Saudi's Alawwal Bank reports 40 pct drop in quarterly profit

DUBAI, July 27 (Reuters) - Alawwal Bank, Saudi Arabia's oldest bank, reported a 40 percent fall in second-quarter net profit on Thursday as impairment charges weighed on the lender.

It was the worst performance so far for the quarter among major Saudi banks, which have reported mixed earnings.

The lender, which is 40 percent owned by Royal Bank of Scotland and is in merger talks with Saudi British Bank (SABB), made a profit of 322 million riyals ($86 million) in the three months through June, according to a bourse filing.

That was below analyst expectations and down from 540 million riyals in the corresponding quarter of 2016.

NCB Capital and EFG Hermes had forecast a quarterly profit of 369 million riyals and 368.6 million riyals respectively.

Alawwal, previously called Saudi Hollandi Bank, said its operating expenses jumped 48.4 percent due to an increase in impairment charges for credit losses, depreciation and amortisation, rent and premises-related charges.

The bank is in merger talks with fellow Saudi Arabian lender Saudi British Bank (SABB).

Sources told Reuters on May 29 that Alawwal had appointed U.S. investment bank JPMorgan (LSE: JPIU.L - news) to advise it on a proposed merger with SABB. ($1 = 3.7499 riyals) (Reporting By Tom Arnold; Editing by Susan Fenton)