Saudi Arabia's NCB, Riyad Bank pull plug on merger plan

RIYADH (Reuters) - Saudi Arabia’s biggest lender by assets, National Commercial Bank (NCB) and Riyad Bank, the kingdom’s fourth largest, said on Monday they had ended merger talks, without giving a reason.

FILE PHOTO: Cars drive past the Kingdom Centre Tower in Riyadh, Saudi Arabia, January 30, 2018. REUTERS/Faisal Al Nasser

“The boards of both banks have decided to end preliminary merger talks and not to continue with the merger study,” the two said in separate stock exchange filings.

The merger was expected to create a combined bank holding $183 billion in assets and to further extend NCB’s lead over its closest rivals, including Al Rajhi Bank, by boosting its assets by almost a third to 685 billion riyals.

Consolidation has increased in Saudi Arabia in the past two years as profit margins have been squeezed by lower government and consumer spending in the face of weak oil prices.

NCB’s assets totaled 498 billion riyals ($133 billion) as of Sept. 30, while Riyad Bank’s assets were 250.6 billion.

The kingdom’s sovereign wealth fund, Public Investment Fund (PIF), is a common shareholder, with 44.2% at NCB and 21.7% of Riyad, which analysts said would have helped the tie up.

Saudi Arabia’s largest pension fund, General Organization of Social Insurance (GOSI), is also a common shareholder in NCB and Riyad, holding 5.2% and 16.7% respectively.

Riyad Bank, which had previously picked Goldman Sachs GS.N to advise on the merger, said in a statement it will continue to boost its competitive position.

Shares of Riyad closed 1.5% higher, outperforming the Saudi index which added 1.1%. NCB shares gained 0.7% at session close.

Bank mergers are gripping the Gulf region, after two of the biggest banks in the United Arab Emirates linked up to create First Abu Dhabi Bank FAB.AD.

And in June, Saudi British Bank (SABB) 1060.SE and its smaller rival Alawwal Bank 1040.SE created the kingdom's third-biggest lender in the first major tie-up for the country's banking sector in recent times.

Reporting by Marwa Rashad; Editing by Giles Elgood and Alexander Smith