About Us: Al Rajhi Bank is one of the largest Islamic bank which was founded in 1957. With its base in Riyadh, Saudi Arabia, the bank has more than 500 branches. Internationally, the bank has expanded to Malaysia, Jordan and Kuwait. It is the first foreign bank which has been awarded a full banking license by Bank Negara Malaysia.
Industry: Banking and Financial Services
Total Assets: US $80 Billion
The SWOT analysis for Al-Rajhi bank is presented below:
1. Ccompliance with Islamic laws
2. Full Banking License in Malaysia
3. Ladies banking facility
4. Has been awarded as strongest Islamic retail bank
5. High Income to Operating cost ratio
1. IPO for Al Rajhi REIT in Jan 2018
2. Entering in new markets
3. Increase financing in Non-Oil GDP
1. Dependency on Oil prices
2. New entrants
1. Compliance with Islamic Laws: Islamic banking abides by the principle of Shariah. This law gives the Muslim community a facility to carry out the financial activities, who otherwise do not choose banks with conventional laws. Al Rajhi bank integrates the modern baking facilities like online banking and other financial facilities very well with the Islamic banking laws, which gives it the status of the most preferred Islamic bank.
2. Full Banking Licence in Malaysia: The bank has ventured in Malaysian market in 2006. With that, it has become the first bank ever to gain full banking license. Opening the branches in non-Islamic state gives the bank an opportunity to cater to a broader community (both Muslim and non-Muslim customers).
The bank also plans to roll out the country’s first artificial intelligence program for anti-money laundering. This would help the bank to bring down the cost by almost 50% (as anticipated by the senior authorities).
3. Ladies banking facility: The rules have always been very stringent for women in Saudi Arabia. With banks opening the facility of dedicated women bank, it has become easier for Women to get into new job opportunities and an ease to understand and take benefit of the modern banking facilities. The bank provides special credit card to its female customers which ensures privacy and offers distinction at various outlets which deals with women’s goods and services.
4. Awarded as strongest Islamic retail bank: Around 73% of the bank’s operating income comes from the retail sector. The bank provides a number of facilities like personal loans, cards, auto finance/leasing. Thus, it helps the bank to not only increase its overall business but also improve the brand visibility. Same is also supported with the CAGR of 5.4% in the deposits and 6.2% in its total assets. The bank is also the second largest bank in Saudi Arabia (asset wise).
5. High Income to Operating cost ratio: With high income to operating cost ratio (32.9%), the company establishes the fact that the system is turning efficient. The bank’s recent plan to introduce AI for anti-money laundering in Malaysia gives it a leverage to increase the efficiency further.
1. IPO for Al Rajhi REIT in Jan 2018: The company plans to distribute 90% of its shares to raise the capital and in turn invest further in retail, warehouse and education sector. This can be looked as an opportunity to increase its investments which in turn can increase the operating income for the bank from 3%. Higher ROE % as compared to other banks (16.88% v/s 13.10%) will also give an advantage to the bank when they plan to attract the investors from different backgrounds. Also, the bank has an opportunity to open up its share to different qualified foreign officials so as to increase the bank’s visibility.
2. Entering in new markets: Al Rajhi Bank is the only bank to have a full banking licence in the Malaysian market which opens up many new opportunities to cater the niche segment of corporate and investment banking once it establishes in the retail banking sector. The bank can also look into expanding to other Asian markets in coming years. This in turn also comes in sync with KSA’s mission to reach in the top 10 when it comes to global competitive index.
3. Increase financing in Non-Oil GDP: Oil exports form a major part of the GDP in Saudi Arabia and therefore the country aims to shift its focus from oil GDP to reduce the dependency. Such scenario opens up opportunities for huge investments in different sectors which in turns will help the banking and financial sector to increase its base within the nation as well.
1. Dependency on Oil prices: There is an adverse impact on bank’s credit extension and economic activities due to fluctuations in oil prices as the inflow or outflow of the oil receipts is inversely proportional to the international prices of the crude oil. As the there is a decrease in the oil prices, the fiscal spending is scaled back and which in turn leads to weakening of the economic activities. As per the recent investor presentation, GDP from Oil accounts for almost 45% and therefore the banks have a huge dependency on the oil prices.
2. New Entrants: With the boom in privatisation, foreign entrants like JP Morgan, Goldman Sachs and Citi bank plan to double the number of offices in the kingdom in next 3 years. These banks plan to benefit from the stock listing with the kingdom’s vision 2030 to transform and reduce dependency from public sector oil.
Al Rajhi in Malaysia
The PESTLE analysis for Al-Rajhi Bank is presented below:
1. Uncertain business climate
1. Global Prices of Oil
1. Ladies Banking facility
2. Social Initiatives
1. Restructuring of IVR systems
2. Automation in the banking system
3. Blockchain for transaction
1. Draft Bankruptcy Law 2016
2. Insolvency law
1. Addressing environmental issues by promoting digitisation
1. Uncertain business climate: Though there are positive aspects of having a single king ruling and taking decisions for the country or the economy as the various investors are aware of whom to reach out to. But the issue arises that what if the reforms fail and the king is not there, then who will be held responsible. That creates a sense of insecurity among the nationals of Saudi Arabia and investors, what if the reform fails, it would lead to greater chaos than the present scenario. The new in Saudi Arabia wants the nation to undergo drastic reforms especially in the field of technology.
On one hand, where the new crown prince promotes digitisation, focuses on non-oil GDP components and promotes women empowerment which would help increasing the investments, there is a huge risk involved when economists adds that the vision 2030 might be too optimist.
1. Global Prices of Oil: The economy of Saudi Arabia is mainly dependent on oil. As it is one of the leading oil exporter it accounts for 85 percent of its export and form around 45 percent of its GDP. So, it wouldn’t be wrong to say that yes, fluctuation in the oil prices do have an impact on its economy as well as would be having an adverse impact on the credit extension and economic activities of the banks. As the imports and export of oil is inversely proportional to the international prices of the crude oil. There has been decrease in the oil prices in recent past, the overall fiscal spending of the banks has scaled back and it has also weakened the economic activities of country.
1. Ladies banking facility: The new crown prince promotes women empowerment and hence, initiatives of Al-Rajhi bank like special credit cards and branches for females are in sync with the goals.
2. Social Initiatives: The bank has always been keen in participating in various events like international health day etc. The main motive behind this participation has been make the community more aware and knowledgeable about the issues of the society. The bank has always been enthusiastic about helping as many people as possible as well as has never restricted itself to help only people with similar issues. They have tried to touch the lives of the disabled, the unfortunates, the blinds or the people with special needs. This has been done to maximise the help being provided. In the year 2016, the bank has undergone a huge revolution and has initiated 42 such programs of social responsibility. More than 600 of its employees have served for this great cause. The over investment made by the employees has been more than 1650 hours. The contribution by each and every employee and the support by the bank has been tremendous. Some of the various programs that were the part of this initiative were as below:
· Open day for the blind at the special needs centre
· Autism Campaign
· Haj for 15 orphans
· Breast cancer awareness campaign
· Back to school campaign for orphans
1. Restructuring of IVR systems: The contact center department not only restructured the IVR systems for after sales services, but also introduced i-support application that helped customer to login their complaints on the portal apart from social media websites.
2. Automation in Banking system: The bank recently announced its plan to roll out its first artificial intelligence program in Malaysia to fight against money laundering by first quarter in 2018. This would also help the bank to reduce the errors and increase its efficiency. It has further worked on more than 50 initiatives to improve customer experience and bank’s compliance with local and international rules and regulations. On the user front, the website supports online banking, POS machine facilities installed at retail stores and mobile banking facilities are made available to the users.
3. Blockchain for transaction: The bank is also the first to implement blockchain successfully for cross border transactions. This in turn also shows that bank is moving towards digital transformation. With this initiative, bank plans to reduce delivery time and cost and enhance accuracy.
1. Draft Bankruptcy Law 2016: The draft bankruptcy law consists a total of 320 provisions with revolves around 3 main mechanisms i.e., preventive settlement, financial restructuring and liquidation. The law aims at reducing the time and risks involved at the time on any business disruptions by encouraging economic activities for feasible companies and at the same time maximising the recoveries from inefficient investors.
2. Insolvency Law: Saudi Arabia addressed its insolvency issue after the approval of bankruptcy law in 2016. The cost of closing a business in in Saudi is very high, whereas the recovery rate is very low. And hence a reform in the insolvency policy would increase the certainty of outcomes and hence would benefit both domestic and foreign creditors. The 3 procedures which are included in the reforms are, conciliation, rehabilitation and liquidation.
1. Addressing environmental issues by promoting digitisation: The bank has been focusing on may initiatives to digitise its user experience like POS machines, self-servicing machine for efficient management of workforce, reduce energy consumption and minimize wastage of paper by promoting online transactions. To facilitate the same, the bank provides both mobile banking and online banking services. Further, the bank can move towards introducing solar based ATMs to reduce the energy impact and green bonds to promote development.