The trend toward consolidation in Saudi Arabia’s banking system appears irresistible, whatever the post-pandemic future brings. That is a good thing. The most recent manifestation is the merger between National Commercial Bank (NCB), the Kingdom’s biggest, and Samba Financial Group, the fourth-largest lender. The combined entity would be by far the biggest bank in Saudi Arabia, challenging for the top slot in the regional bank rankings. NCB is the grandee of the Saudi banking scene, tracing its origins back to 1953, when a lot of the Kingdom’s business was banked by foreign institutions. A couple of years later, Citibank, the American financial giant, opened its first branch in the Kingdom, and expanded until in 1980 the government decided Saudi banks should be owned mainly by Saudis. Samba, originally the Saudi American Bank, was the result of that move toward national control. Citi retained a big stake until the early 2000s, when it sold out of operations in the Kingdom completely. But Citi never entirely went away, and in 2018 — with the economic transformation of Vision 2030 underway — moved back full time with a new Riyadh office. But the NCB-Samba merger is more than a tidy-up of historical loose ends. It creates a true national champion in the Saudi banking industry, with roughly one-third of all banking assets, valued at more than $200 billion and at least double its nearest rival, as well as a Kingdom-wide retail network. The timing of the merger might suggest a reaction to the economic pressures of the COVID-19 crisis, and it is true that banks in the Kingdom felt the heat from some ratings agencies. But S&P recently judged Saudi banks to be the most resilient in the region in the face of the economic and financial pressures of the pandemic. Multibillion-dollar injections of liquidity into the banking system by the Saudi Arabian Monetary Authority (SAMA) have only enhanced that resilience. Rather, the NCB-Samba merger should be seen as a continuation, and the biggest example yet, of a trend that has been underway for the past three years. A more efficient and dynamic financial industry is one of the targets of the Vision 2030 strategy and reducing the number of banks is a precondition for achieving that. Putting together two of the most profitable and best-capitalized banks in the Kingdom can only help speed up the drive for financial efficiency. The template for banking mergers was the link-up between Alawwal and Saudi British Bank (SABB) which was agreed upon last year after a long gestation period during which regulators and other stakeholders examined the deal in minutiae. There was a strong foreign flavor to that deal too, with HSBC and RBC of the UK on opposite sides of the negotiating table as shareholders in Alawwal and SABB. The NCB-Samba merger will likely be on a faster timescale. Once details of the all-share deal are agreed — and there appears little that remains to be negotiated — it is expected the merger will be completed within four months. As the bigger party in the merger, NCB is leading the transaction with an offer of shares that represents a premium of up to 27 percent over Samba’s share price before the deal was announced last week. It should all be pretty straightforward, although banking mergers can be tricky to negotiate in the final stages. NCB last year pulled out of talks with Riyad Bank, after fairly detailed discussions, without giving a reason. More unanimity might be expected this time, not least because of the position of the Saudi Public Investment Fund as a big shareholder in both NCB and Samba. Having the biggest financial institution in the Kingdom as an interested arbiter in the proposed merger will probably help concentrate minds. As to whether the deal will accelerate the trend toward merger, that remains to be seen. One senior banker said that while it might not immediately trigger the widely expected wave of consolidation, it would certainly trigger some serious thought about it. • Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News" point-of-view