Tue, May 02, 2017 - Page 10 News List

HSBC’s, RBS’ Saudi ventures in talks

LOOKING FOR AN EXIT:The Royal Bank of Scotland has for years tried unsuccessfully to offload its Alawwal Bank holding, which is said to be worth about US$1.3 billion


HSBC Holdings PLC and Royal Bank of Scotland (RBS) Group PLC’s Saudi Arabia ventures are exploring a potential merger to create the kingdom’s third-largest lender with US$78 billion in assets.

Alawwal Bank, which is 40 percent owned by RBS, plans to start initial talks with HSBC’s Saudi British Bank (SABB), according to a statement on a Saudi stock exchange Web site.

Both lenders are based in Riyadh, with HSBC owning 40 percent of SABB.

The negotiations come as banks grapple with how to approach the Middle East’s biggest economy, which is embarking on an unprecedented diversification and privatization plan, but still blocks foreign control of local banks.

The combined entity would be the kingdom’s biggest after National Commercial Bank and Al Rajhi Bank and follows the merger of other regional lenders as they battle with sustained low oil prices, slower economic growth and a decline in asset quality.

“The current environment is ideal for mergers,” Arqaam Capital Ltd equity research director Jaap Meijer said by telephone. “Growth opportunities are limited, and banks need to cut costs to still deliver returns for shareholders.”

The combination would also make it easier for RBS to exit Saudi Arabia “as it will hold a smaller stake in a bigger, stronger bank.”

SABB shares had by 10:41am yesterday climbed 6.2 percent on the Saudi stock exchange in Riyadh trading, while Alawwal jumped 9.7 percent.

RBS has for years tried unsuccessfully to sell its Alawwal holding, which is worth about US$1.3 billion, according to data compiled by Bloomberg.

Any interest in the stake came from local or regional groups, according to analysts and people familiar with the transactions.

Credit Agricole SA, which is also considering the sale of its 31 percent stake in Banque Saudi Fransi, has failed to attract big-name global banks, people familiar with the matter said.

A deal would mark Saudi Arabia’s first banking industry merger for almost 20 years and could prompt other deals.

Samba Financial Group merged with United Saudi Bank in 1999, creating one of the largest regional financial institutions at the time, of which Citigroup owned 23 percent, according to Samba’s Web site.

Saudi Arabia is home to about 33 million people and 26 banks — 12 local and 14 foreign lenders.

“The history of mergers in the country is checkered as a few have tried and been unsuccessful,” Riyad Capital research director Muhammad Potrik said.

If this deal is successful it “could be a precursor to the start of a M&A [mergers and acquisitions] trend in the banking and other sectors such as petrochemicals, insurance and retail,” he said.

Elsewhere in the Gulf Cooperation Council, National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC last month completed a merger to create the United Arab Emirates’ largest bank with assets of US$180 billion. Qatar’s Masraf Al Rayan QSC, Barwa Bank QSC and International Bank of Qatar QSC last year announced plans for a three-way merger

Both Alawwal and SABB primarily lend to businesses, not consumers, and both reported that non-performing loans to the construction and building industry more than tripled last year.

Lending by Saudi banks to the private sector was expanding rapidly as recently as last year, but has since stalled. In February, annual growth slowed to 0.3 percent, the lowest figure since 2009.

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