By successfully implementing the Bank of the Future (BOTF) Strategy at the close of 2023, the Retail Banking Group (RBG) demonstrated a superior performance across key business metrics compared to the baseline year of 2020. This included an impressive 70% growth in financing, and a noteworthy 64% expansion of the active customer base by the end of 2023. This achievement is particularly noteworthy given the challenging backdrop of intense competition and the dynamic changes within the banking landscape in the Kingdom of Saudi Arabia.

Al Rajhi Bank has sustained its leading position in the personal finance market in the Kingdom, expanding its market share to 41% during the year in review. Furthermore, the bank successfully increased its mortgage market share to 41.3%, and retained a robust presence in the auto sector, holding a significant 43.7% share of the market in the Kingdom of Saudi Arabia (KSA) at the conclusion of the BOTF Strategy cycle. A noteworthy accomplishment of the strategy is the Bank’s increased share in the Private Sector, aligning with a key objective outlined in the Bank of the Future (BOTF) Strategy.

 

The predominant challenge encountered by the retail business throughout the reporting period stemmed from margin compression, resulting from raising interest rates. The year 2023 presented formidable difficulties for RBG, as the increasing Saudi Arabian Interbank Offered Rate (SAIBOR) borrowing rates impacted the Bank’s asset demand and liabilities position, resulting in a static year-over-year growth in retail financing. To mitigate this challenge, the bank strategically focused on enhancing the asset product mix, thereby improving yield income and fee income.

Despite the upward pressure on rates affecting the deposit mix in 2023, RBG demonstrated resilience by successfully introducing innovative new products that aligned with market demands. This strategic approach not only enhanced customer retention but also facilitated a notable year-over-year growth in customer deposits by 1.4%.

Diversifying our retail portfolio

In 2023, the Bank introduced innovative financial products and services, including a pioneering real estate financing concept tailored for “knock-down rebuild” development projects. Additionally, the Bank expanded its current mortgage financing product offerings to cater specifically to the Kingdom’s burgeoning expatriate segment, focusing on the high-salaried demographic within this growing market.

Building on the successful equilibrium achieved in its product portfolio between government-subsidised Real Estate Development Fund (REDF) products and non-REDF products in the preceding reporting period, Al Rajhi Bank maintained strategic collaborations with the Kingdom’s Ministry of Housing (MOH) and its investment arm, the National Housing Company (NHC). This ongoing collaboration aimed to address the challenges posed by the slowing growth of KSA’s mortgage market, attributed to recent subsidy programme changes. The primary objective was to offer more tailored subsidies to customers, fostering an environment conducive to growth.

Furthermore, this collaborative initiative sought to attract and increase the participation of real estate developers, directly contributing to increased mortgage sales numbers and the expansion of the overall portfolio. The outcome of these efforts manifested in a noteworthy 5.6% year-over-year growth in mortgage financing. This substantial growth not only underscored Al Rajhi’s commitment to addressing market challenges but also ensured the bank’s sustained leadership in the mortgage market, maintaining a prominent market share throughout the year under review.

In 2023, the Sahlha Programme was introduced as part of RBG’s personal financing portfolio. This programme provided retail customers with access to an expanding network comprising over 700 approved merchants. Customers were empowered to make purchases from these merchants using a monthly instalment scheme spanning up to 60 months, and notably, without incurring any administrative fees.

In 2023, Al Rajhi Bank introduced a suite of innovative liabilities products designed to address the evolving needs of the market:

• Million Saving Account
  • Account holders have the opportunity to win SAR 1 Mn. every 8 weeks
  • Participation in weekly draws of SAR 10,000 enhances the chances of winning the grand prize
• Awaeed Account
  An investment product tailored to assist Al Rajhi customers in increasing their capital through short and mid-term, predominantly low-risk investments
• Future Account
  A savings plan that automates the deduction of a fixed amount from the customer’s current account, facilitating disciplined and structured saving
• Hassad Account
  A Mudaraba-centric savings account providing customers with the flexibility to make withdrawals and deposits while enabling the execution of other essential banking services.

Moreover, during the reporting period, RBG undertook the launch of several new Sharia-compliant Takaful insurance products and solutions. This initiative aligns with the bank’s strategy to contribute to income growth through fee income. The new insurance products aim to provide customers with comprehensive savings and protection programmes, further enhancing the bank’s diverse offerings in the financial services landscape.

 

During the reporting period, a significant milestone was achieved as all credit and prepaid cards were seamlessly migrated to the Bank’s advanced card management system, Cortex. This system, integrated with the core banking infrastructure and in 2022, serves as a comprehensive solution for the issuance, management, and processing of credit, debit, and prepaid cards.

As part of this transition, retail customers were introduced to a diverse array of new card options. Notable among these was the Prepaid Computer Gaming Card, offering exclusive benefits to enhance the gaming experience, including unlimited cashback on both local and international purchases. Additionally, the introduction of the Infinite and Platinum AlFursan Cards provided users with the opportunity to earn redeemable AlFursan Rewards Miles on Saudia Airlines based on their daily spending.

The strategic expansion into niche and untapped demographics resulted in a noteworthy increase in card spend. This growth is indicative of the successful penetration into targeted market segments, reflecting the positive impact of the new card offerings on customer engagement and spending behaviour.

Real Estate Finance Risk

The Bank’s total outstanding residential real estate finance portfolio as of 31 December 2023 was SAR 234 Bn. The Bank has developed adequate policies and procedures to ensure that the appropriate insurance coverage is in place to hedge against potential financial losses associated with residential real estate portfolio. However, risk elements which are not part of the insurance coverage are dealt with according to the bank’s internal risk management framework.

Following are the different types of insurance covers that the Bank could utilize to hedge various risks associated with its residential real estate finance portfolio.

(i) Life Insurance: The life insurance provides financial protection in the event of death resulting from natural or accidental events or specified cause as per the insurance policy in order to recover the outstanding finance amount from insurance company.

(ii) Disability Insurance: The disability insurance provides financial protection to recover the outstanding financing amount in the event that the policyholder becomes fully and permanently disabled and is unable to work or engage in an income earning activity.

(iii) Property Insurance: Property insurance provides coverage for physical damage or loss to the property caused by events such as fire, flood, or natural disasters etc. This is aimed to mitigate the financial impact of property damage, allowing the Bank to recover the costs due to unexpected/unforeseen events.

Evolving customer value proposition

Al Rajhi Bank has consistently advanced and enriched its customer value proposition through a strategic focus on identifying and segmenting retail customers based on their lifestyles and credit requirements. In alignment with the ambitious goals set forth by the Kingdom’s Vision 2030, and in a commitment to enhance accessibility to financial services, the bank extended its entire suite of retail products to an online platform. Notably, during the reporting period, the bank expanded its retail vertical by incorporating two additional customer segments: youth and expatriates.

This customer-centric approach has empowered Al Rajhi Bank to effectively harness Group synergies, optimising the customer lifetime value across diverse business verticals. By tailoring its offerings to the unique needs of these specific customer segments, the bank not only addresses evolving market dynamics but also positions itself strategically to contribute meaningfully to the realisation of Vision 2030 objectives. The expansion into online services further underscores the bank’s commitment to fostering convenience and accessibility for its valued customers.

The culmination of the Bank of the Future (BOTF) Strategy cycle in 2023 marked a significant milestone characterised by comprehensive bank-wide automation, accelerated digitalisation, and the successful completion of the core retail banking system replacement project, alongside numerous infrastructure and technology upgrades. The seamless installation, integration, and launch of globally benchmarked systems such as NewGen and Temenos T24 have not only fortified the bank’s technological foundation but also ushered in greater operational efficiencies.

The implementation of these cutting-edge systems has notably enhanced response times, fostering a more agile and responsive operational environment. Importantly, these advancements have positioned the bank for scalability across the retail business vertical, ensuring it can adapt to evolving market demands and is able to meet the growing expectations of customers. The successful execution of the BOTF Strategy reflects the bank’s commitment to staying at the forefront of technological innovation, ultimately delivering a more streamlined and technologically advanced banking experience for its customers.

In the course of the year, several financing processes, including the generation of promissory notes, underwent automation. RBG’s instant approval engine played a pivotal role in significantly reducing turnaround times for all financing requests, concurrently eliminating potential vulnerabilities to financial fraud and human error.

As a pivotal step towards modernisation, all physical branch transactions were fully automated, completing the transition to digital channels by the close of 2023. This transformative shift not only enhances operational efficiency but also highlights the Bank’s commitment to technological innovation and ensuring a secure, streamlined experience for its customers.

The successful implementations have led to notable improvements in customer satisfaction and retention rates, as indicated by a Retail Net Promoter Score (NPS) of 81 in 2023. This represents a noteworthy increase from the 75 recorded in the previous year’s reporting cycle. The upward trajectory in NPS emphasises the positive impact of these initiatives on the overall customer experience, affirming the effectiveness of the bank’s strategies in maintaining and enhancing customer loyalty.

Customers experienced enhanced services through the Bank’s optimisation of its physical branch network, involving strategic actions such as relocation, merging, and restructuring of branches. This initiative was complemented by the upgrading of in-branch machines, including kiosks and deposit ATMs, aimed at delivering an improved and seamless banking channel experience.

In addition to physical branch enhancements, various sales channels, such as direct sales, branch sales, and telesales, were actively utilised throughout 2023. Furthermore, the introduction of a new third-party smart platform contributed to increased overall sales channel efficiencies and expanded outreach. These initiatives collectively reflect the bank’s commitment to providing diverse and upgraded avenues for customer engagement, ensuring a more accessible and convenient banking experience.

The Retail Banking Group’s steadfast efforts to navigate a challenging operational landscape while continuously delivering innovative solutions tailored to meet evolving market demands were not only recognised but also celebrated. In 2023, the Retail Banking Group was honoured with the esteemed “Best Retail Bank – Saudi Arabia” accolade at the MENA Banking Excellence Awards, alongside various commendations and honourable mentions. This recognition signifies the bank’s commitment to excellence, innovation, and its dedication to addressing customer needs, further solidifying its position as a leader in the retail banking sector.