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Saudi Arabia’s Alawwal Bank said it had opened initial merger talks with HSBC-affiliate Saudi British Bank as interest in banking consolidation gathers pace amid a sustained period of low oil prices.
Alawwal Bank, the oldest lender in the kingdom partly owned by the Royal Bank of Scotland, said in a regulatory filing on the stock exchange that the process with SABB “does not necessarily mean that the merger will take place between the two parties.”
RBS, which has been reducing its overseas exposure since being bailed out by the UK taxpayer during the global financial crisis, has been looking to sell its 40 per cent stake in Alawwal Bank.
Lenders across the Gulf have been hit by a liquidity crunch as oil prices collapsed in 2014, with governments and state-related companies drawing down their deposits in lenders.
The resulting economic slump has also caused non-performing loans to increase, damaging profitability.
Banks have been considering mergers as a means to boost efficiency and cut costs and sustain their financial stability through the low oil price slump.
The National Bank of Abu Dhabi and First Gulf Bank, also based in the capital of the United Arab Emirates, earlier this month finalised their merger under the new brand “First Abu Dhabi Bank.”
But merging institutions that have varied shareholdings and corporate cultures can also prove tricky.
Bank Dhofar of Oman called off merger talks last year with smaller rival Bank Sohar.
Known as Saudi Hollandi Bank until a rebranding exercise last year, Alawwal opened in Saudi Arabia 1926, operating as a de facto central bank.
Saudi British Bank took over from the British Bank of the Middle East, which traces its history in the kingdom back to the 1950s.