Business Portfolio Review

Treasury Group

Seeking new opportunities

The much-anticipated growth in oil activities resulting from the rising global demand for crude oil saw an increase in Saudi production in 2021, powering an expansion by the second quarter of the year. Non-oil and government activities too, began to record promising growth year-on-year following the second wave of COVID-19 that impacted the economy at the onset of 2021.

Against this backdrop, the main objective of Al Rajhi’s Treasury Group was to manage the Bank’s overall liquidity position while preserving and building on current yield, and increasing the efficiency of funding while retaining a robust mix of funding sources. Remaining on par with this strategy, Treasury Group continued to improve the yield of our Treasury portfolio by actively seeking opportunities in a volatile market, optimising the current portfolio and diversifying into high yielding assets. During 2021, the Bank competently averted market liquidity concerns by efficiently managing liquidity and funding requirements, ensuring the Group’s overall cost of funding was not jeopardised. Despite facing competition from new entrants and disruptive digital banking services, the Bank managed to increase its market share of the remittance business.

Al Rajhi Bank was also appointed as a Primary Dealer by the National Debt Management Centre (NDMC) in 2021, enabling the Bank to increase its share of the local debt market, and participate in the development of the financial sector in Saudi Arabia.

A truly diversified portfolio

Throughout the year under review, Treasury Group continued to build and implement dynamic strategies to push sales and grow market share in customer offerings. As Al Rajhi Bank continued to expand its portfolio to include a wide range of Shariah Compliant asset classes to enhance and diversify income streams, Treasury introduced multiple Islamic structured hedging solutions and yield enhancement products for the first time in the history of the Bank for both individual and commercial clients. This continued diversification of Treasury’s portfolio in terms of duration, credit rating and geographical distribution contributed to improving yield pickup while managing the Bank’s liquidity for the long term.

Stable growth in the face of challenges

The Treasury Group’s operating income showed a 93.5% sustainable growth rate during 2021, with 99.7% increase in net income. The Bank’s foreign exchange (FX) business recovered during the year under review to show a growth of 1% compared to last year. The Banknote business is yet to return to normalcy, as the growth rate of holiday and business travel activities remained subdued.

In November 2021, Moody’s Investors Service affirmed the long-term rating of Al Rajhi Bank and changed the outlook to stable from negative, factoring the solid liquidity and capital buffers as well as the strong asset quality maintained by the Bank.

Al Rajhi Treasury was awarded ‘Best Bank for Treasury Activities KSA 2021’ and ‘Best Forex Bank KSA 2021’ by Global Banking & Finance.

Leading in treasury tech

The Bank treated the restrictions of COVID-19 as an opportunity to expedite the migration of Treasury activities from physical channels to its Treasury Management System, providing remote accessibility among other preventive measures implemented across all banking operations to revolutionise the customer journey while eliminating risk of the coronavirus spread.

Treasury Group continued to upgrade and enhance system capabilities with a number of new modules implemented on the Treasury Management System, to enhance capabilities, increase efficiency and improve customer service. During the year under review, the system was upgraded to reflect the Bank’s transition to new risk free rates (RFR) from the previously used and now discontinued London Interbank Offered Rate (LIBOR) benchmark.

Following the success of the Bank’s physical gold trading business Gold- i , Treasury introduced Paper Gold – a digital gold wallet that enables all retail clients to trade allocated gold in any denomination over its ever-evolving mobile app. This digitalisation complemented by new features and services added to Gold- i saw a growth in the year-on-year bullion income.

Future outlook

Treasury Group will continue to upgrade the Treasury Management System with a number of new modules as part of the Bank’s continued focus on digitalisation and systems enhancements next year. With the successful rollout of the BOTF strategy in 2021, Treasury will continue to manage and optimise the balance sheet and enhance yield income by introducing more high quality assets and new investment products with attractive yields, while expanding its derivative and structured product suite across multiple asset classes. The Bank also aims to focus on growing its commercial client base by launching appealing new products, growing market share and optimising cross-selling opportunities across business verticals.