treasury group

The Group expanded its portfolio during the reporting period to include industry-redefining Sharia-compliant asset classes, structured investment products and hedging solutions, ending the year on a note of significant growth, optimism and renewed vigour.

In a year that witnessed much market volatility, geopolitical upheaval and a global shift to a more tightened monetary regime, Al Rajhi Bank’s Treasury Group recorded sustained growth against numerous unanticipated odds by seizing opportunities to capture and improve market share. It also diversified funding sources and optimized yields while maintaining balance sheet requirements.

Successfully exploring new funding sources

Tapping into unprecedented funding sources in a rising rate environment, whilst challenging in terms of optimising cost of funds, paved way for a number of historic firsts for Al Rajhi Bank in 2022; Sukuk issuance, syndicated borrowings, bilateral borrowings, repurchase agreements (repo) in SAR and USD as well as Saudi Real Estate Refinancing Company (SRC) securitisation were tools introduced by the Treasury Group for the first time to strengthen and further diversify its funding during the reporting period.

In 2022, Al Rajhi Bank most notably completed the issuance of its SAR-denominated Tier 1 local Sukuk at a value of SAR 6.5 Bn. amid high investor demand at the onset of the reporting period – the first-of-its-kind in the Bank’s history and the largest private issuance by a financial institution in the Kingdom. Due to the success of this initial Sukuk and strong investor appetite, Al Rajhi Bank announced an unprecedented public offering of SAR-denominated Tier 1 local Sukuk in October 2022, listed and tradable on the Saudi Stock Exchange (Tadawul). The IPO achieved record numbers that were the largest in the history of the Saudi Sukuk market, with the Bank raising the issue from SAR 4 Bn. to SAR 10 Bn. to meet the demand of more than 125,000 local and foreign investors.

Al Rajhi Bank also became the first Islamic financial institution in the world to conclude a three-year dual tranche Sustainability Commodity Murabaha Facility in 2022, with the USD 1.165 Bio. transaction considered to be the largest Sharia-compliant syndication in the Middle East that complies with environmental, social and governance (ESG) practices, which falls in line with Al Rajhi Bank’s comprehensive Sustainable Finance Framework (Refer ESG Report on page 118). The Bank succeeded in increasing the initial financing offer, reflecting the trust shown in its commitment to ESG financing by the 13 global investors from across North America, Europe, Asia and the Middle East participating in the landmark transaction. The proceeds, while increasing the Bank’s liquidity levels, will finance only Sharia-compliant projects assessed and qualified against the Bank’s Sustainable Finance Framework.

Rebuilding consumer confidence in a volatile market

2022 also saw Treasury Group strategically optimise and more than double its cross-selling transactions across both Corporate and Private Banking segments in hedging and investments, regaining consumer confidence affected by Inflationary sentiments fuelled by interest rate hikes.

The growing competitiveness of new players in financial markets augmented by aggressive technological advancements posed a major threat to pricing strategies and income objectives during the reporting period. The challenge was overcome by the Treasury Group through more diversified pricing strategies across client and channel services, with the Bank successfully retaining a majority one-third of the personal remittance market share.

On the foreign exchange (FX) front, the Bank continued to re-engage with global counterparts and uphold its unmatched repute among the largest peer network of banking and financial institutions, for the Treasury Group’s capability to deal in large FX trades. During 2022, this remained a strong selling point to the Bank’s Tier 1 commercial entities and high-valued government projects in the Kingdom. The Group’s achievements in forex were recognised at the Gordon W. Platt Foreign Exchange Awards 2022 presented by Global Finance, where it won the country award for “Best Forex Provider in Saudi Arabia – 2022”.

All strategic improvements supported a 53.7% and 37.0% increase in the Treasury Group’s gross yield and exchange income respectively in 2022. Treasury assets grew by 12.1% in line with the Bank’s overall asset expansion during the period under review, complemented by an 205% growth in liabilities.

In November 2022, Moody’s Investors Service affirmed the long-term rating of Al Rajhi Bank as stable, factoring the solid liquidity and capital buffers as well as the strong asset quality maintained by the Bank.

An ever-widening portfolio

Treasury Group’s ambitious diversification drive in terms of duration, credit rating and geographical distribution during the reporting period saw its portfolio expand to include a wider range of Sharia-compliant asset classes, which resulted in enhanced income streams. This contributed to improved yield pickup and better management of the Bank’s liquidity for the long term. Treasury also expanded its product offering in structured investment solutions, further strengthening the Bank’s balance sheet and market repute to build stable liabilities.

Apart from the history-making Sukuk issuances during the reporting period, Treasury also introduced for the first time multiple Islamic investment products; these included repurchase agreements (repo) for yield enhancement and funding, and hedging transactions executed for the first time under its investment book.

The Bank has also obtained Sharia approvals on commodity hedging solutions as well as FX hedging solutions, expanding its range of comprehensive Sharia-compliant financial product offering and risk management to meet the dynamic business needs of clients.

Going for gold

The Bank recorded a YoY growth in bullion income with Paper Gold – its digital gold wallet – exceeding 2022 income targets by 71%, and complementing its successful physical gold trading business offered across all retail branches.

Performance of Paper Gold:

Performance of Paper Gold

Setting trends in treasury tech

Treasury remained poised to achieve Al Rajhi Bank’s strategic objective to become “The Bank of the Future” by further strengthening its digital and technology foundations, enhancing its value proposition in terms of smarter, innovative financial solutions supported by highly-efficient service platforms for both customers and employees.

During the year, the Bank continued to build capabilities of the Treasury Management System in line with the business strategy to elevate the level of product execution as well as financial and risk management efficiencies.

The Group’s Electronic Trading System also continued to deliver dynamic FX and bullion pricing to serve all downstream systems and enhance customer experience. Paper Gold upgraded a number of features at user level on Al Rajhi Bank mobile platform to improve digital gold trading efficiencies.

Future outlook

Future outlook

Treasury Group is geared to continue its contribution to Al Rajhi Bank’s BOTF strategy by providing optimised funding to the balance sheet and enhancing yield income. While continuing to expand and strengthen its FX and derivatives client base to optimise current rate hikes, the Group has a number of investment product variations with attractive yields in the 2023 pipeline, given the anticipated steady increase in rates.

In 2023, Treasury Group will also expand interbank FX counterparties to improve price and FX flow coverage, and access new markets and currencies. On-board bullion and banknote interbank counterparties will be introduced to improve supply, storage and price economies. A number of new module enhancements will be carried out on the core Treasury Management System to on-board new products next year, as part of the Bank’s rapidly evolving digitalisation journey.