Flash Report / MENA

Proposed Saudi banking mega-merger could force competitors to react

  • NCB-Samba would be the third-largest bank in the MEA region and could act as a springboard for international expansion
  • Challenging environment (Covid-19, low oil prices and interest rates) and regional competition are likely key catalysts
  • Both banks have complementary strengths with scope for cost synergies, but announced terms favour Samba shareholders

One year after the SABB-Al Awwal merger was consummated, National Commercial Bank (also known as Al Ahli Bank) and Samba Financial Group have signalled their intention to merge. We think the motivations for such a transaction include the current difficult operating environment, and a desire to create a regional champion; other Saudi and regional banks may be forced to respond. However, as the aborted NCB-Riyad Bank alliance shows, the road ahead remains uncertain.

In our full report, available for Insights Pro subscribers, we highlight our thoughts regarding:

  • The transaction terms

  • The financial implications for both sets of shareholders

  • Why the merger is being proposed

  • What the new NCB-Samba would look like

  • Key challenges and concerns regarding the transaction

  • Which other combinations could follow

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Flash Report / Nigeria

Nigeria banks hit by another central bank debit; we see a pattern!

  • Debit comes days before the CBN’s FX auction, suggesting that the CBN is trying to limit the banks' FX demand
  • FCMB, UBA and FBNH continue to be the most vulnerable; although UBA was not hit by this recent debit
  • Cost of funds and lending costs are expected to rise on account of this, counteracting the MPR cut we saw last month
Nkemdilim Nwadialor @
Tellimer Research
23 June 2020

The Central Bank of Nigeria (CBN) is at it again. It has debited 26 banks a total of NGN216.1bn, attributed to the CRR (Cash Reserve Ratio) compliance requirement. Recall that two weeks ago, the CBN debited banks cNGN459.7bn for the same purpose.

This is the third CBN debit in 2020, bring the total CBN debits for the year to NGN2.08tn: 1) CRR and LDR infringements in April 2020 of NGN1.4tn; 2) another CRR debit of NGN460bn; and now 3) the most recent CRR debits of NGN216bn.

CBN penalties for Nigeria Banks so far this year

Our usual suspects FBNH and Zenith have been on the receiving end of all three central bank penalties in 2020. FBNH has had 4% of its deposits (using Q1 20 figures) debited YTD, while the figure is a bit higher for Zenith at 5%.

CBN debits also serving as quasi capital controls

This latest CRR debit comes days before the CBN’s foreign exchange auction (as with the last two CBN debits) which suggests a pattern to these otherwise spurious debits. Speaking with the banks, we get the sense that the CBN is trying to discourage them from making huge demands at the FX auctions, so by making their available balances smaller, they limit the banks’ ability to pressure the CBN on the FX front. A recent article by Business Day puts Nigeria’s FX backlog at US$7bn, which combined with failing reserves (now at US$36bn, down by US$9bn year to date) make a compelling argument for the banks’ claims of FX shortage. The Naira has since depreciated to NGN386.5 at the I&E window and NGN455 to the US dollar on the parallel market.

We maintain our Buy recommendations on seven of the eight Nigerian bank stocks in our coverage, the exception being FCMB where we have a Hold. We will be revisiting our earnings forecasts and equity valuation to incorporate the increased operating pressure and regulatory risks.

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