2023 was a year marked with increased financial market volatility in rates, currencies and commodities, further compounded by global inflation and major credit events in US and European Banks (such as Silicon Valley and Credit Suisse). While 100 basis point hikes YTD raised the interest rate by 22%, increasing geopolitical risks in the region also had far-reaching effects on the global economy.

Despite the challenging operating environment, Al Rajhi Bank’s Treasury Group remained strongly positioned to overcome headwinds and capture business opportunities by enhancing its treasury products and services during the year in review. The year’s success is evidenced by healthy regulatory ratios, a diverse and expanding product portfolio, an expanding customer base, and an increased operating income, which was the result of the Treasury Group acquiring high-quality assets and successfully expanding its investment book in 2023.

The growing Foreign Exchange (FX) vertical

Al Rajhi Bank’s FX Trading Desk enjoyed wide market coverage in trading and market making of over 40 currencies, dealing with 128 banks globally. ARB’s overall FX trading income recorded a 7.3% YoY increase in 2023.

During the reporting period, Banks faced increasing competition from the FinTech sector and other new entrants in the retail and commercial FX space. However, a number of initiatives were implemented to strategically elevate Al Rajhi Bank’s position in the market as well as among its peers, and its capability to reach out to a larger segment of businesses in key currencies.

The Bank strengthened its reputation for dealing in large FX positions, cementing its claim to the largest financial institution (FI) network in the region, strong selling points for large-scale commercial clients and high-valued development projects activated across the Kingdom.

Leveraging its FI network, the Bank continued to facilitate cross-border transactions for both corporate and retail customers during the year, diversifying the flow of business and exploring new geographical markets. Customer FX volumes alone increased by 14.5% YoY in 2023, leading to a 7.3% increase in exchange income, which contributed to partially offsetting the dip in the Bank’s operating income for the year.

ARB secured 18.9% of the Kingdom’s FX income market share by the end of the reporting period, competing against both local and foreign peers. The Treasury Group’s achievements in the Foreign Exchange domain were recognised with the country award for “Best Forex Provider in Saudi Arabia – 2023” presented by Global Finance.

Diversifying funding sources

The Treasury Group continued to strengthen the Bank’s balance sheet structure by diversifying funding sources, enhancing liquidity, and maintaining regulatory ratios. Diversified funding ranged from senior unsecured sukuk to syndicated and bi-lateral loans and term repurchase agreements (term repos), enabling the Bank to enhance regulatory ratios.

Treasury also embarked on various Cost of Funding (CoF) optimisation initiatives and constantly monitored and assessed paid-in liabilities pricing. CoF remained optimised, staying below the three-month SAIBOR rate (Saudi Arabian Interbank Offered Rate) year-to-date.

The reporting year marked ARB’s first USD Sukuk issuance in international capital markets following the successful local issuances in SAR in 2022. The five-year sustainable Sukuk for amount of USD 1 Bn. with a profit rate of 4.75% and an orderbook peaking over USD 3.75 Bn., reflecting growing confidence of global and regional investors. Proceeds from the issuance will be channelled towards Environmental and Social financing, further strengthening the Bank’s commitment to its Sustainable Finance Framework, and its contribution towards the Kingdom’s Net Zero and Vision 2030 objectives1.

In 2023, Al Rajhi Bank concluded yet another three-year dual tranche sustainability commodity Murabaha facility valued at USD 1.43 Bn., the second consecutive landmark Sharia-compliant syndication. The Bank succeeded in almost doubling the initial offer, going at 1.9x due to increased interest by the investor community. A group of 11 global investors from across Europe, Asia and Middle East supported Al Rajhi Bank on the transaction, demonstrating the confidence placed the Bank’s commitment to sustainable financing.

Al Rajhi Bank was duly recognised for being the first Islamic Financial Institution in the world to conclude a similar three-year syndicated dual tranche facility valued at USD 1.265 Bn., and was awarded Best Islamic Syndication of the Year at the Bonds, Loans and Sukuk Middle East Awards 20232. All this contributed towards ARB’s Long-Term Foreign Currency (LT FC) credit rating being upgraded during the reporting period from “BBB+” to “A-” by S&P Global – a leading global provider of credit ratings, benchmarks and analytics.

A future-ready product portfolio

Treasury Group continued to expand its product suite during the reporting year; as part of the 2023 product enhancement initiative, Treasury enhanced the Bank’s rate hedging product portfolio to meet current market demand, while also offering cost reduction solutions and hedging solutions to clients.

The ARB Treasury portfolio remains well diversified in terms of duration, credit rating and geographical distribution, with a wide range of Sharia-compliant asset classes that continue to enhance and diversify income streams, and improve yield pickup while managing the Bank’s liquidity in the medium- to long-term. Islamic investment products including repos for yield enhancement and funding remained on the portfolio since their successful introduction during the previous financial year.

An evolving customer value proposition

Further strengthening our client value proposition in 2023, Treasury Group conducted an in-depth derivatives products awareness session for corporate clients, with an overarching purpose to augment client understanding of how derivative products can offer solutions to their existing and emerging financial requirements. Post session, clients showed extended eagerness to explore derivatives products further, contributing to a 30.5% YoY increase in derivative income.

The Treasury Group continued to strengthen its tech infrastructure during the year in review, with multiple process and regulatory report automations. The growing FX trading business was strengthened with automated capabilities and enhanced features, while Treasury’s Electronic Trading engine extended its live FX pricing across Group subsidiaries, thereby boosting Treasury’s FX flows. Additionally, the Islamic Murabaha ‘Direct Investment’ deposit product was offered digitally through the ARB mobile app, enhancing customer experience in terms of innovative and highly-accessible investment solutions.

As good as gold

Despite fluctuations in price, gold retained its status as a global safe-haven asset, with investors turning to gold purchases during economic and market turmoil as well as periods of high inflation. ARB therefore ensured clients were afforded access to the bullion market through both conventional and digital channels during the year in review. Treasury’s digital gold wallet – Paper Gold - underwent a number of enhancements to customer and back-end features including gold re-assignment, reporting, wallet liquidation and wallet transfer to name a few, improving service quality and digital user experience.

2023 also saw Treasury Group extend digital Paper Gold services to commercial entities through the Bank’s E-Business Portal, with enhanced features for a seamless trading experience. The Bank’s physical gold business rapidly expanded to the Saudi wholesale market in 2023.