Subsidiaries and International Branches

With the financial market gaining stability towards the second half of the year under review, Al Rajhi Capital (ARC) – the largest broker in the Kingdom serving retail and high-net-worth individuals as well as institutional and corporate investors, continued to effectively roll out its 2023 Corporate Strategy.

Closely harmonised with that of its parent company Al Rajhi Bank, ARC’s 2023 Corporate Strategy remained on path to achieve set targets in line with the Financial Sector Development Program (FSDP) under Vision 2030, maximising economic and market synergies. The strategy aims to build a robust and sustainable institution enabled by the latest digital technologies to meet the expectations of its stakeholders, generate profitable growth for shareholders, and support the post-COVID recovery of the national economy.

ARC’s key strategic objectives for the year under review were to maintain its leading brokerage status, scaling up its asset management business, solidifying its real estate market prominence, and diversifying its proprietary investments by defining the desired risk appetite. ARC also focused on empowering its strategic enablers of technology and human capital, further elevating customer satisfaction levels to an unrivalled benchmark.

Establishing a strong market leadership position

ARC continued to maintain its leadership status in brokerage during the year under review as market share surpassed 19.4% in terms of trading volumes, a year-on-year increase of more than 1%. Over 90% of the trading was carried out on electronic platforms.

ARC also continued to scale up asset management and establish its leadership status in real estate investment in 2021; Al Rajhi REIT – the Company’s first Real Estate Investment Traded Fund - maintained its dividend distribution levels for unit holders, and contributed to ARC surpassing SAR 60 Bn. in assets under management, an increase of 15% from the previous year. ARC’s real estate vertical also established an advisory relationship with the real estate and property management arm of the Bank – Tuder, drawing from decades of market expertise to offer investors more diversified and innovative real estate solutions.

All equity funds outperformed their respective benchmarks for the year under review; the Al Rajhi Saudi Equity Fund performance for 2021 was 48.6%, outperforming its benchmark by 11.3%. The performance of the Al Rajhi GCC Equity Fund was 48.9%, outperforming its corresponding benchmarks by 13.1%. Most notably, the Multi Asset Growth Fund performance was at 22.2%, outperforming its benchmark by 5.5%. In the second quarter of 2021, a successful public offering of the Al Rajhi Freestyle Saudi Equity Fund saw a return rate of over 7% within a month from fund inception. ARC launched the new Advanced Murabaha Private Fund during the first quarter of 2021.

Maintaining a dominant presence in capital markets

Significant efforts were made to build capacity and develop team proficiencies during the year under review to launch ARC’s investment banking franchise. As a result, multiple deals were pursued across both debt and equity capital markets.

ARC was appointed as an active bookrunner in Saudi Arabian oil giant Aramco’s USD 6 Bn. Sukuk, the largest ever corporate US dollar-denominated Sukuk recorded globally. The company acted as a joint-lead manager in the National Debt Management Centre local Sukuk exchange, and as a passive joint-lead manager in the USD 2 Bn. Sukuk issuance for the Kingdom of Saudi Arabia. ARC was the only local and regional investment bank appointed in the transaction. The Company acted as a joint-lead manager in Rawabi Holding Company’s latest Sukuk issuance in 2021, and was also appointed by one of the Kingdom’s largest listed companies for their planned Sukuk issuance.

Appointed as a financial advisor, lead manager, and underwriter for the IPO of Al Masane AL Kobra Mining Co. (AMAK) in the main equity market.

In August 2021, ARC entered into a Memorandum of Understanding (MoU) with MIS (Al Moammar Information Systems) – the first public listed IT company in KSA, to setup and manage a Private Fund to invest in technology and Healthcare with government, semi-government and high-end private sectors across the kingdom.

ARC’s exceptional performance in 2021 earned the Company a number of awards; ‘Outstanding Performance – Equities Manager of the Year’, ‘Asset Manager of the Year’ and ‘Shariah Fund Manager of the Year’ from the Global Investor Group; The Al Rajhi Multi Asset Conservative Fund won for Best Fund Over 5 Years - Mixed Asset Conservative at the Refinitiv Lipper Fund Awards, where Al Rajhi GCC Equity Fund was also recognised as Best Fund Over 3 Years and Best Fund Over 5 Years in the Equity GCC category.

Pioneers in the brokerage landscape

ARC became the first brokerage in KSA to enable distribution of public mutual funds online via Al Rajhi Bank’s online banking platform. Another pioneering initiative, qualified investors are now able to participate electronically in Nomu IPOs.

 

 

 

The real estate and property management arm of the Bank previously operating as Al Rajhi Development (ARD), transitioned into its newly registered name Tuder during the year under review. The company repositioned itself as a provider of real estate engineering and consulting services, facility management, real estate documentation and registration services as well as evaluation of real estate and property.

Tuder rolled out the rebranding initiative across all Al Rajhi branches in line with the Bank’s new brand identity launch in 2021. This comprehensive operation entailed applying the new brand identity design across all Al Rajhi branches according to its functionality under flagship, day-to-day or on-the-go. For the year under review, Tuder renovated 20 branches, relocated 14 outlets and opened 15 newly designed and branded branches to the public.

The company elevated its operational efficiencies by introducing Enterprise Resource Planning (ERP) software in 2021, automating the real estate asset management process from end-to-end. More value enhancing and cost reducing initiatives were also introduced during the year under review; Tuder established a value-engineering process as an effective tool for construction management and engineering consultancy. The new process promotes the substitution of project materials with less expensive alternatives, and aims to identify and eliminate unnecessary costs across the commercial real estate development process with zero compromise on performance, quality, safety and design intent.

The commercial real estate market in Saudi Arabia remained subdued with a decline in commercial leasing during the year under review, following the repercussions of the COVID-19 pandemic. Supported by an efficient business continuity plan, Tuder remained focused on its cost reduction and cost savings initiatives for Al Rajhi Bank through power and energy management as well as facilities management contracts, reducing general maintenance costs.

 

 

Foray into fintech

Marking its ambitious entry to KSA’s financial digital solutions ecosystem with the aspiration to lead and shape the future of digital payments across the Kingdom is neoleap, Al Rajhi Bank’s latest subsidiary. Licensed under its corporate identity – international Digital Solutions Co. - by the Saudi Central Bank (SAMA) during the year under review, neoleap was granted authorisation to handle transactions through The Saudi Payments Network (SPAN) by Mada – the only and major payment system in the Kingdom.

In its overarching strategy to achieve digital financial inclusion for individuals and corporates, neoleap aims to strengthen the growing ecosystem of digital transactions across the Kingdom, and contribute to digital transformation goals of Vision 2030.

Navigating through new challenges

The subsidiary entered a rapidly expanding and fiercely competitive market that ended the year with fifteen licensed payment companies. Not only did the market competition drive innovation and investment across the sector in 2021; it also created a challenging job market due to the lack of technical and commercial talent given the comparatively recent establishment of a regulatory framework and facilitated infrastructure for fintechs in the Kingdom.

With no long-established local fintech benchmark to draw upon, neoleap overcame a number of challenges during its establishment as well as the technical development of each product in an ecosystem that is still developing its infrastructure and talent.

Suite of fintech products

During the year under review, neoleap announced a number of innovative fintech products that are in development, and will be launched in the immediate future:

• urpay Digital Wallet – Digital payment options for consumers and merchants, and a marketplace for digital and physical products
• neogate Payment Gateway – Credit card and mada card payments in e-commerce for merchants
• neostore Store Services – Integrated solution for merchants to build an online store with multiple payment methods as well as third party services such as shipping, delivery, e-marketing and inventory management
• neoecr Cashier Services – Electronic Cash Register (ECR) solutions for merchants at both a physical Point of Sale (PoS) and SoftPoS ‘tap-to-phone’ instances

 

 

Exploring untapped market segments

In the wake of the twin blows suffered by the Saudi Economy in early 2020 due to the unravelling of a global pandemic immediately followed by the oil crisis, Al Rajhi Bank focused on a rapidly evolving Saudi financial market to identify new opportunities. The Bank identified untapped consumers such as self-employed, non-salary transferring, private sector and other segments with specific credit needs that were beyond the Bank’s risk appetite.

With the microfinance sector highlighted as an area for development and growth in the Financial Sector Development Programme (FSDP) of Vision 2030, followed by the development of regulatory and legal frameworks by The Saudi Central Bank (SAMA), Emkan Finance was established with the aim to increase financial inclusion and simplify financing access, thereby supporting Vision 2030 in its objective to develop a diversified and effective financial sector that supports and sustains the development of the national economy.

Through the establishment of Emkan Finance, Al Rajhi Bank forayed into the Kingdom’s fairly new and unexplored microcredit landscape, enabling customers to immediately avail Sharia-compliant personal or small business loans consistent with ethical lending practices of the Kingdom.

Setting the new microfinancing benchmark in KSA

Emkan Finance offers customers innovative solutions to meet evolving financing needs; from covering personal loan obligations to providing necessary financial liquidity for businesses, Emkan provides lending solutions across micro consumer financing, finance lease as well as micro, small and medium enterprise (MSME) financing.

During the year under review, Emkan went live with its end-to-end digitised personal lending product portfolio, leveraging its digital functionality to enable customers to easily access, apply and obtain financing via its mobile app. With more than 1.2 million app downloads and installs across both iOS and Android app stores, Emkan was ranked as the top microfinancing mobile app in the Kingdom during the year under review, and was recognised as the Fastest Growing Digital Microfinancing Company in Saudi Arabia at the Global Business Outlook Awards 2021. The service also continued to be accessible via select physical branches of Al Rajhi Bank located across the Kingdom.

The company initiated its migration to cloud-based IT infrastructure during the year, complemented by major investments in data privacy and cybersecurity infrastructure to ensure its clients of optimum security against cyber attacks. Such highly customer-centric, uncomplicated and fast-tracked microfinancing solutions elevated Emkan to the status of preferred financing company in KSA, growing its portfolio to SAR 6.8 Bn. by the end of 2021.

 

 

Transforming the business

With the distinction of being our initial foray into Southeast Asia in 2006, and our benchmark for foreign market penetration, Al Rajhi Bank – Malaysia (ARBM) focused on transforming the business under a new, locally assimilated leadership team during the year under review. ARBM announced a number of strategic leadership appointments in early 2021 consisting of the Chairman, Chief Executive Officer, Chief Transformation and Change Management Officer, and Director Corporate Affairs, with the appointments of a new Chief Operating Officer and new Director Retail Banking completing the structural changes at the Executive level.

These changes were followed by strategic measures to increase ARBM’s brand equity and enhance the overseas branch’s position as a thought leader in Islamic finance, digital banking and sustainability in the region. During the year under review, ARBM engaged intensively in local industry and regulatory initiatives, participating in discussions and initiating dialogues on the industry’s digital transformation. ARBM was duly represented at high-impact national-level forums, media engagements and conferences by its newly appointed leadership, including the Bank Negara Malaysia’s engagement session with banking institutions for the Financial Sector Blueprint 2022-2026.

Building brand equity supported ARBM’s five-year strategic transformation plan which was launched to evolve all aspects of the international branch’s operation in 2021; with plans to both ‘Run the Bank’ by optimising current operations, and ‘Change the Bank’ through digitisation. ARBM was also appointed a Member of the Value-Based Intermediation (VBI) Community of Practitioners (CoP) of Malaysia with a deeper commitment to advance the VBI agenda, which will be instrumental in supporting a more sustainable economic recovery for the country. The VBI CoP serves as an industry platform for members to share knowledge and pursue collective efforts to develop and execute VBI strategies.

Internally, ARBM set up a Transformation and Change Management Team in 2021 to drive a culture of collaboration, implementing a more systematic and engaging approach for employees to swiftly adapt to its evolving goals, processes and technologies in its transformation into a more agile and productive digital organisation.

Navigating through a challenging 2021

ARBM continued a steady recovery from a net loss of RM 66 Mn. in 2020, heavily constrained by the slowdown of the domestic economy and regulatory requirements imposed by Bank Negara Malaysia, the Central Bank of Malaysia. The international branch’s asset quality experienced a slight deterioration due to its exposure to the bottom 40% (B40) segment, resulting in higher-than-expected provision levels. Although higher impairments are expected in the coming year, credit losses will be amply cushioned by healthy earnings accretion, comfortable provisioning buffers and solid capital position.

ARBM continued to expand its business capacities by introducing Cross Border Fund Transfer (CBFT), enabling pipeline transactions with Financial Institutions from the Middle East. While the Musafir Card initiative in collaboration with Indonesia’s largest national payment gateway Artajasa was also temporarily suspended following the closure of national borders and travel restrictions imposed due to COVID-19, ARBM believes it will be able to rollout the planned expansion through Southeast Asia as restrictions are lifted, reaffirming its commitment to provide Shariah compliant banking solutions, especially for pilgrims.

Introducing new products and services

A number of new products and services were launched and restructured by ARBM during the year under review. New launches included the Home One Account (H1A) for property financing, Personal Financing for Civil Service Employees through collaboration with Co-Share, and the Commodity Murabahah Foreign Currency Current Account for deposits. Three new Unit Trust Funds – the BIMB Arabesque Global Shariah Sustainable Equity Fund, the Aberdeen Standard Islamic World Equity Fund and the Principal Islamic Asia Pacific Dynamic Equity Fund expanded ARBM’s personal wealth management offering, supported by Bancatakaful arrangements with Sinar Kasih and Syarikat Takaful Malaysia Berhad. ARBM also introduced professional will writing in partnership with MyAngkasa Amanah Berhad.

Other upgraded services included enabling online Term Deposit (TD) placements, QR code payments via Malaysia Standard QR, multicurrency own account transfers, collaboration with local government linked entities on guaranteed funds for the SME segment, revision of the Guarantee Wakalah, and the restructuring of ARBM’s Personal Financing-i suite and Home Financing-i.

Operational efficiencies through digital transformation

During the year under review, ARBM reimagined its operating model to make drastic changes and increase operational efficiencies in a highly cost-effective manner. The international branch’s digital transformation led by the commencement of Project Wick – its digital banking initiative – greatly contributed to reducing operational costs during the year under review; this included seamlessly digitising the Know-Your-Customer (KYC) verification process to introduce the eKYC option for new banking customers, transitioning to e-statements and e-notices from traditional hardcopy statements, introducing the digital aqad (contract), and implementing Straight-Through-Processing (STP) transactions with no manual intervention with the introduction of Enterprise Content Management (ECM) across the branch network. Internal processes were further streamlined for a seamless customer experience through Project Perkins.

Modifying and improving backend operations and administrative processes across the overseas branch introduced further operational efficiencies. Internally, in-house legal and secretarial functions at ARBM were strengthened to eliminate dependencies on third-party services, while existing third-party contracts were evaluated and renegotiated to generate higher long-term value. During the year under review, ARBM also revised the Commodity Murabahah transaction structure with Bursa Malaysia – the country’s stock exchange, and switched to a more value-adding card and ATM host service. The year 2021 also saw ARBM taking a more standardised approach in assessing risk-adjusted return on capital for efficiency and effective monitoring.

Restructuring ARBM’s Personal Financing-i suite and Home Financing-i were followed by highly successful digital launch campaigns during the year under review, given the substantially growing online presence of its retail customers. Both campaigns drove monthly sales to record high volumes, a testament to ARBM’s successful transition of marketing spend from conventional to digital media channels; the Personal Financing-i campaign doubled average monthly sales, and the Home Financing-i campaign recorded an all-time high approval during the campaign versus an average monthly sales figure pre-launch. ARBM’s latest Murabahah deposit campaign followed a targeted digital campaign path. With successful digital media campaigns and growing organic media coverage, ARBM significantly reduced conventional marketing spend and media buying during 2021, a primary contributor towards its reduced operating expense during the year under review.

Stepping into the post-COVID-19 era

As the local economy recovers from the unprecedented impact of the COVID-19 pandemic, ARBM continued to provide various stimulus initiatives for retail as well as corporate customers in 2021, including instalment moratorium based on low-to-high income brackets.

A comprehensive plan was also implemented during the year under review for ARBM employees, with the introduction of the COVID-19 Prevention and Safety Policy, weekly health and safety guides, and a COVID-19 tracker for statistics and insights. The Work-from-Home (WFH) business continuity plan was further strengthened with necessary infrastructure across all branch outlets, and a mobility allowance for employees. Virtual on-boarding sessions were implemented to effectively assimilate new employees to the hybrid work environment. ARBM supported Malaysia’s national COVID-19 vaccination drive by providing employees with vaccination days off, mileage claims, free COVID testing as well as admission guidelines for affected staff members.

 

 

Reaffirming its commitment to sustain its local communities, ARBM donated RM 76,500 to Yayasan Sukarelawan Siswa (YSS), an entity under the Ministry of Higher Education of Malaysia to sponsor 50 laptops for 50 first year undergraduates belonging to the B40 category. The donation reflects ARBM’s commitment to the advancement of education and advocacy for digital equality among the communities in which it operates. As a Member of the VBI CoP of Malaysia, ARBM also sponsored the second VBI Financing and Investment Impact Assessment Framework (VBIAF) Sectoral Guide Town Hall organised by the Association of Islamic Banking and Financial Institutions Malaysia (AIBIM).

 

 

Celebrating a decade of operation

Jordan experienced one of the strongest COVID-19 waves since the beginning of the pandemic during the first half of the year under review, but weathered the shock with timely fiscal and monetary stimuli provided by the government. Although early indicators pointed to a modest economic recovery, rebound was expected to be gradual especially for the private sector. Despite this challenging backdrop, Al Rajhi Bank – Jordan (ARBJ) saw an organic growth of customer deposits by 10% during 2021, its tenth year of operation in the Hashemite Kingdom. ARBJ also showed an increase in financing assets in 2021, given the domestic economy’s widening external imbalances, rising debt and low levels of investment.

The official ARBJ website was upgraded in line with its new global brand identity and enhanced search engine optimisation, with its social media and online presence also amplified across multiple channels and platforms.

ARBJ expanded its financing portfolio during the year under review, introducing Non-Kafalah Financing and POS Financing for corporate customers in the SME sector, while also test launching Self-Employed Financing for individuals through retail banking.

Weathering the storm

The Central Bank of Jordan (CBJ) announced a set of procedures aimed to contain further repercussions of the coronavirus’ impact on the national economy, with instructions issued to sustain a strong Liquidity Coverage Ratio during the year under review with a challenging liquidity requirement. This was amplified by the long-standing absence of Shariah compliant products offered by the CBJ. However, with a subsidised financing program offered by the Central Bank to support businesses gravely affected by the ramifications of COVID-19, the international branch took on the role of financing partner in mid-to-large corporates, supporting its clients with carefully tailored solutions that were planned and executed with intensive follow-ups in performance and recovery of the businesses. ARBJ also adopted a focused strategy to appeal to high-salaried clients by launching customised campaigns for two major retail banking products – Personal and Home Finance.

 

 

To overcome the inefficiencies of ARBJ’s existing Core Legacy Banking System in a rapidly evolving consumer finance ecosystem, the international branch launched the Core Banking Replacement project in late 2020 with the rollout continuing through 2021. The selection process for bidders was completed by the end of the first quarter of the year, with approval for selected vendors and system implementation obtained from the Saudi Central Bank by the Al Rajhi Bank Group in November 2021. Vendor Contract Negotiations for the replacement of the core system are currently ongoing (one word).

The annual Graduate Development Programme (GDP) continued in 2021, with ARBJ training and employing 10 top graduates from local universities in the new, hybrid work environment.

Elevating digital capabilities

ARBJ introduced a number of innovative digital initiatives that increased efficiencies, enhanced customer experience and streamlined operations during the year under review. These included improvements to the existing Customer Relationship Management (CRM) system, a key initiative of ARBJ’s continued investments in intelligent automation and digitisation to improve customer experiences. Backend banking processes as well as its call centre operation were re-engineered and optimised to further elevate the local banking industry benchmark for service excellence. As its digital capabilities continue to expand, ARBJ launched a migration campaign to increase the number of registered customers for its online and mobile banking service offering in 2021. The campaign drove the number of registered customers to 70% of ARBJ’s total customer base.

The ARBJ mobile app underwent two scheduled upgrades during 2021, and was made available for direct download on both iOS and Android app stores. Call centre reports and KPIs were realigned with new, quantifiable performance measurements. Customers were introduced to the ‘contactless’ feature at ARBJ’s new ATM terminals to promote necessary safety measures in a post-COVID-19 transaction landscape. QR codes were added on product and service booklets to provide easy access to customer care services.

 

 

 

Supporting economic recovery

Kuwait’s financial sector greatly benefitted from swift and decisive fiscal, monetary and financial support measures during the year under review, under the prudent regulation and close supervision of the Central Bank of Kuwait (CBK) supported by strong pre-pandemic buffers.

Al Rajhi Bank – Kuwait (ARBK) focused on supporting recovery efforts and exploring new investment avenues for the year under review, filling strategic leadership positions at Executive level including the appointment of a new Chief Executive Officer in July 2021. ARBK made its debut entry to Kuwait’s Sukuk market with a KD 10 Mn. investment exposure and stakeholder endorsement on product procedures, policy and framework. The international branch conducted rigorous follow-ups with defaulted customers that led to an improvement in non-performing loans (NPL), despite the continued COVID-19 impact and six-month deferral in instalments across all customer segments.

The international branch also saw an early settlement profit increase by 161% year-on-year resulting from focused efforts to promote early settlement among customers, and recorded a Forex income increase of 67% in 2021. Powered by the CBK’s stimulus package complemented by cost savings on pre-matured term deposits, ARBK’s cost of deposits decreased by 27% year-on-year, resulting in an improved year-on-year cost to income ratio of 43%. ARBK also stands to benefit from a KD 2.6 Mn. government grant in lieu of profit lapsed due to deferment of financing instalments during 2021.

Advancing operational efficiencies

With the first phase of the Kuwait National Payment System (KNPS) successfully launched in July 2021 to enable Real-Time Gross Settlement (RTGS), ARBK increased its operational efficiencies further by enhancing existing e-channels, enabling instant debit and credit card issuance, and implementing a common reporting standard (CRS) system for core banking and operational activities. In line with upgraded and digitised services offered by the Public Authority for Civil Information (PACI) of Kuwait, ARBK formalised a Cooperation Agreement to install two PACI self-service kiosks, enabling customers to register and create digital signatures, electronic ID verification and authentication for online bank transfers. The implementation of the Cyber Security Framework (CSF) at ARBK was effectively completed, followed by a successful CSF audit.

The Ministry of Health lifted a number of COVID-19 restrictions in 2021, allowing the Human Resource (HR) department to resume employee social activities to boost morale. HR achieved a 68% increase of training days from the previous year, and also introduced digitised performance and appraisal processes via the HR MenaMe System, a collaborative web-based and mobile app solution, with the latter phase of the system implemented at the end of 2021 for end-to-end remote accessibility. The grievance policy was also upgraded during the year under review.

New products and services

ABRK continued on its digital transformation journey in 2021, implementing a number of initiatives including the enhancement of e-channel features, introduction of Face Recognition technology for identity verification and on-boarding of new customers, digitisation of Business Requirements Document (BRD) and more, with the overarching aim to provide customers with an end-to-end digital banking solution.

Phase II of the ABRK customer mobile app enhancement was successfully rolled out in October 2021. Customers were also introduced to credit card e-statements, instant remittance from Kuwait to Saudi Arabia, new ATMs at ARBK branches and a significantly improved version of the ARBK official website.