HSBC's Saudi Arabia unit offered to pay a 29 percent premium to acquire RBS's local venture in a $5 billion stock deal.
In the preliminary agreement between RBS-backed Alawwal Bank and Saudi British Bank, Alawwal shareholders will receive 0.485 SABB shares. The deal values Alawwal's existing share capital at about 18.6 billion riyals ($5 billion).A merger would be KSA's first bank combination for almost 20 years and would make SABB the kingdom's third-biggest lender with assets of about $73 billion. International lenders are grappling with how to approach the Middle East's biggest economy, which is embarking on an unprecedented diversification and privatization plan, but still blocks foreign control of local banks.
SABB's agreement with Alawwal follows the combination of other regional banks as they battle with low oil prices, slower economic growth and a decline in asset quality. National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC merged last year while Qatar is in talks to combine three banks to create the country's largest shariah-compliant lender.
Credit Agricole SA last year agreed to sell half of its 32 percent stake in Banque Saudi Fransi to Prince Alwaleed bin Talal in a $1.54 billion deal.