An Overview

The Kingdom being recognised as the world’s fastest growing economy by 8.7% in 2022 with a positive outlook for 2023 laid the stage for Al Rajhi Bank to continue delivering a strong performance across all business lines. Guided by its 2021-2023 Bank of the Future (BOTF) Strategy and its initiatives, Al Rajhi Bank recorded a 22% YoY growth across its balance sheet. Consumer spending continued its positive trend with an increase of 9.5% in 2022 on the back of improved economic activities across the Kingdom. The financing portfolio also grew at 26% for the year to reach SAR 568 Bn.

Mortgage recorded a growth of 30% YoY, and now represents close to 39% of our total financing portfolio and 51% of the Al Rajhi retail book. In addition, the successful implementation of our BOTF Strategy saw a 57% growth in our corporate book and an equally impressive 61% growth in our SME business, contributing to a significant 59% YoY growth of our non-retail book. We also delivered a solid net income growth of 16% YoY to reach SAR 17.2 Bn., driven by both a 9% increase in net yield income, and a non-yield income growth of 20%.

One of the key highlights for Al Rajhi Bank in 2022 was our successful diversification of funding sources, with our Treasury Group carrying out three major transactions during the year under review; a Tier 1 Sukuk was issued for the first time in Al Rajhi Bank’s history at a total value of SAR 6.5 Bn., the Bank also became the first Islamic Bank in the world to raise a Sharia-compliant, green syndicated loan of USD 1.2 Bn., and also went on to announce a Tier 1 Sukuk public issuance, the first of its kind in the market, raising the issue to SAR 10 Bn. to meet the demand of over 125,000 investors.

A detailed review of Al Rajhi Bank’s results of operations and financial position is given below:

Five-year summary of the Income Statement

Description	2022 SAR ‘000	2021 SAR ‘000	2020 SAR ‘000	2019 SAR ‘000	2018 SAR ‘000
Income
Gross financing and investment income	28,201,631	21,441,506	17,377,963	16,962,583	14,993,709
Return on customers’, banks’ and financial institutions’ time investments	6,028,944	1,049,570	464,946	534,860	506,724
Net financing and investment income	22,172,687	20,391,936	16,913,017	16,427,723	14,486,985
Fee from banking services, net	4,624,140	3,933,107	2,659,680	1,987,367	1,867,034
Exchange income, net	1,162,162	787,898	783,894	774,096	755,804
Other operating income, net	616,030	603,457	364,669	295,278	209,695
Total operating income	28,575,019	25,716,398	20,721,260	19,484,464	17,319,518
Expenses
Salaries and employees’ related benefits	3,395,191	3,132,346	2,977,344	2,794,046	2,809,449
Rent and premises related expenses		0	0	0	314,567
Depreciation and amortization	1,330,119	1,141,932	1,118,148	1,059,582	603,136
Other general and administrative expenses	2,725,760	2,652,244	2,646,409	2,532,213	1,925,518
Operating expenses before credit impairment charge	7,451,070	6,926,522	6,741,901	6,385,841	5,652,670
Impairment charge for financing and other financial assets, net	2,001,259	2,345,086	2,165,740	1,772,265	1,530,946
Total operating expenses	9,452,329	9,271,608	8,907,641	8,158,106	7,183,616
Income for the year before Zakat	19,122,690	16,444,790	11,813,619	11,326,358	10,135,902
Zakat for the year	(1,971,865)	(1,698,579)	(1,218,071)	(1,167,831)	(6,367,949)
Net income for the year	17,150,825	14,746,211	10,595,548	10,158,527	3,767,953

 

Revenue breakdown by subsidiaries	2022 SAR ‘000
Al Rajhi Capital Company – KSA	866,520
Management and Development for Human Resources Company – KSA	947,953
Al Rajhi Bank – Kuwait	88,892
Al Rajhi Bank – Jordan	147,927
Tuder Real Estate Company – KSA	187,952
Al Rajhi Corporation Limited – Malaysia	233,625
Emkan Finance Company – KSA	1,053,064
Tawtheeq Company – KSA	9,443
Al Rajhi Financial Markets Ltd	–
International Digital Solutions Co. (Neoleap) – KSA	346,766
Ejada System Limited Co. – KSA	248,805
Total	4,130,948

Total operating income

Al Rajhi delivered a strong growth in total operating income driven by both yield and non-yield income to reach SAR 28.6 Bn. for 2022, recording a growth of 11% YoY. Yield-based income for the year grew 9% to SAR 22.2 Bn., accounting for 78% of the Bank’s total operating income.

The continued focus on increasing our revenue mix resulted in the Bank’s non-yield income increasing to represent 22% of the Bank’s total operating income. Non-yield income growth was driven by a 18% fee income increase YoY; the positive migration to cashless payments coupled with an increase in consumer spending as well as an increase in market share (from acquired businesses) resulted in growing payment revenues during the year under review. A decent YoY growth in trade and cash management fee income from the steadily growing corporate business also contributed to the revenue mix. Exchange income has also shown a strong performance increasing by 48% YoY.

Operating expenses

The Bank’s operating expenses for the year amounted to SAR 7.5 Bn., an increase of 7.6% resulting from the 22% YoY growth of our overall balance sheet, and higher transaction volume compared to last year. The Bank continued to make strategic investments during the reporting period to execute and deliver ambitious KPIs of the BOTF Strategy.

However, the Bank recorded a 11% increase in operating income, resulting in a strong, 354-basis-point positive jaws, and a 86-basis-point cost-to-income improvement. This ensured Al Rajhi Bank recorded the leading cost-to-income ratio in the local market, standing at 26.1% for the period.

Impairment Charges

In line of the International Financial Reporting Standard 9 – Financial Instruments (IFRS 9) issued by the International Accounting Standards Board (IASB), Al Rajhi Bank updated the “expected credit loss” (ECL) framework for the recognition of impairment, taking into consideration current events and forecast information including the positive macro outlook for The Kingdom. This resulted in our net impairment charges for the period to decrease to SAR 2 Bn., almost a 15% drop YoY. These lower charges complemented by the growth of our financing portfolio resulted in our cost of risk decreasing from 0.60% in 2021 to 0.39% in 2022.

Profitability

Having recorded SAR 17.2 Bn. in net income after Zakat for the year, Al Rajhi continued to maintain industry-leading returns, with a steady Return on Assets (ROA) at 2.46% and Return on Equity (ROE) at 22.68% in 2022. The Bank also recorded a 3.71% return on its risk-weighted assets (RORWA) at the end of the year.

Five-year summary of the statement of financial position

Description	2022 SAR ‘000	2021 SAR ‘000	2020 SAR ‘000	2019 SAR ‘000	2018 SAR ‘000
Cash and balances with Central Bank	42,052,496	40,363,449	47,362,522	39,294,099	43,246,043
Due from banks and other financial institutions, net	25,655,929	26,065,392	28,654,842	32,058,182	32,387,760
Investments, net	102,146,142	84,433,395	60,285,272	46,842,630	43,062,565
Financing, net	568,338,114	452,830,657	315,712,101	249,682,805	231,758,206
Investment properties, net	1,364,858	1,411,469	1,541,211	1,383,849	1,297,590
Property and equipment, net	11,338,782	10,665,799	10,234,785	10,407,247	8,649,435
Other assets, net	11,469,701	7,874,467	5,033,990	4,417,764	3,629,245
Total Assets	762,366,022	623,644,628	468,824,723	384,086,576	364,030,844
Dues to banks and other financial institutions	70,839,117	17,952,140	10,764,061	2,219,604	7,289,624
Customers’ deposits	564,924,688	512,072,213	382,631,003	312,405,823	293,909,125
Other liabilities	26,377,182	26,338,711	17,311,141	18,269,492	14,526,229
Total liabilities	662,140,987	556,363,064	410,706,205	332,894,919	315,724,978
Equity
Share capital	40,000,000	25,000,000	25,000,000	25,000,000	16,250,000
Statutory reserve	29,287,706	25,000,000	25,000,000	21,789,632	16,250,000
Other reserves	(427,569)	282,107	(134,728)	(216,041)	(349,555)
Retained earnings	9,864,898	16,999,457	8,253,246	868,066	12,499,171
Proposed dividends	5,000,000	0	0	3,750,000	3,656,250
Equity attributable to shareholders of the Bank	83,725,035	67,281,564	58,118,518	51,191,657	48,305,866
Tier 1 Sukuk	16,500,000	0	0	0	0
Total equity	100,225,035	67,281,564	58,118,518	51,191,657	48,305,866
Total liabilities and equity	762,366,022	623,644,628	468,824,723	384,086,576	364,030,844

Assets

Al Rajhi Bank passed the SAR 700 Bn. milestone in total assets during the reporting period, closing the year with assets amounting to SAR 741 Bn., a 27% growth YoY. The Bank’s asset quality continued to be the best in the market with 97.5% of our financing portfolio recognised as stage 1 assets. Stage 2 and stage 3 assets stood at 1.7% and 0.8% of the financing portfolio respectively, with coverage ratios for stage 3 standing at 64%, stage 2 at 18% and stage 1 at 0.58%, all higher than market average. Our prudent risk management continued to be reflected in our NPL ratio which was the lowest in the market, reducing from 0.65% in 2021 to 0.54% in 2022, the fourth consecutive year of improvement for this KPI. Additionally, the Bank’s NPL coverage ratio too, lead the banking sector at a healthy 260%.

Deposits and other liabilities

Total liability of Al Rajhi Bank stood at SAR 662 Bn., a YoY increase of 19%. Customer deposits increased by SAR 53 Bn. during the year under review, a growth of 10% YoY to reach SAR 565 Bn., with demand deposits making-up almost 64% of total customer deposits. Time deposits also recorded a strong growth in 2022, increasing by SAR 72 Bn. YoY. Interbank borrowing increased by SAR 53 Bn., which also included a SAR 4.4 Bn. of USD syndicated green loan considered to be the largest Sharia-compliant syndication in the Middle East.

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.

Capital

Al Rajhi Bank continued to maintain a strong capitalisation profile above regulatory minimum requirements with a Core Equity Tier 1 (CET1) ratio of 17.0% and a total capital adequacy ratio of 21.4%, marginally higher than the ratios recorded in 2021. A 17% YoY increase in Risk-Weighted Assets (RWA) arising primarily from growth in the financing portfolio led to 18% increase in Credit Risk RWAs, impacting our capital ratios. However, a decrease in RWA density from 68.2% in 2021 to 65.3% in 2022 demonstrated the Bank’s improving risk quality of assets. The reporting period saw the Bank focused on strong internal capital generation to help support the capital position of the Bank, while also exploring new business opportunities.

Liquidity

Al Rajhi Bank’s liquidity position remained healthy and within the regulatory requirements, with a regulatory Loan-to-Deposit Ratio (LDR) of 85.9% in line with our internal optimised level. The Bank’s Net Stable Funding Ratio (NSFR) and Liquidity Coverage Ratio (LCR) stood at comfortable levels at 110% and 126% respectively, and above statutory minimum requirement. Al Rajhi Bank recorded a 25% YoY growth of High Quality Liquid Assets (HQLA) amounting to SAR 118 Bn., as at 31 December 2022.

Geographical analysis of the total income of the bank and its subsidiaries	2022 SAR ‘000
KSA	29,342,624
Middle East and East Asia	470,444
Total	29,813,068