al rajhi bank – Malaysia

In a year that saw rapid post-pandemic economic expansion in Malaysia, Al Rajhi Bank Malaysia (ARBM) underwent a comprehensive transformation across multiple avenues, ending the year as one of the most competitive banks in the Southeast Asian nation.

ARBM recorded double-digit growth in operating income, deposits and financing while maintaining a below-industry average of non-performing financing (NPF) ratio during the reporting period. With its financing portfolio well ahead of its year-end target, ARBM balanced its asset book with strong Sukuk holdings, which saw an increase of 40% during the year. The significant increase in assets has positioned ARBM to be the 3rd largest foreign owned Islamic bank, from the smallest in 2020. A branch-wide productivity growth of nearly 10% YoY and a cost-to-income ratio (CIR) at its lowest since 2010 saw ARBM more than double its net profits in 2022, closing the year with a strong financial performance and taking its place among the top three foreign-owned Islamic banks in Malaysia.

The “Rize” of digital banking

In line with its vision of becoming the leading Islamic innovation bank in Malaysia, ARBM revolutionised the financial services sector in the country during the reporting period by launching Rize—a first-of-its-kind digital bank. With full approvals obtained from Malaysia’s central bank—Bank Negara Malaysia (BNM) —Rize was delivered in record time and was first-to-market following a highly contested bid for digital banking licences in the country. The cloud-native solution was developed on a scale never seen nor attempted in Malaysia. ARBM partnered with more than 20 of the world’s top technology partners to implement best-in-class tech for an end-to-end digital solution—from web services and core banking to risk operations and financing origination.

Rize offerings

Rize offerings

The digital bank is well placed to take advantage of a highly competitive market through an extensive product pipeline that will be rolled out progressively. A digital marketplace has been added on to the app and enable various players with seamless customer journeys. The reporting period saw the international branch engage several strategic partners to enrich its propositions inside the marketplace with more exciting verticals, players and functionalities will be included gradually. With Rize set up as a greenfield digital-only bank utilizing a best-in-class tech stack, ARBM stands to capitalise on its investments by being a first mover in the Platform-as-a-Service (PaaS), Infrastructure-as-a-service (IaaS), and Software-as-a-service (SaaS) offering.

Rize’s launch introduced several straight-through processes (STP), such as the electronic Know Your Customer (e-KYC) function for account onboarding, commodity trading, and automatic disbursement of personal financing upon regulatory approval, to name a few. With the reactivation of the Bank’s Gold Business through improved risk monitoring, a digital gold investment account is also in the pipeline.

Future-ready human capital

ARBM restructured its Retail Banking leadership during the reporting period, announcing several appointments and adding to its highly diverse, young and dynamic senior leadership team. The overseas branch continued to strengthen its brand position as a thought leader in Islamic finance, digital banking, and sustainability. Its young leadership continuously participates in high-profile local and regional industry and media engagements, including events facilitated by Bank Negara Malaysia (BNM), Malaysia’s central bank.

The reporting period also saw the overseas branch introducing Darwinbox, a globally recognised cloud-based human capital management (HCM) solution, with the goal of enhancing and enriching the employee experience. This digital transformation of ARBM’s Human Resource function seamlessly integrates previous on-premises HR and learning management systems into one, allowing ARBM employees anytime-anywhere access to multiple self-service functionalities. This includes an interactive e-learning function that resulted in an increase in self-enrolment for learning modules during the year.

Parallel to these developments, ARBM’s HR policy was revised to incorporate the latest technology and regulatory requirements, along with upgraded employee benefits to meet the Bank’s evolving hybrid working environment. A heightened focus on employee health and wellbeing following the pandemic saw ARBM introduce an employee wellness programme during the reporting period that promotes both physical and mental wellbeing and which is complemented by regular branch-wide health awareness sessions.

Part of its growth plan involved ARBM opening a new office in Kuala Lumpur in February 2022 to house its Digital Bank team along with several other divisions. The new office was designed to optimise space and encourage idea generation, collaboration, and innovation among teams. The open-office setting with recreational spaces was introduced by ARBM’s Transformation and Change Management Team to nurture an open culture that includes, inspires, and connects employees.

In October 2022, ARBM launched its one-year Digital Graduate Programme geared towards identifying and developing high-potential individuals to be part of the Bank’s journey to become the number one Islamic innovation bank in Malaysia. Graduates undergo comprehensive training with global digital transformation pioneers to gain advantages that accelerate their career progression in the Bank.

Expanding business capacities and improving operational efficiencies

With new leadership appointments, 2022 witnessed a transformation in ARBM’s Retail banking business, with greater focus on its governance framework, key processes, products, and people. Cost efficiencies were achieved with improved and streamlined customer experiences. A broader range of wealth offerings was also introduced to increase fee income. This was reflected in a positive Retail Financing portfolio growth of 20%.

In Corporate banking, ARBM enhanced its onboarding, credit evaluation, and approval processes in 2022, enabling the overseas branch to efficiently onboard new customers and grow its corporate portfolio. Changes to the pricing model for the Letter of Credit (LC) —Wakalah—product resulted in a 47% year-to-date income increase for the branch.

Treasury income also grew in 2022, with ARBM’s diversified Sukuk investment portfolio recording higher yields. The overseas branch also started to engage in a Collateralised Commodity Murabahah (CCM) in 2022 by pledging the Sukuk portfolio. Treasury plans to expand its product offering, providing customers with a greater variety of Treasury solutions and allowing Treasury to hedge balance ARBM’s book and diversify funding.

As part of its product diversification plans for the year, ARBM added 12 new products and funds to its portfolio, including multiple new Sharia investment solutions. This was a result of ARBM’s partnership with a globally experienced fund house.

Project Perkins—launched in 2021 to streamline ARBM’s internal processes for a seamless customer experience— continued to implement initiatives to enhance operational efficiencies across several areas. Customer experience was enhanced by revamping processes for personal financing, CASA account opening, dormant account activation, remittance application, Banca application, Akad (contracts) and customer notifications. The Corporate banking vertical, where the process was highly manual, continued to focus on automating reporting and other calculating functions, while the Know-Your-Customer (KYC) and Operational Due Diligence (ODD) processes for Corporate and Treasury clients were streamlined and centralised in 2022 to improve turnaround time.

The IT Division at ARBM contributed towards improving operational efficiencies during the reporting period with several initiatives; procurement capabilities of the overseas branch were enhanced by transitioning from the Oracle E-Business Suit (EBS) to the Oracle cloud Enterprise Resource Planning (ERP) suite. This along with the transfer of the new Darwinbox HRM platform from on-premises to cloud enabled the Bank to transfer the IT Infrastructure Risk to its service providers.

The implementation of Microsoft365 tools to allow employees to collaborate efficiently and work from anywhere also contributed significantly to improving operational efficiencies in 2022. ARBM’s disaster recovery procedures were also redefined in accordance with the changing requirements of its Business Continuity Management (BCM) strategy.

In 2022, the overseas branch participated in more cross-border financing arranged by HSBC Bank Middle East Limited to facilitate Islamic banking in the region. As of 31 December 2022, ARBM was also in discussion with several other candidates, leveraging its future Banking as a Service (BaaS) plans and its digital marketplace. These activities are aimed at expanding and diversifying the overseas branch’s reach, customer base and product portfolio. The year also saw the overseas branch implement the national QR standard DuitNow QR with PayNet—the national payments authority, to enhance its payment offerings.

  1. Global Islamic Finance Forum 2022 (GIFF2022) from 4 - 6 October 2022 at Sasana Kijang, Bank Negara Malaysia, Kuala Lumpur – ARBM as Diamond sponsor for the event
  2. IFN Oman Forum 2022 was held in October 2022 Grand Millennium Hotel, Muscat Oman
    Our CEO, Mr Arsalaan is one of the key panellists during the session on Digitalization and evolution of Omani Islamic Financial Services

Setting the benchmark for sustainable banking practices

In 2021, ARBM was appointed a member of the Value-Based Intermediation (VBI) Community of Practitioners (CoP) of Malaysia, formalising a deeper commitment to generate a positive sustainable impact to Malaysia’s recovering economy, community and environment, and an overarching objective to deliver the intended outcomes of Sharia through practice. In 2022, to further this goal, the overseas branch proactively developed a broad-based sustainability framework aligned with VBI strategy and VBI scorecard guidelines. ARBM also completed the classification of its financing customers by their economic activities under BNM’s Climate Change and Principle-based Taxonomy (CCPT) guidelines. Through this, ARBM is demonstrating its readiness to encourage financial flows towards companies and projects that meet climate objectives and provide greater transparency in reporting climate-related exposures. During the year under review, ARBM also initiated the incorporation of a few key sectoral guidelines into the Bank’s existing evaluation, assessment, and financing processes.

As of 31 December 2022, ARBM continued to support several BNM initiatives, providing financial assistance under the Financial Management and Resilience Programme (URUS) for B50 (low income) individual borrowers/ customers who continued to be affected by the pandemic. ARBM also provided financing under the My First Home Scheme from BNM’s Fund for Affordable Homes for lower income groups. The branch also promoted financial inclusivity through initiatives targeting the B40 (low income) market segment. These included Personal Financing solutions under a test program, followed by first property purchasing solutions on schedule to be launched in the first quarter of 2023.

Future outlook

Future outlook

Strengthened by prudent risk management, ARBM envisages a continuation of its expansion and double-digit profit in 2023, driven by multiple infrastructure improvements for stronger consolidation between new and traditional channels, and several key projects in the pipeline. This pace of growth is expected to contribute towards ARBM surpassing several financial milestones in 2023. The performance projections are aligned with other indicators that forecast a strong and healthy YoY improvement for the overseas branch.

ARBM will also continue to strengthen its synergies with Al Rajhi Bank KSA in 2023, with various projects on the cards to leverage each other’s capacities.