SABB registers SAR 5.4 bln provisions on share price rise following Alawwal Bank’s acquisition: MD

The share price of Saudi British Bank (SABB) was SAR 31.90 when it entered into a legally binding deal to acquire Alawwal Bank in October 2018, the bank’s managing director, David Dew, told Al-Arabiya TV.

Meanwhile, the share price rose to SAR 41.70 upon closing the deal as a result of Saudi Arabia’s inclusion in MSCI Emerging Market index, Dew added.

He clarified that the increase in the share price by nearly SAR 10 resulted in a difference from the agreed price, which prompted the bank to register provisions of SAR 5.4 billion, as the binding price - on the accounting side - was SAR 41.70, which did not represent the fair value.

He further indicated that the losses recorded by the bank are one-off due to goodwill impairment following the acquisition of Alawwal Bank.

They do not represent losses arising from business or operations and have no effect on the bank's capital, liquidity, or funding base, Dew clarified, stressing that the adequacy rate of the first tranche of capital remained very strong over 18%.

The mechanism for calculating goodwill impairment required forecasting the future revenues and cash flows of the newly-acquired bank, and then deducting them to the current value, the MD stated.

He further stressed that the revenues came under greater pressure than it was because of COVID-19, which led the bank to deduct the net current value by about SAR 2 billion to be added to the goodwill impairment.

According to data compiled by Argaam, SABB swung to a net loss of SAR 5.896 billion in H1 2020, against a net profit of SAR 910 million in year-earlier period.

The bank said that excluding the one-off impact of the goodwill impairment, the net income before Zakat and income tax would increase by SAR 177 million due to higher operating income, higher net special commission income and lower provision for expected credit losses.