Saudi British and Alawwal merger will create third biggest Saudi bank

Saudi British and Alawwal merger will create third biggest Saudi bank

A year ago, Saudi British Bank and Alawwal Bank announced plans to merge. On 16 May, they announced an agreeement to do so, although that agreement remained 'non-binding'. If the merger is completed, the new bank is expected to become the third biggest in the Kingdom, behind National Commercial Bank and al-Rajhi, but ahead of Samba Financial Group.

Sources have cited the difficulty of executing bank mergers in Saudi Arabia and concerns over the impact of last year's 'anti-corruption' crackdown as reasons why the merger is taking so long to finalise.

A major factor behind the merger is Royal Bank of Scotland's desire to sell its stake in Alawwal that it acquired through the purchase, with Santander and Fortis, of ABN Amro Bank in 2007. ABN Amro held a 40% stake in Alawwal, which at that time was named Saudi Hollandi Bank. The Tadawul (Saudi Stock Exchange) website currently shows Royal Bank of Scotland holding a 40% stake in Alawwal. Press reports have cited Royal Bank of Scotland sources saying that the merger will reduce Alawwal-related risk-weighted assets on the bank's  balance sheet to about $1bn from about $6bn. Royal Bank of Scotland is undertaking a long-term deleveraging programme to reduce risk-weighted assets in order to facilitate its privatisation by the British government, which acquired the bank at the height of the global financial crisis.

Alawwal was the tenth largest of the 12 Saudi commercial banks at the end of 2017, when ranked by equity. Saudi British Bank was the fifth biggest. HSBC holds 40% of Saudi British. 

Mergers and acquisitions have been rare in Saudi banking in recent years, although the landscape has been changing as a result of the licensing of new banks and the issuing of branch licences. The last merger was in 1999 when United Saudi Commercial Bank was taken over by the much larger Saudi American Bank (now Samba Financial Group). However, new banks Bank Albilad and Alinma Bank began operations in 2005 and 2008 and last year Gulf International Bank was awarded a commercial banking license. Although GIB is headquartered in Bahrain it is almost wholly-owned by the Saudi government. The Saudi authorities have shown more willingness to award branch licenses to overseas banks in recent years. For example, First Abu Dhabi Bank is expected to open branches in the Kingdom later this year.