Saudi Arabia: HSBC, RBS Saudi ventures in talks to form $78Bn bank

A combination of the Saudi Arabian ventures of HSBC and Royal Bank of Scotland will break an almost 20-year drought for mergers and acquisitions in the country’s banking industry that may spur more deals across the kingdom.

The potential merger of HSBC’s Saudi British Bank and Alawwal Bank comes as lenders in the Persian Gulf’s biggest economy grapple with slowing growth and uncertainty around a government plan to reduce its dependence on oil, which is weighing on demand for loans.

At the same time, the country’s overhaul presents an opportunity for banks to get in on major deals, like the listing of Saudi Arabian Oil, in what could be the largest-ever initial public offering.

“The current environment is ideal for mergers,” Jaap Meijer, head of equity research at Arqaam Capital, said. “Growth opportunities are limited, and banks need to cut costs to still deliver returns for shareholders.” The combination will also make it easier for RBS to exit Saudi Arabia “as it will hold a smaller stake in a bigger, stronger bank.”

Full Content: Bloomberg

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