Year's biggest bank merger sealed as Saudi rivals reach US$15b deal

Dubai

NATIONAL Commercial Bank, Saudi Arabia's largest lender by assets, agreed to buy rival Samba Financial Group for US$15 billion in the biggest banking takeover this year.

NCB will pay 28.45 riyals (S$10.30) for each Samba share, according to a statement on Sunday, valuing it at about 55.7 billion riyals. The kingdom's sovereign wealth fund, the biggest single shareholder in the two banks, will have the largest stake in the combined entity with 37.2 per cent.

The new bank will have total assets of more than US$220 billion, creating the Gulf region's third-largest lender. Its US$46 billion market capitalisation nearly matches that of Qatar National Bank QPSC, which is still the Middle East's biggest lender with about US$268 billion of assets.

Banks in the oil-rich Gulf have been combining as regional economies suffer the twin shocks of lower energy revenues and the global coronavirus pandemic. The Saudi consolidation also coincides with a long-awaited wave of banking mergers in Europe, where lenders are exploring tie-ups or have begun taking over smaller rivals.

"Under NCB's management, better value should be realised from Samba's over-capitalised assets," CI Capital analysts including Sara Boutros said in a note to clients. "The deal also provides NCB with a larger capacity to grow more aggressively, particularly in the corporate space, as the market stabilises and as lending opportunities emerge."

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Merging two major domestic banks is a key component of Crown Prince Mohammed bin Salman's "Vision 2030" initiative to diversify the Saudi economy away from oil by creating local champions in industries such as finance. Besides the Public Investment Fund, the largest shareholders in the combined NCB-Samba entity will include the Saudi Public Pension Agency, which will own 7.4 per cent, and the General Organisation for Social Insurance with a 5.8 per cent stake.

"Saudi Arabia is undergoing a historic transformation with Vision 2030," said NCB's current chairman, Saeed Al-Ghamdi. "Such a transformation requires a robust financial services sector, especially highly capitalised, resilient banks that can fund economic development, as well as support Saudi Arabia's trade and capital flows with the region and the rest of the world."

NCB will offer 0.739 new shares for each Samba share, at the lower end of the 0.736-0.787 ratio the banks set when they signed an initial framework agreement in June.

The offer is a 3.5 per cent premium to Samba's Oct 8 closing price of 27.50 riyals and about 24 per cent higher than the level the shares traded at before the talks were made public.

Saudi Arabia has almost 30 local and international lenders serving a population of more than 30 million people.

The combined bank's targeted cost synergy of 9 per cent is below regional peers, leaving room for an upside post integration. A better funding structure and an opportunity in cross-selling products should boost revenue by at least 2 per cent, according to Bloomberg Intelligence analyst Edmond Christou.

A new leadership will assume their new roles after the conclusion of the merger in the first half of 2021. BLOOMBERG