Saudi British Bank (SABB) and Alawwal Bank have approved the signing of an agreement to merge their operations to form a new combined banking entity in Saudi Arabia.

The board of directors of both the banks agreed to sign the merger agreement that will create the country’s third largest bank with around $71bn in assets.

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In May this year, both the banks signed a preliminary and non-binding deal for merger through a share exchange ratio.

SABB Chairman Khaled Suleiman Olayan said: “The combination of SABB and Alawwal bank will create a powerful banking franchise ready to fuel growth in the Kingdom.

“As Vision 2030 transforms Saudi Arabia, our own transformation will ensure our customers capture the opportunities of a more diverse, accessible and investible Saudi economy.

“The new bank will be a leader in responsible lending and will set new standards for financial awareness and literacy.”

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Following the merger, the new bank is expected to have a better foothold in corporate banking, cash management, foreign exchange and trade finance along with a strong retail franchise.

Under the preliminary deal signed in May, Alawwal bank shareholders would receive 0.485 SABB shares for each share, valuing the overall transaction nearly $5bn.

After completion, SABB shareholders will hold 73% of the combined unit, while Alawwal’s shareholders will own the remaining 27%, on a fully diluted basis.

In a statement, Alawwal bank said that there will be no involuntary staff redundancies due to this merger.

Both the banks will continue to operate as separate and independent entities till the merger is complete with no impact on normal banking operations, the statement added.

The transaction is expected to be completed in the first half of 2019, subject to shareholder and regulatory approvals.