Riyadh - Mubasher: Al Rajhi Bank's dominant Islamic retail franchise will continue to drive a strong financial performance into 2017, despite pressure on the Saudi economy from lower oil prices, Moody's Investor Services said in a report published Tuesday.
Al Rahji's retail focus delivers solid margins and asset quality, and with its granular funding profile, drives consistently strong profitability, said Nitish Bhojnagarwala, Assistant Vice President and Analyst at Moody's.
The bank will continue to report solid asset quality performance over the coming quarters, with an NPF ratio below 2%, according to the rating agency.
"Al Rajhi's Islamic retail portfolio drives higher financing yields and thus relatively stronger margins than its peers both in Saudi Arabia and the Gulf Co-operation Council (GCC). Coupled with a modest cost base and relatively lower provisioning, this generated a solid return on assets of 2.5% for the first six months of 2016" added Nitish.
Furthermore, strong profits, combined with solid retention rate (40% over last three years), provide healthy internal capital generation for the bank, which had a tangible common equity ratio of 19.8% as of June 2016, according to the rating agency.
"Al Rahji's retail strengths are a common feature amongst many Islamic banks in the GCC, where customers show a strong affinity towards Shari'ah compliant banking services" said Khalid Howladar, Global Head of Islamic Finance at Moody's.
"Islamic banks globally continue to demonstrate strong growth trends, often outpacing that of conventional banks in key Islamic markets," Howladar added.
