Saudi Gazette report

RIYADH — Saudi Arabia’s biggest lender National Commercial Bank (NCB) and Samba Financial Group have signed a binding agreement to create a combined entity with SR837 billion ($223 billion) in assets.

The deal will make NCB the Arab world’s third-biggest banking entity and the first in the Middle East in terms of net income. It will become a leading bank in the Middle East region with SR171 billion ($46 billion) in market capitalization.

At a local level, it will become the Kingdom’s largest bank, serving approximately 25 percent of the retail and wholesale banking market. The merged bank will leverage NCB and Samba’s leading retail banking franchises, serving 26 percent of the market in retail loans and 29 percent of the market in retail liabilities.

Upon completion of the merger, Samba’s shares will be transferred in favor of NCB as the latter will issue several new shares, according to which the shareholders of the Samba will receive 0.739 new NCB shares for every one share of Samba, NCB said in a bourse filing on Sunday.

The deal will be implemented through the merger of Samba into NCB, which will result in all of the assets and liabilities of Samba being transferred to NCB, the statement said.

Once the transaction is completed, only NCB will survive, while Samba will cease to exist. Its shares will be canceled and new shares in NCB will be issued to its shareholders.

Under the agreement, the headquarters of the new lender NCB will be transferred to Riyadh from Jeddah, with the appointment of the Chairman of the Board of Directors of Samba Ammar Alkhudairy as the CEO of NCB.

The current Chairman of the Board of Directors of NCB Saeed Al-Ghamdi will be appointed as the managing director of new entity NCB.

The two banks agreed to appoint a specialized consulting firm to provide advice regarding the merging bank’s name, logo and identity, which will be determined at a later time.

The merger will lead to the formation of a strong regional lender with assets of SR837 billion, and the new entity will become the largest bank in the Kingdom, with a market value of SR171 billion, while the value of its loans will reach SR468 billion.

The new bank’s half-yearly operating income would reach SR15 billion, equivalent to 30 percent of the market share, while the net income of the bank is expected to reach SR7 billion, representing 38 percent of the market share. The consolidated equity base of the bank is expected to reach SR120 billion.

The new entity will have a balanced global banking platform in all banking sectors, while its operating income will be from several sectors, including 41 percent from retail banking services; 25 percent from corporate banking services; 23 percent from treasury activities; six percent from international banking services; and five percent from financial markets.

The merged entity would be the third-largest lender in the Arab world with more than SR837 billion ($223 billion) in assets, representing market share of 32 percent, as of the end of June 2020.

It would have SR468 billion ($125 billion) in performing loans, representing a market share of 29 percent; around SR568 billion ($151 billion) in customer deposits, representing market share of 30 percent; a half year operating income of around SR15billion ($4 billion), representing a market share of 30 percent; and net income of around SR7 billion ($2 billion), representing a market share of 38 percent; and a combined equity base of SR120 billion ($32 billion).

Both NCB and Samba have government entities as significant shareholders. Upon completion of the merger, NCB’s existing shareholders will own 67.4 percent of the combined entity and Samba’s shareholders will own 32.6 percent of the merged bank.

The biggest shareholders of the new lender will be the Kingdom’s sovereign wealth fund, the Public Investment Fund, with a 37.2 percent stake. The Public Pension Agency will control 7.4 percent and the General Organization for Social Insurance will own 5.8 percent.

“This merger process marks the start of a new era for Saudi banking,” said Samba’s current Chairman Alkhudairy.

A few months ago, NCB and Samba announced the signing of a framework agreement to begin due diligence process, and negotiate definitive and binding terms of a possible merger.

NCB said “It entered into a Framework Agreement on June 25, 2020, with Samba Financial Group in order to begin a reciprocal due diligence process and to negotiate definitive and binding terms of a potential merger of NCB and Samba Financial Group.”