HSBC, RBS to Discuss Potential Merger to Create 3rd Largest Lender in Saudi Arabia

For sale stakes in two Saudi banks pose risks and opportunities for buyers as Saudi Arabia pushes forward with massive economic and social reform plans.

One of those for sale stakes in Alawwal Bank may have found an interested buyer. HSBC Holdings Plc and Royal Bank of Scotland Group Plc’s Saudi Arabia ventures are exploring a potential merger to create the kingdom’s third-largest lender with $78 billion in assets, Bloomberg reports.

According to the report, Alawwal Bank, which is 40 percent owned by RBS, plans to start initial talks with HSBC’s Saudi British Bank, according to a statement on Saudi stock exchange website Tuesday. Both lenders are based in Riyadh, with HSBC owning 40 percent of SABB.

Alawwal Bank is also the oldest lender in the kingdom. The bank 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,” according to the London-based Financial Times.

The FT reports that RBS has been reducing its overseas exposure since being bailed out by the UK taxpayer during the global financial crisis.

Adding to RBS’s desire to sell its share in Alawwal, Credit Agricole SA is considering a sale of its 31 percent stake in Banque Saudi Fransi (BSF). As Bloomberg noted on Monday, control of the banks isn’t on offer, and that’s an issue for buyers.