An overview

The year 2023 saw the Kingdom’s economy undergoing a transformation as it implemented reforms to support the non-oil economy and diversify income sources. The International Monetary Fund (IMF) continued to maintain a positive outlook for Saudi Arabia, with the GDP growth forecast to rebound to 2.7% in 2024. The non-oil economy quite notably grew 4.6% in 2023. Consumer spending continued its positive trend to record an increase of 6.7% by end of 2023, on the back of improved economic activities.

The year in review also marked the midpoint of Saudi Arabia’s ambitious Vision 2030 journey. Credit growth continued during 2023 and is expected to continue beyond, supported by government initiatives around Vision 2030.

Against this backdrop, Al Rajhi Bank continued its momentum from 2022, delivering a strong performance across all our business verticals and subsidiaries. The year saw the Bank take advantage of improving economic activities and market opportunities that emerged in the Kingdom by leveraging its capabilities, which resulted from farsighted strategic initiatives implemented over the past few years.

As the final phase of our visionary Bank of the Future (BOTF) Strategy was successfully executed in 2023, Al Rajhi Bank recorded an 6% YoY growth on the balance sheet, with a net income of SAR 16.6 Bn. The growth during this reporting period was mainly driven by Al Rajhi’s financing portfolio, which grew 5% YoY to reach SAR 594 Bn. Around 39% of our total financing portfolio, and 54% of our retail book is represented by mortgage financing, which grew by 6% YoY. A 21% YoY financing growth in non-retail was driven by a notable 20% growth in our corporate book, and a promising 23% YoY growth in SME. Our assets growth was further boosted in 2023 by a 32% YoY growth in investments, with the portfolio reaching SAR 134 Bn.

In line with this asset growth, we intend to expand and diversify our funding mix to accommodate and further support the expansion of our balance sheet. Since last year, the Bank successfully issued a total of SAR 16.5 Bn. Tier 1 Sukuk, while the Bank has securitized more than SAR 11 Bn. worth mortgages to the Saudi Real Estate Refinancing Company (SRC) in 2023. Moreover, the funding mix was further diversified by the introduction of syndicated and bilateral deals amounting to SAR 11.6 Bn. Moreover, the Bank successfully completed our first international sukuk issuance of USD 1 Bn. in senior unsecured sukuk in April 2023. We continued to focus on enhancing our customer experience which ensured we laid claim to the leading Net Promoter Score (NPS) in the local market as of 2023, standing at 76.

Five-year summary of the Income Statement

Description	2023 SAR ‘000	2022 SAR ‘000	2021 SAR ‘000	2020 SAR ‘000	2019 SAR ‘000
Income
Gross financing and investment income	38,737,616	28,201,631	21,441,506	17,377,963	16,962,583
Return on customers’, banks’ and financial institutions’ time investments	17,468,497	6,028,944	1,049,570	464,946	534,860
Net financing and investment income	21,269,119	22,172,687	20,391,936	16,913,017	16,427,723
Fee from banking services, net	4,225,650	4,624,140	3,933,107	2,659,680	1,987,367
Exchange income, net	1,246,450	1,162,162	787,898	783,894	774,096
Other operating income, net	790,190	616,030	603,457	364,669	295,278
Total operating income	27,531,409	28,575,019	25,716,398	20,721,260	19,484,464
Expenses
Salaries and employees’ related benefits	3,525,096	3,395,191	3,132,346	2,977,344	2,794,046
Depreciation and amortization	1,578,009	1,330,119	1,141,932	1,118,148	1,059,582
Other general and administrative expenses	2,394,841	2,725,760	2,652,244	2,646,409	2,532,213
Operating expenses before credit impairment charge	7,497,946	7,451,070	6,926,522	6,741,901	6,385,841
Impairment charge for financing and other financial assets, net	1,504,178	2,001,259	2,345,086	2,165,740	1,772,265
Total operating expenses	9,002,124	9,452,329	9,271,608	8,907,641	8,158,106
Income for the year before Zakat	18,529,285	19,122,690	16,444,790	11,813,619	11,326,358
Zakat for the year	(1,908,126)	(1,971,865)	(1,698,579)	(1,218,071)	(1,167,831)
Net income for the year	16,621,159	17,150,825	14,746,211	10,595,548	10,158,527

Operating income of the Bank and its subsidiaries for 2023

Total operating income

Al Rajhi Bank delivered a solid operating income for the year of 2023, driven by both yield and non-yield income. As a key objective outlined in the BOTF Strategy, we continued to focus on improving our revenue mix, with non-yield income representing 22.7% of total operating income as of 2023, a notable shift from 18.4% in December 2020 at the onset of the Strategy cycle.

Trade and cash management fee income corresponding to the growth of the corporate business registered a strong YoY growth and contributed to the revenue mix. Other fee income from digital-payment services such as cards and POS also witnessed notable YoY growth of 5.4% and 17.0% respectively. Exchange income grew by 7% YoY.

Operating expenses

The Bank’s operating expenses for the period closed at SAR 7.5 Bn. a rise of nearly 1% YoY, the marginal increase in line with the overall YoY growth of the Bank’s balance sheet and transaction volumes compared to the same period last year. A number of strategic investments were also made during the year to deliver ambitious KPIs of the BOTF strategy, contributing towards the operating expenses.

Based on this overall performance, the Bank was able to deliver a leading Cost-to-Income ratio (CIR) in the local market, reaching 27.2% for the year in review.

Impairment charges

In accordance with IFRS 9 requirements issued by the International Accounting Standards Board (IASB), we updated the Bank’s ‘expected credit loss’ (ECL) model for the recognition of impairment, taking into consideration the positive macroeconomic outlook for the Kingdom of Saudi Arabia. The net impairment charge for 2023 amounted to SAR 1.5 Bn., a YoY decline of 25% driven by stable asset quality, good recoveries, and the Kingdom’s favourable macroeconomic outlook. The cost of risk for the period improved by 14 basis points to 0.25%, given the lower impairment charges and the solid growth of the financing portfolio during the year.

Profitability

For the year 2023, Al Rajhi Bank delivered a net income after Zakat amounting to SAR 16.6 Bn. with a marginal decline of 3% YoY. The Bank however continued to deliver industry leading return metrics, with a steady Return on Risk-Weighted Assets (RORWA) at 3.26%, Return on Assets (ROA) at 2.12%, and market leading Return on Equity (ROE) at 19.35% for 2023.

Statement of Financial Position – five-year summary

Description	2023 SAR ‘000	2022 SAR ‘000	2021 SAR ‘000	2020 SAR ‘000	2019 SAR ‘000
Cash and balances with Central Bank	41,767,641	42,052,496	40,363,449	47,362,522	39,294,099
Due from banks and other financial institutions, net	9,506,673	25,655,929	26,065,392	28,654,842	32,058,182
Investments, net	134,298,611	102,146,142	84,433,395	60,285,272	46,842,630
Financing, net	594,204,806	568,338,114	452,830,657	315,712,101	249,682,805
Investment properties, net	1,362,658	1,364,858	1,411,469	1,541,211	1,383,849
Property and equipment, net	12,852,774	11,338,782	10,665,799	10,234,785	10,407,247
Other assets, net	14,105,109	10,722,567	7,874,467	5,033,990	4,417,764
Total Assets	808,098,272	761,618,888	623,644,628	468,824,723	384,086,576
Dues to banks and other financial institutions	97,246,889	70,839,117	17,952,140	10,764,061	2,219,604
Customers’ deposits	573,100,607	564,924,688	512,072,213	382,631,003	312,405,823
Other liabilities	30,991,345	25,630,048	26,338,711	17,311,141	18,269,492
Total liabilities	701,338,841	661,393,853	556,363,064	410,706,205	332,894,919
Equity
Share capital	40,000,000	40,000,000	25,000,000	25,000,000	25,000,000
Statutory reserve	33,442,996	29,287,706	25,000,000	25,000,000	21,789,632
Other reserves	(96,606)	(427,569)	282,107	(134,728)	(216,041)
Retained earnings	16,913,041	9,864,898	16,999,457	8,253,246	868,066
Proposed dividends	0	5,000,000	0	0	3,750,000
Equity attributable to shareholders of the Bank	90,259,431	83,725,035	67,281,564	58,118,518	51,191,657
Tier 1 Sukuk	16,500,000	16,500,000	0	0	0
Total equity	106,759,431	100,225,035	67,281,564	58,118,518	51,191,657
Total liabilities and equity	808,098,272	761,618,888	623,644,628	468,824,723	384,086,576

Assets

Marking a milestone achievement during the year in review, Al Rajhi Bank passed the SAR 800 Bn. mark in total assets, closing 2023 with assets amounting to SAR 808 Bn. and recording an 6.1% YoY growth. The Bank’s asset quality continued to be the best in the market with 96.5% of our financing portfolio falling under the definition of stage 1 assets under the IFRS 9 classification. In addition, stage 2 and stage 3 assets stood at 2.3% and 1.2% of the financing portfolio respectively. Our stage coverage ratios remained higher than market average, with a stage 3 coverage of 60%, a stage 2 ratio of 12%, and stage 1 ratio stable at 0.43%.

Our prudent risk management and strong credit quality continued to be reflected in our NPL ratio, which remained the lowest in the market at 71 bps. The Bank’s NPL coverage ratio too, led the banking sector at a healthy 203%.

Deposits and other liabilities

Total liabilities of Al Rajhi Bank stood at SAR 701 Bn. at the close of the year, a YoY increase of 6.0%. Our customer deposits increased by SAR 10 Bn. during 2023 to reach SAR 573 Bn., a YoY growth of 1.4%. Demand deposits made up almost 64% of the overall customer deposits, while time deposits increased by almost SAR 6 Bn. YTD. Interbank borrowing increased 37% YoY to exceed SAR 97 Bn. It is worth mentioning that out of the syndicated amount of SAR 11.6 Bn., approximately SAR 10 Bn. is from a USD syndicated green loan.

Stability

With a strong balance sheet backed by market-leading asset quality and NPL ratio, healthy regulatory liquidity position and comfortable levels of capital ratios, Al Rajhi Bank successfully maintained its steady growth and consistent performance, demonstrating the stability, shareholder loyalty and creditworthiness of the Bank.

Liquidity

Al Rajhi Bank retained a healthy liquidity position in 2023, with a regulatory Loan-to-Deposit Ratio (LDR) of 83%. Our Net Stable Funding Ratio (NSFR) stood at 110%, comfortably above regulatory requirements. Additionally, Al Rajhi’s High-Quality Liquid Assets (HQLA) stood at SAR 137 Bn., recording a 16.0% increase YoY.

Capital

Al Rajhi Bank maintained a strong capital position in 2023, with a tier 1 ratio of 20.4%, and a total capital adequacy ratio of 21.5%. Our total Tier 1 and Tier 2 capital stands at SAR 112 Bn., out of which 95% is Tier 1 capital. Our total Risk-Weighted Assets (RWA) stand at SAR 520 Bn., a 4.5% YoY increase mainly driven by the growth in the financing book led to a 3.7% increase in Credit Risk RWAs. It is worth noting that our RWA density stands at 64.4%, compared to 65.4% recorded during the preceding financial year.

The year in review saw Al Rajhi Bank focus on strong internal capital generation, supporting the capital position of the Bank as we continued to identify and capitalise on new business opportunities.