPSC and First Abu Dhabi Bank PJSC, according to data compiled by Bloomberg.

Saudi Arabia has almost 30 lenders catering to over 30 million people, compared with only about a dozen listed banks in the UK - a country of about 65 million people. The kingdom has been taking steps to shore up its banking sector from the double whammy of the coronavirus shock and lower oil prices.

The potential merger could “give NCB absolute control over the corporate market volumes in Saudi Arabia,” Citigroup analysts Rahul Bajaj and Ronit Ghose said in a note. The combined entity would hold 30% of local deposits.

Even before this year’s crisis, banks in the kingdom were merging to increase scale and competitiveness. The potential deal comes more than half a year after NCB abandoned plans to merge with Riyad Bank. It would follow Saudi British Bank’s acquisition of Alawwal Bank, which was part-owned by Royal Bank of Scotland Group Plc.

The NCB-Samba combination is also expected to increase cost saving for the banks. Citigroup upgraded Samba shares to buy, citing “multiple levers to synergies.”

An “improved balance sheet mix in terms of the loan book should help the new bank to position strongly in the market,” said Joice Mathew, head of equity research at United Securities in Oman.

“Despite the gloomy economic outlook, I think there is room to enhance efficiencies by balance sheet restructure, primarily in terms of the favorable loan-funding mix.”

The merger would create a banking giant in terms of loans with almost a 30% market share in the kingdom.