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Saudi lender NCB weighs deal for US$15b rival Samba

[RIYADH] National Commercial Bank, Saudi Arabia's largest lender by assets, proposed to pay as much as US$15.6 billion to acquire rival Samba Financial Group in what could become the biggest banking takeover this year.

NCB offered to pay a premium of as much as 27.5 per cent to Samba's closing price on Wednesday, according to a statement on the Saudi stock exchange. NCB will issue as many as 1.54 billion new shares to Samba shareholders, it said. Bloomberg reported that the banks were exploring a merger earlier Thursday.

The high end of the valuation comes from multiplying 29.32 riyals (S$10.9) a share by Samba's outstanding shares, according to data compiled by Bloomberg. NCB doesn't expect the merger to result in any involuntary redundancy, it said.

Saudi Arabia has been taking steps to shore up its banking sector from the double whammy of the coronavirus shock and lower oil prices. Lenders in the world's largest oil exporter - already dealing with weak private sector loan growth - are expected to be hit hard as lockdown measures and lower government spending impact earnings and increase defaults.

The kingdom's central bank, the Saudi Arabian Monetary Authority, has unveiled almost US$27 billion in stimulus packages in recent months to support banks, help private sector employment and credit.

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The combined bank would have total assets of about US$210 billion, making it the third largest in the region behind Qatar National Bank QPSC and First Abu Dhabi Bank PJSC, according to data compiled by Bloomberg.

"Samba is likely to offer value to NCB with a strong franchise in large corporates and capital market operation," said Edmond Christou, a banking analyst at Bloomberg Intelligence. "Samba has one of the best capital and liquidity position, and it has consistently managed its credit quality prudentially and its cost of risk below the industry. For Samba, this could mean better position in retail space and closer ties to public sector financing."

Even before the coronavirus pandemic hit, the Middle East's financial-services industry was witnessing a wave of consolidation as banks sought ways to improve competitiveness and boost capital amid slowing economic growth. Some of the biggest lenders in the United Arab Emirates have combined their operations.

In Saudi Arabia, there are almost 30 local and international lenders serving a population of more than 30 million people. The potential deal comes more than half a year after NCB abandoned plans to merge with Riyad Bank, a deal that would have created a bank with about US$200 billion of assets.

HSBC Holdings' local affiliate Saudi British Bank completed its acquisition of Alawwal Bank, which was part-owned by Royal Bank of Scotland Group Plc, in June last year. The Public Investment Fund, the kingdom's sovereign wealth fund, has been weighing which other institutions could be merged to increase scale and competitiveness in the banking sector, Bloomberg News has reported.

The PIF is the largest shareholder in both NCB and Samba, according to data compiled by Bloomberg. It owns about 44 per cent of NCB and 23 per cent of Samba, the data show.


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