Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed the ratings of Al Rajhi Banking & Investment Corporation (‘Al Rajhi’ or ‘ARB’), based in Riyadh, Saudi Arabia.
In view of the Bank’s sector-best performance in the areas of asset quality and profitability at all levels, the Financial Strength rating is maintained at ‘AA-.’
Ratings are constrained by a high volume of new non-performing Islamic financing facilities (NPIFFs) arising in 2011, the recent decline in net financing (interest) income (NFI) and the Bank’s generally tighter liquidity than its peers.
Supported by the same factors as for the Financial Strength rating, the Long-term and Short-term Foreign Currency ratings are affirmed at ‘AA-‘ and ‘A1,’ respectively, with both constrained by the sovereign rating. All ratings carry a ‘Stable’ Outlook.
Due to the Bank’s prominent position in the Saudi banking sector, official financial support is expected to be forthcoming in the unlikely event it is needed. Consequently, the Support level remains at ‘2.’
Al Rajhi enjoyed a particularly strong year in 2011, in which customer deposits rose at a robust pace, especially in the retail segment. The Bank deployed only part of these funds in an expanded IFF portfolio – mostly in the retail sector – continuing the ongoing trend of improving liquidity. Whilst they are improving, loan-based ratios remain somewhat higher than average. The Bank funds its large IFF portfolio from customer deposits, with little need for interbank borrowings.
Asset quality remains sound – the Bank’s NPIFF ratio is the sector’s lowest and its coverage the highest whilst, by any of those measurements, the support by free capital ranks the Bank’s asset quality the best in the sector. An unwelcome aspect, however, is the possibility of a future rise in the level of NPIFFs, as the addition of new NPIFFs in 2011 was somewhat large. The Bank’s CAR is the best in the eleven-bank peer group, but other capital ratios – in relation to total assets or to total IFFs – are somewhat below average. Nevertheless, the level of capital adds significant further support to the Bank’s NPIFF portfolio.
ARB has long been Saudi Arabia’s most profitable bank. While its sector-best operating profitability has been challenged of late, it remains the best in the peer group. Despite an uncharacteristic decline in NFI last year, operating profitability remained the best – assisted by strong growth in Fee and Other Income. Even after taking more IFF-loss provisions than was probably necessary, the Bank posted the Kingdom’s highest ROAA.
ARB’s origins date back more than 50 years, when Saleh Abdul Aziz Al Rajhi started a bullion arbitrage and money-changing house. Several family mergers produced Al-Rajhi Company for Currency Exchange and Commerce (ARCCEC), which operated under the principles of sharia and soon became the Kingdom’s leading money-changer by providing remittance services to expatriates. ARCCEC was issued a banking license as Al Rajhi Banking & Investment Corporation in 1987 and began operations in 1988 as Saudi Arabia’s first fully sharia-compliant bank. In 2006, the Bank re-branded itself as Al Rajhi Bank, while retaining its registered name as Al Rajhi Banking and Investment Corporation.
Whether by total capital or by total assets at year-end 2011, ARB ranks as the Kingdom’s second-largest bank, having moved up from third place in the previous year. On 31 December 2011 assets totaled SR221bn (a market share of about 15%), and ARB operated a network of 474 domestic and 22 foreign branches, as well as 140 Tahweel (remittance) Centers; the Bank employed 9,282 employees (2009: 8,257) at year-end 2011.
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