Saudi’s Biggest Bank Abandons Plan to Create $200 Billion Lender

Saudi man counting thousands Saudi Riyal (500 Saudi Riyals)

(Bloomberg) –Saudi Arabia’s biggest lender scrapped plans to merge with a local rival following a year of talks that would have created a bank with $200 billion in assets.

National Commercial Bank ended talks with smaller competitor Riyad Bank after the two sides couldn’t agree on its valuation, according to a person with knowledge of the deal, who asked not to be identified because the matter is private. In a statement Monday, the banks didn’t say why their boards terminated discussions.

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 combination 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 banks could be merged to increase scale and competition.

New Management

Riyad Bank in February appointed its Chief Financial Officer Tareq Abdul Rahman Al Sadhan to the role of chief executive officer. The bank’s shares have gained 23% this year, while National Commercial Bank has declined 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 United Securities 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.”

Elsewhere, Abu Dhabi completed the merger of three of its banks earlier this year to create the region’s fifth-biggest lender following the combination two of its biggest institutions.

What Bloomberg Intelligence Says:

The end of NCB and Riyad Bank merger talks isn’t a surprise to us, as Riyad has been resolving inefficiencies, moved to a new head office and is pursuing a strategy that’s delivering ROE higher than the industry since 1Q. Moreover, deal synergies likely wouldn’t have been quick and could have distracted NCB from its growth trajectory and weakened its risk profile.

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

–With assistance from Archana Narayanan.