Mega-merger between Saudi Arabia’s Samba and NCB would be credit positive: Moody’s

Mega-merger between Saudi Arabia’s Samba and NCB would be credit positive: Moody’s

Saudi Arabia’s National Commercial Bank (NCB) and Samba Financial Group entered discussion for a potential merger last week.

Should the merger take place it would be credit positive for NCB, credit ratings agency Moody’s Investors Service said in a research note Wednesday.

The agency says the move would strengthen NCB’s capitalization and reinforce it as the biggest bank in Saudi Arabia in terms of its market share of systemwide assets.

“NCB would benefit from Samba’s strong corporate and investment banking franchise and well-established risk management practices,” the agency said in a note.

“The merged bank’s higher capital and status as Saudi Arabia’s largest domestic bank and third-largest in the Gulf Cooperation Council would position it to compete for the biggest local and regional projects,” Moody’s added.

The two banks are thought to complement each other in a potential merger, with NCB, a mass retail bank, benefiting from Samba’s upper-middle-income presence and well-established corporate banking activities.

Should the merger happen NCB, which would be the surviving entity, would likely absorb Samba’s creditors, Moody’s said, which “will benefit from NCB’s stronger franchise and balance sheet, with more diversified operations and income streams and higher pre-provision income because of NCB’s extensive retail operations.”

While the merger may effect profitability in the short term, in the long term synergies between the two banks will likely combine to support higher efficiency and profitability, Moody’s concluded.

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