London — A merger of two Saudi banks, announced on Wednesday, would free Royal Bank of Scotland (RBS) of £4.9bn in assets it has been trying to shed for years and boost its core capital, said a source familiar with the matter. RBS has been trying to reduce its stake in Saudi Arabia’s Alawwal Bank as part of efforts to shrink its balance sheet following its state bailout during the 2008 financial crisis. The 18.6-billion riyal ($4.96bn) deal between Alawwal and larger rival Saudi British Bank (SABB) would reduce RBS’s stake in the merged group to about 5%, compared with a stake of about 15% in Alawwal, the source said. RBS should be able to reduce the capital it holds against the stake, hopefully later in 2018, the source said, freeing up enough funds to add about 40 basis points to RBS’s tier-one capital. Two other sources said it could be easier for RBS to find a buyer for the smaller stake it will hold after the deal. The boards of SABB and Alawwal agreed to the takeover on Wednes...

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