After 12 months of talks that would have produced a bank with $200 billion in assets, Saudi Arabia's largest lender scrapped plans to merge with a local rival.
National Commercial Bank ended talks with the smaller competitor Riyad Bank after the two sides were unable to agree on their valuation, according to a person with knowledge of the agreement who asked not to be identified. The banks did not say why their boards ended discussions in a statement on Monday.
Saudi Arabia - where nearly 30 local and international lenders serve over 30 million people - is considering possible mergers to improve its financial services following the combination of Saudi British Bank and Alawwal Bank.
The sovereign wealth fund of the kingdom, which holds shares in some of the largest lenders, has weighed that banks could be combined to increase size and competitiveness.
Mergers & Acquisitions
In February, Riyad Bank named it's Chief Financial Officer Tareq Abdul Rahman Al Sadhan as chief executive officer. The bank's shares this year rose 24 percent, while the National Commercial Bank declined 2.5 percent. That compares with a 4 percent increase in the benchmark stock index for Saudi Arabia.
"During this time, a lot has happened," Joice Mathew, head of equity research at United Securities in Muscat, Oman, said. "Under new management, Riyadh is growing much faster than its average rate of growth and higher than its peers," Mathew added.
Earlier this year, Abu Dhabi completed the merger of three banks to create the fifth-largest lender in the area following the consolidation of two of its largest institutions.
According to Bloomberg, the end of the NCB and Riyad Bank merger talks "is no surprise to us as Riyad has been fixing inefficiencies, moving to a new headquarters and following a plan that has been generating a higher return on equity than the industry since the first quarter."
Competitive Stance
In contrast, Bloomberg added, transaction synergies are unlikely to have been fast, distracting NCB from its growth trajectory and undermining its risk profile.
The Public Investment Fund, Saudi Arabia's sovereign wealth fund, owns 45 percent of the National Commercial Bank and about 22 percent of Riyad Bank.
Riyad Bank, which had previously chosen Goldman Sachs to advise on the deal, said it would continue to improve its competitive position in a statement.
Riyad's shares finished 1.4 percent higher, outperforming the Saudi market by 1.2 percent. At session ending, NCB shares gained 0.8 percent.
Bank mergers are gripping the Gulf region after the formation of the First Abu Dhabi Bank by two of the largest financial institutions in the United Arab Emirates.
