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Middle EastNovember 1 2019

Al Rajhi CEO looks to continue diversification drive

Al Rajhi Bank CEO Stefano Bertamini talks about areas of expansion for the bank, including retail, mortgages and increased digitalisation through its successful mobile banking app.
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Steve Bertamini

Steve Bertamini

Q: What is the outlook for Saudi Arabia's economy in the coming years, and how will banks respond?

A: According to a recent report by the International Monetary Fund, Saudi non-oil growth is expected to accelerate by 2.9% in 2019, and expand further, above 3%, in the coming years, as economic reforms continue to be implemented.

Structural reforms undertaken by the government as part of Vision 2030 include the financial markets, domestic debt market, foreign investment, the legal framework, ease of doing business, and small and medium-sized enterprises. These reforms culminated in the inclusion of the country in the international equities and bonds markets indexes in 2019, which is a significant achievement for the financial sector of Saudi Arabia.

Banks are in strong position, and credit growth has improved this year, led by growth in the housing sector. We expect banks to continue diversifying their revenue streams in new sectors such as entertainment and renewable energy, and to further invest in digitisation to improve the customer experience.

Q: What is the outlook for Al Rajhi for 2019 and 2020 in terms of profitability, credit growth and credit quality?

A: Al Rajhi Bank achieved a net profit of SR10.3bn [$2.74bn] in 2018, and reported a net profit of SR5.2bn for the first half of 2019, and we expect to continue improving our results in the future. We have also maintained very good credit quality, with cost of risk remaining flat compared to last year at 0.64%.

We are continuing to selectively expand our portfolio in key sectors such as housing, education, healthcare and renewable energy. Recently, we have also expanded our structured finance team and have seen increased levels of activity in large projects. Similarly, we expect retail lending to continue growing, supported primarily by strong growth in demand for housing, in line with the vision to increase home ownership to 70% of Saudi households by 2030 from the current level of 57%.

Q: The mortgage market has been an area of growth for Al Rajhi. Is this likely to continue in the next two years? What metrics and forecasts can you share?

A: Our home financing grew 39% year on year as of June 2019, and our market share for mortgages rose to 29.5%, from 20.6% in 2015. We expect mortgages to continue to grow in double digits over the next two to three years as a more affordable housing supply enters the market.

Q: Al Rajhi has been particularly innovative in the digital sphere. What have been the highlights of the past year, and what are the next new innovations we can expect?

A: Al Rajhi Bank has been investing steadily in digital over the past four years and continues to introduce many market firsts. We were the first bank in the country to conduct a blockchain transaction and are one of the largest users of robotics in the Middle East. We have been using bots for more than two years, and currently they handle over 24,000 transactions per day in more than 50 different processes.

We have the highest rated and most downloaded application for mobile banking in Saudi Arabia and have been adding more than 100,000 new active customers every month for the past 18 months, and we expect to exceed 5 million active customer before the end of 2019.

Other areas of focus include the continued rollout and expansion of our automated kiosks (more than 270) and increasingly larger digital areas in our physical locations. The mix of transactions that are purely digital has also grown substantially from 40% to more than 60%, while our volumes continue to increase quite substantially as we now process over 215 million transactions per month.

We also recently launched online account opening and online personal finance, which has resulted in a substantial increase in volumes.

Q: Are we likely to see further consolidation in the Saudi banking sector in the near future?

A: The merger of two banks has been completed [SABB and Alawwal] and there is one more pending [between National Commercial Bank and Riyad Bank]. Given the size and scale of these, we are not expecting to see any further activity in this area in the near future.

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Read more about:  Regulations , Middle East , Saudi Arabia
John Everington is the Middle East and Africa editor. Prior to joining The Banker, John was the deputy business editor of The National in the UAE, and has also worked for Dealreporter, Arab News and The Telegraph. He has also covered the telecom sector in Africa and the Middle East, living and working in Qatar and the UK. John has a BA in Arabic and History and an MA in Middle Eastern Studies from the School of Oriental and African Studies (SOAS) in London.
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