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In today’s complex economic and market environment, businesses — including financial institutions — have to cope with challenges in order to survive, prosper and protect their market share from falling.
For these reasons and others, the Saudi British Bank (SABB) last month announced it had entered into a binding merger agreement with Alawwal Bank.
It is expected that, once the merger is completed, a number of economic benefits and advantages on both the macro and micro levels will be realized. The newly merged bank will become the third-largest in �������� behind only the National Commercial Bank (NCB) and Al-Rajhi Bank in terms of both value of assets and market value.
The new bank will also able to attract quality staff and knowledge in the banking industry and access liquidity from the market in the form of customer deposits and capital funds. Moreover, it will be able to access better and more efficient distribution facilities and channels that are often less expensive to operate.
The combined bank will be able to access a wider customer base, which will ultimately increase its market share. It will also provide unrivaled access to a global banking network that will facilitate the flow of investment capital into �������� and the growth of international trade, which is in line with the Kingdom’s ambitious Vision 2030 aims.
The merger is also expected to result in a number of economic benefits on a macro level, since it will create a new bank with total assets (on a pro-forma basis) worth about SR268 billion ($71 billion) and a stock market capitalization of approximately SR64.6 billion, which will place it in a leading market position with regard to the Kingdom’s financial market and corporate finance perspective.
Moreover, it is expected to be a very strong bank in connection with offering personal savings schemes, home ownership solutions and wealth management. Such advantages will ultimately reflect positively on the Saudi economy as a whole.
The combined bank is also expected to benefit from a more efficient platform by optimizing the infrastructure of both banks and having a greater scale of negotiating positions with suppliers. Finally, it is expected the new bank will be able to optimize its market value over time by leveraging on revenue synergies, cross-selling, increased customer penetration, and fundraising diversification.
However, despite the expected benefits to be realized once the merger is completed — during the first half of 2019 as stated in the announcement — there are still some legitimate concerns that exist in connection with this merger, as indicated in what is known as the “forward-looking statement,” which was issued along with the merger announcement. The statement indicated that the actual results of the merger could differ materially from those expressed or implied by the announcement due to the risk of uncertainty of many factors that could be beyond the combined bank’s control, such as significant unforeseen economic and market changes.
In my opinion, the biggest worry is the fate of the staff of each bank after the merger is completed and the probability that they will have to leave their roles due to redundant operations. However, what mitigates such worries is the fact the announcement stated that the merger of the two banks is subject to agreed contractual conditions that ensure business continuity and staff protection.
The statement confirmed: There will be no material adverse change in the respective financial conditions of SABB and Alawwal; the two banks will comply with certain key conduct of business requirements; and they have committed themselves to setting new standards in training and career development, aiming to build a reputation as a company where talented people are able to build exciting, challenging careers, while there will be no forced staff layoffs.

Talat Zaki Hafiz is an economist and financial analyst.