RIYADH/DUBAI - National Commercial Bank, Saudi Arabia's biggest lender, said on Thursday it had signed an initial agreement with smaller lender Samba Financial Group to create a combined entity with almost $214 billion in assets.
NCB's offer would value each Samba share at 27.42 to 29.32 riyals ($7.82), giving it a maximum market value of $15.63 billion, 27.5% above its market value of nearly $12.3 billion based on Wednesday's closing price.
Low oil prices and weak economic growth are pushing bank consolidation across the Gulf and if completed the merger would create one of the region's largest lenders by assets, ranking third after Qatar National Bank (QNB) and UAE's First Abu Dhabi Bank.
In a bourse filing, NCB said it had signed a framework agreement for a potential merger with Samba, confirming an earlier Reuters story on the merger talks.
NCB has a market value of nearly $30 billion, more than double that of Samba, which according to Refinitiv data is the kingdom's fourth largest lender by assets,
The two banks intend to conclude a reciprocal due diligence process and sign definitive agreements in relation to the proposed transaction within four months.
The merger would also create an entity with a lending portfolio worth 432 billion riyals, a source familiar with the matter said.
Saudi Arabia's sovereign wealth fund, the Public Investment Fund (PIF) is a major investor in both banks, with a stake of 44.29% in NCB and 22.91% in Samba. The Public Pension Agency and the General Organisation for Social Insurance are also substantial shareholders in both banks.
JPMorgan is advising NCB, while two sources told Reuters Morgan Stanley is advising Samba.
In 2018, Saudi British Bank (SABB) and smaller rival Alawwal Bank agreed to merge in the first major tie-up for the country's banking sector in recent times.
NCB and Riyad Bank ended merger talks last year, without giving a reason.
"We believe Samba is a more strategic fit than Riyad Bank and could present good cost synergies. In the current scenario of the possibility of high non-performing loans (NPA), the combined entity will have one of the lowest loan to deposit ratio (LDR) and highest investment book," said Mazen al-Sudairi, head of report at Al Rajhi Capital.
($1 = 3.7508 riyals)
(Additional reporting by Yousef Saba and Hadeel Al Sayegh; Editing by Alexander Smith, Kirsten Donovan and Daniel Wallis) ((firstname.lastname@example.org; +966558880260; Reuters Messaging: email@example.com))