12 Dec

Saudi Banks NCB, Riyad Scrap Merger Talks

Saudi Arabia’s NCB, Riyad Banks end talks to create a mega bank consisting of $200 billion assets, with differences over valuation potentially contributing to the collapse of year-long talks between the two.

National Commercial Bank ended talks with smaller rival Riyad Bank, according to regulatory filings, the details of which were not publicly available. The two sides couldn’t agree on a valuation, according to knowledgeable resources.

As well as the obstacle of pricing, “given the stark performance divergence of the two competing lenders,” other possible reasons for the end of the merger talks could have been “regulatory concerns from an anti-competitive angle due to the market share of the merged entity and differences in views on how to execute the merger,” Citigroup Inc., which has a neutral rating on both banks, said in a note late Monday.

Saudi Arabia -- where almost 30 local and international lenders serve more than 30 million people -- is exploring potential mergers to boost its financial services industry after the merger of Saudi British Bank and Alawwal Bank. The kingdom’s sovereign wealth fund, which owns stakes in some of the biggest lenders, has been weighing which institutions could be merged to increase scale and competition in the country.

New Management

Riyad Bank in February appointed its Chief Financial Officer Tareq Abdul Rahman Al Sadhan as the chief executive officer. The bank’s shares have gained 23% this year, while National Commercial Bank`s shared have declined by 2.4%. That compares with an increase of 4% for Saudi Arabia’s benchmark stock index.

“A lot has happened during this period,” said Joice Mathew, head of equity research at in Muscat, Oman. “Riyad under new management is growing at a much faster pace than its historical growth rate and also higher than its peers. Finding the correct valuation sweet spot might have been difficult.”

The Public Investment Fund, Saudi Arabia’s sovereign wealth fund, owns 44% of the National Commercial Bank and about 22% of Riyad Bank.

Elsewhere in the region, Abu Dhabi completed the merger of three of its banks earlier this year to create the region’s fifth-biggest lender following the combination of two of its biggest institutions. The United Arab Emirates has almost 50 banks catering to a population of less than 10 million.

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