Al-Rajhi Bank on track to meet year-end break-even target

AL-RAJHI Bank (M) Bhd, which started its operations in Malaysia almost two years ago, is on track to meet its target to break even by year-end. Its senior vice president for business intelligence, Mohd Najid Yahya, said the bank has started to make profit from May this year.
"We saw positive profit. Normally, a retail bank will take three to five years to break even but we only need two.
"Up to May, the numbers were looking good and we are working hard to achieve the target," he told Bernama in an interview. He, however, did not disclose the investment made by Al Rajhi to set up its operations in the country. The bank, which has over 60,000 clients todate, has expanded its reach throughout the country.
Started with only a branch in Jalan Ampang, Kuala Lumpur, it currently has 19 branches, with 14 in the Klang Valley and one each in Kota Bahru, Johor Bahru, Melaka, Penang and Kuching. Mohd Najid said the bank, under its five-year plan, planned to have at least 50 branches throughout the country. "We have been given licences to open 50 branches by Bank Negara Malaysia. By 2012, we will have all of them," he said. — Bernama (Appeared in The Malaysian Reserve, Aug 6, 2009, p6)

GIH on Al Rajhi

Al Rajhi Banking & Investment Corp's (RJHI) marginally improved results as compared to the sector performance signals encouraging outcome of the diversification strategy adopted by the bank in managing both its financing and investment portfolios.
The bank’s strict adherence to Shariah-compliant activities along with no exposure to the global mortgage market has largely facilitated it in escaping the severe repercussions, which could have arose if exposed to toxic financial assets.
Thus, better positioning the bank to be preferred by the market segment inclined towards Islamic over conventional finance. In addition, RJHI’s focus on overseas expansion will better enable the bank to more effectively diversify its income sources.
However, as witnessed across the sector, RJHI may not be able to escape the contraction in banking spreads (especially because the demand deposits constituting the majority of its funding base would allow less flexibility to adjust in a falling interest rate environment). Although the bank’s dominance in retail segment provides it with a chance of earning relatively better returns on its investment portfolio, it may not be in a very strong position to re-price its corporate investments. The slowdown in the economy also calls for greater attention to avoid deterioration in retail investments exposure. We believe that the bank’s near term focus will be towards better managing investment spreads rather than balance sheet growth.
Income Statement
RJHI’s profitability results posted an increase of 1.2% (from SR6.4bn in 2007 to SR6.5bn in 2008) as compared to the decline of 11.7% in 2007. The bank’s improved performance (attributable to income growth from both core banking and non-commission activities) was somewhat better than the listed Saudi banking sector that registered a marginal growth of 0.5% in FY08. The Saudi banks’ 2008 performance was mainly dampened by 4Q08 results that witnessed pressure due to setting aside of higher financial allocations by the banks in consideration to the decline in their investment portfolios.
The bank’s investments income (FY08) recorded an increase of 9.8% (from SR8.5bn in 2007 to SR9.4bn in 2008), while the investments expense during the period showed a rise of 7.6%. At times of the softening interest rates environment, RJHI’s successful management of its investments income and expenses led to an overall improved core banking performance posting an increase in net income from investments of 10% (from SR7.7bn in 2007 to SR8.4bn in 2008).
However, the higher impairment charge for investments and others in 2008 had a dampening impact on the net income from investments after PILs (provisions for investment losses), resulting in a decline of 0.8%. RJHI’s top-line performance was augmented by an increase (y-o-y) in non-commission income by 30.1% in FY08. The bank’s continued efforts to cope with the challenging capital market conditions (TASI decline of 56.5% in 2008), showed positive results as the net fees from banking services (supported by fees from share trading services, payment services, remittance business, etc) recorded an increase of 26.6% in FY08. It is noteworthy that an increase of other operating income by 265% (FY08: SR279.6mn) could be one-off, so even after taking that into account the bank’s non-commission income still showed an increase of 12.6% in FY08.
-- Extracted from an equity research report released in May 2009 by Global Investment House
(This story appeared in The Malaysian Reserve on May 18, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Al Rajhi Bank awarded second Malaysian licence

By Habhajan Singh
AL RAJHI Bank KSA, the largest bank in Saudi Arabia, has recently been awarded its second banking licence in Malaysia to enable the group to tap into the non-ringgit financing markets, close to three years after launching a full-fledged local Islamic banking subsidiary in the country.
The International Islamic Banking licence issued under the Malaysia International Islamic Financial Centre (MIFC) was granted to Al Rajhi Bank KSA to operate as a branch office, the bank said in a statement issued on April 16.
The new Malaysian branch, referred to as ARIIB, will serve as the banking group's regional Islamic investment banking base to support the growing demand for Islamic investment banking services in the region, the statement added.
It will also complement the franchise built by Al Rajhi Banking & Investment Corporation (Malaysia) Bhd, says ARIIB's principal officer and director of investment banking Leong See Meng.
ARIIB is probably the third bank to receive the international Islamic banking licence under the MIFC initiative, with the two others being Unicorn International Islamic Bank Malaysia Bhd and Indonesia's PT Bank Shariah Muamalat Indonesia Tbk.
Al Rajhi Bank, which started its operations in Malaysia in October 2006 and has 19 branches spread throughout the country, is allowed to operate similar to other Islamic banking outfits Maybank Islamic Bank Bhd, Hong Leong Islamic Bank Bhd and OCBC Al-Amin Bank Bhd.
The major difference is that Al Rajhi Malaysia, led by Ahmed Rehman as its chief executive officer, is a subsidiary of the Saudi bank, while the latest entity is a branch of the Saudi bank.
As a branch of the main bank, which bills itself as the largest Islamic bank in the world with total assets of 165 billion Saudi Arabian riyals (RM158.4 billion), ARIIB will be able to leverage on the parent's balance sheet when cutting large financing.
Over the past two years, Al Rajhi Bank KSA has achieved a leading position in the areas of project and structured finance, advisory, Islamic debt arranging and corporate finance as well as asset management and brokerage, the statement said.
It is primarily involved in the fields of project and structured finance, in which Al Rajhi has excelled, bringing innovation and Shariah structuring skills to project sponsors in the Middle East, it added.
In the same statement, Al Rajhi Bank Malaysia's Ahmed said the MIFC provides an excellent platform to provide Islamic investment banking services to cater to the growing sophistication demanded by top tier players in the region.
"ARIIB is looking at introducing Islamic structures and advisory services based on global best practices that appeal to Malaysian, regional and Middle Eastern customers and investors in recognition of Malaysia as a true international Islamic banking hub," he said.
ARIIB's focus will be on leveraging on the parent's capabilities in leverage finance, mergers and acquisition advisory, Islamic sukuk, corporate finance advisory, private equity, sales and distribution, equity capital markets, and structured finance.
The time is ripe for the group to broaden its proliferation into the region amid the slower global economic growth as ARIIB intends to nurture and promote Islamic investment banking as a viable alternative to conventional finance as governments and corporate in the region embark on their initiatives to move ahead of the challenging times, the statement said.
"We have the technical capability and more importantly, the human capital and the Islamic finance intellect to make this a reality through the MIFC platform", said Leong.

(This story appeared in The Malaysian Reserve on Apr 7, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Al Rajhi looks to widen customer reach

By Habhajan Singh

[In a new series called CEO ONE-ON-ONE, The Malaysian Reserve began its first in a series of one-on-one interviews with the CEOs of Islamic financial institutions with Al Rajhi Malaysia CEO Ahmed Rehman.]

IN the first two years of operations, Al Rajhi Banking & Investment Corporation (Malaysia) Bhd (Al Rajhi Malaysia) opened one branch after another. This activity is about to slow down this year as the subsidiary of the Saudi Arabia banking group eyes expansion through alternate channels.
This insight was one of the many that Al Rajhi Malaysia CEO Ahmed Rehman shared with The Malaysian Reserve in an exclusive interview recently.
"In retail, we have to increase our reach to customers. There is no debate on that. That can come in a variety of ways, including the increase of branches. "This year, we will perhaps see more of alternate channels like ATMs. It's a more efficient way of reaching a customer compared to the brick and mortar approach. Our emphasis this year will be more on alternate channels," he said. One of the 17 Islamic banks including Maybank Islamic Bhd and Kuwait Finance House (Malaysia) Bhd, licensed by Bank Negara Malaysia (BNM), its parent in Saudi Arabia represents itself as being the largest Islamic banking group in the world.

How did Al Rajhi perform in Malaysia last year?
It was our second year of full operations. We have now completely built up our full infrastructure. There will always be further developments, from a busines as usual perspective, rather than a rush to get to a minimum scale platform. We have arrived at that minimum scale platform. I'm referring to a platform for retail business, a network of branches that you can justify from a retail business perspective. You cannot be a two-branch operation and say I'm in the retail business.

What about your balance sheet position?
We have built up a minimum scale balance sheet. It has grown fairly aggresively. It has gone fairly geomatrically in terms of growth in a short period of time. It is important to grow geomatrically as you need a certain amount of scale to be able to conduct your business and have a certain amount of reach. We have arrived at that.

Where do you see your growth coming from?
Obviously, retail is our key engine. We will continue to drive on that front.

What kind of alternate channels are you looking at?
It will be ATMs, the Internet, SMS banking, these kinds of areas.

[FOR THE FULL INTERVIEW, PLEASE EMAIL TO habhajan.singh@gmail.com]

(This story appeared in The Malaysian Reserve on Mar 2, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Al Rajhi Malaysia to raise capital to RM1b

By Habhajan Singh
Al Rajhi Banking & Investment Corporation (Malaysia) Bhd (Al Rajhi Malaysia), the first overseas subsidiary of Saudi Arabia's largest bank, has increased its paid up capital to RM1 billion from RM600 million, in a move to continue with its expansion plans.
Al Rajhi Malaysia CEO Ahmed Rehman said Saudi regulators had last week given the green light to its parent bank to inject an additional RM400 million in capital into its Malaysian operation, which is now 19 branchstrong.
"As we are growing aggresively, we need the capital to support that balance sheet," Ahmed said. He added that RM1 billion in capital for an Islamic bank is "pretty decent" in this region.
With the latest capital injection, Al Rajhi Malaysia will be able to maintain its growth path after launching a flurry of branch expansions and an aggressive advert ising campaign when it began operations here in 2006.
"We have built up a minimum scale of the balance sheet. It has grown fairly aggresively," Ahmed added.
For the financial year ended Dec 31, 2007, Al Rajhi Malaysia's assets totalled RM2.5 billion, up from RM291 million the year before.
As at the end of the first three months of 2008, the bank's total assets stood at RM3.8 billion.
"Our 2008 numbers are not out yet, but you can expect us to double that figure (of total assets). It has gone fairly geomatrically in terms of growth in a short period of time.
"It is important to grow geomatrically as you need a certain amount of scale to be able to conduct your business and have a certain amount of reach. We have arrived at that," Ahmed said.
The bank's total asset size still has much catching up to do when compared to Maybank Islamic Bhd. Maybank Islamic, the nation's largest Islamic bank, was set-up in January last year, but had begun operations via its Islamic window since the 1990s.
For the financial year ended June 30, 2008, the Malayan Banking Bhd subsidiary had RM26.9 billion in total assets.
For the first three quarters ended Sept 30, 2008, Al Rajhi Malaysia reported a net loss of RM52.69 million but had already posted a total net income of RM37.04 million.
(This story appeared in The Malaysian Reserve on Feb 3, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)