NCB and Riyad Bank contemplate merger
- 16th, January, 2019
Saudi Arabia's National Commercial Bank (NCB) is in merger talks with one of the Kingdom's other big banks, Riyad Bank. NCB is Saudi Arabia's biggest bank and Riyad Bank is the fourth biggest, when ranked by end-2017 shareholders' equity.
If talks move forward, a merger is likely to take at least a year to complete, judging by the length of time it has been taking Saudi British Bank and Alawwal Bank to agree and implement their merger (which is due to be completed early this year). The merger of National Bank of Abu Dhabi (NBAD) and First Gulf Bank, to form First Abu Dhabi Bank, also took well over a year.
NCB is the bigger bank, with market capitalisation more than double that of Riyad, and balance sheet indicators also significantly greater. Both banks have the same credit ratings from the three major credit rating agencies (although Moody's notches Riyad down by one grade for deposits).
A table of figures is attached below that compares various features of the two banks.
Saudi government agencies hold significant stakes in both banks: 64.55% in the case of NCB and 47.74 in the case of Riyad. In the context of Saudi government efforts to improve efficiency and the use of resources, putting the two banks together therefore makes sense. (The government of Abu Dhabi held big stakes in NBAD and First Gulf Bank, and that was an important reason for merging the two.)
One important difference between NCB and Riyad is their approach to Islamic Finance. When NCB held its IPO in 2014, questions raised by some Shari'ah scholars over whether Muslims should invest in a bank that conducted interest-based business forced NCB to commit to make all of its operations Shari'ah-compliant within the following few years (although a majority of its operations were already Shari'ah compliant). NCB's 2017 annual report notes that 85% of its net financing was in the form of Islamic products. A similar note in Riyad Bank's 2017 annual report gives a figure of 55%.
Neither bank has a big overseas network but Riyad Bank has a well-established subsidiary in London. NCB closed its office in London many years ago. On the other hand, NCB has a sizeable in Turkey. Both have offices in Singapore. NCB has long-established wholesale operations in Bahrain.
There are 12 locally incorporated banks in Saudi Arabia. This will fall to 11 after the Saudi British/Alawwal merger. There is an analysis of recent changes in Saudi banking on page 8 of the September 2018 edition of Arab Banker magazine. (See the Magazine Tab on this website or click here.)