Mubasher: Moody’s Investors Service has affirmed the local and foreign currency deposit ratings of Saudi British Bank (SABB) at A1/P-1 and Alawwal Bank at A3/P-2.

The outlook on Alawwal's long-term deposit ratings was changed to positive, from stable, while the outlook on SABB's long-term deposit ratings was maintained at stable.

The banks have entered into a binding merger agreement, which remains subject to regulatory and shareholder approvals and is expected to be completed in the first half of 2019.

Upon completion, SABB will remain as the operating entity and all of the assets and liabilities of Alawwal will be transferred to SABB in exchange for new SABB shares issued to Alawwal's shareholders.

The merger upon completion will create the third largest bank in Saudi Arabia, with approximately SAR 268 billion or $71 billion in total assets, and provide some increased diversification and lending opportunities in a slow economic environment, the ratings agency said in a report on Wednesday.

It will also create medium-term potential for revenue and cost synergies. These strengths should offset integration risks and the absorption by SABB of Alawwal's loan portfolio, which has a higher proportion of problem loans, the report added.

The stable outlook on SABB's ratings balances both potential longer-term benefits from the merger against short-term implementation risks.

The affirmation of Alawwal's ratings and change of outlook to positive is driven by Moody's view that the merger will be beneficial for Alawwal's depositors as they will be transferred to SABB, a higher-rated entity.