By Tom Arnold and Saeed Azhar
RIYADH, May 1 (Reuters) - Saudi Arabia's Alawwal Bank , partly owned by Royal Bank of Scotland, has roughly doubled its market share within retail banking thanks to its expansion in the last three years, despite a difficult economic environment, its chief executive said on Monday.
"Retail banking has been strong throughout," Soren Kring Nikolajsen told Reuters. "Our retail market share is around 3 to 5 percent. We have taken a fair bit of market share."
Banks in the kingdom have faced a sluggish economy in the past year or two, with lending slipping by 0.1 percent in March as companies and consumers stall investment decisions in the face of low oil prices and concern over government austerity policy.
Despite the difficult operating conditions, Alawwal Bank, which is in merger talks with Saudi British Bank , has expanded its branch network by 50 percent in the past three years to 69 and doubled its number of ATMs.
The retail bank now accounts for about 20 percent of the bank's business, roughly doubling over the same period.
Nikolajsen was speaking at the bank's new digital branch, a windowless open-plan site inside one of Riyadh's largest shopping malls, where customers can drink coffee while using terminals to conduct their online banking transactions.
"You have to find products for a young and tech-savvy population," he said, referring to the fact that around two thirds of the Saudi population is under the age of 30.
Internet banking is now used by around two thirds of retail customers, with usage growing by around 30 percent annually.
Speaking of the kingdom's overall banking market, Nikolajsen said flat loan growth for 2017 would be a "decent result."
"Activity right now is slower than we would like it to be generally across the board and that's a follow-through from the lower activity levels we saw at the back end of last year," he said.
Alawwal Bank and Saudi British Bank last week agreed to start talks about a merger that could create the kingdom's third biggest bank with assets of nearly $80 billion.
British banks are the biggest shareholders in both lenders with RBS having acquired a 40 percent stake in Alawwal Bank when it bought ABN AMRO in 2007. RBS has been trying sell the holding for a number of years as it retreats from international operations.
Meanwhile HSBC Holdings owns 40 percent of Saudi British Bank (SABB), which is the kingdom's sixth largest bank by assets.
Nikolajsen declined to comment on the merger talks or Alawwal Bank's outlook for 2017 because of the uncertainty over the negotiations. (Editing by Greg Mahlich)
© Reuters News 2017