What Al Rajhi Bank
Where Saudi Arabia (481 branches) and Malaysia (19 branches)
Since For over 50 years Al Rajhi has been servicing religious tourism with the provision of Islamic Financial services and money exchanges. In 1987 it was turned into a fully-fledged Islamic bank
Why Al Rajhi deserves commendation this year for its ability to navigate safely the through perilous waters of an international global recession as well as a domestic fraud scandal.
ww.alrajhibank.com.sa
Al Rajhi Bank, Saudi Arabia’s largest by some margin with its market cap of 27.9 billion USD (Samba is in second place with 11.1 billion USD) is a pioneering institution in many ways. As the largest Islamic banking group in the world, it has shown that banking excellence can be built around Shariah principles. As a bridge between modern financial demands and intrinsic Islamic values, the bank has clearly demonstrated progressiveness and modernity in embracing the use of technology to offer diverse products to meet its customer’s needs.
Headquartered in Riyadh, Al Rajhi Bank has played an integral part in the life of Saudi Arabia over the last 50 years, serving its citizens, financing its growth and contributing to the desert kingdom’s development. This year has proven a big test for Al Rajhi as the world’s banking sector was left reeling due to unchecked risk taking, yet the Saudi giant managed to come out relatively unscathed. Deposit rates in the kingdom may be at a historical low but, unlike in the UAE and Qatar, Saudi banks were able to manage their liquidity levels without governmental capital injections - SAMA, the Saudi banking regulator, has imposed strict liquidity (L/D ceiling at 85 per cent) and capital requirements (a minimum Basel-II–compliant CAR of 8 per cent).
Furthermore, even though the corporate-sector balance sheets weakened, Saudi banks are better positioned than their GCC peers with a net debt/equity ratio of 49.8 per cent in 2009. That is appreciably lower than those of the UAE, Kuwait and Qatar, which average around 75 to 100 per cent. Of all the Saudi banks, Al Rajhi’s capital adequacy remains the most comfortable at over 20 per cent. It also has the lowest funding costs at 0.46 per cent owing to its highest demand deposits ratio (84 per cent in 2009). Therefore Al Rajhi is still very much in a commanding position but this year’s other major story was the Algossaibi/ Saad Group affair that has left most Gulf banks reeling.
The absolute figures of the total debt owed have not been officially disclosed but the market is most worried about Samba’s exposure to the affair. According to local financial experts, Al Rajhi seems to have capably dodged the bullet on this one but with media estimates putting the total cost of writedowns at 22 billion USD, the saga will no doubt drag many banks down, both in the region and outside. In any case, at the time of going to press, sources told Bespoke that an agreement had been reached between Saad Group and the Saudi banks. If the news were to be true, it would be a significant confidence booster and investors would react positively to the Saudi banking sector as a whole.
In many ways it takes tough times to separate the good from the bad and Al Rajhi has shown its strength. With the highest profitability among banks in Saudi Arabia, Al Rajhi is still very much the player and with the best ROE and ROA in the world it is an shining example for modern Islamic Finance.
