KUALA LUMPUR: Under Malaysia’s Islamic financial market liberalization policy, Al-Rajhi Bank was one of the first foreign banks to receive an Islamic banking license from Bank Negara Malaysia. Since its establishment in 2006, the bank has steadily and successfully built up a retail presence in Malaysia and boasts 19 branches and a balance sheet nearing $4 billion. Here, Ahmed Rehman, CEO of Al-Rajhi Bank Malaysia and formerly of Standard Chartered Bank in Dubai, discusses the progress, prospects and challenges that lie ahead for the bank in particular and the Islamic finance sector in general. Excerpts:
Can you clarify where Al-Rajhi Bank is positioned in the Malaysian Islamic banking sector?
We soft launched in October 2006 with one branch. We were officially launched by Malaysian Prime Minister Abdullah Badawi in February 2007. Since then we have now opened 19 branches all across Malaysia especially in the Klang Valley. We have a decent footprint across the country. We now have a staff of about 360 people.
What is your core business strategy?
We started off primarily focusing on retail banking. Once this developed from strength to strength, we started doing niche corporate financing, servicing Malaysian companies doing business in the Middle East and vice versa. We have also started doing business with local companies active in the domestic market. We started doing some investment banking as well. We are hoping to get our Islamic investment banking license any day now.
I understand that your ambition is to have 60 branches in Malaysia?
We are actually authorized by Bank Negara Malaysia, our regulator, to open 50 branches. This is our aim over the next few years. This is a question of scale to have an effective retail business. We have to have a certain minimum footprint. This year we have started many offsite ATMs. In fact, we are the only foreign Islamic bank in Malaysia that has been allowed to do this. Apart from the 19 branches, we will also by the end of this year have 35 offsite ATMs in Malaysia. Within the next few months, we will also be the first foreign Islamic bank to join the local ATM Switch Service.
What is the rationale behind Al-Rajhi Bank’s launching in Malaysia?
Retail banking is the DNA of Al-Rajhi Bank. In my experience, while it is tough to launch such a base in a foreign market, once you have done that, the other activities such as corporate finance, investment banking etc. become much easier. There is a huge amount of annuity in the retail business, while the corporate and investment banking business is very deal-oriented. We think that creating the franchise, the brand value and annuity income will stand us well in the long run.
How does GCC banking differ from Malaysian banking?
There is quite a difference. From a parent perspective, we have to adhere to the principles of our parent because all our numbers are consolidated to our parent. They have to be satisfied with what we are doing. At the same time, we are operating in Malaysia so our products have to be as competitive as those in the local market. The bridging of the gap between Saudi Arabia and Malaysia, including in Shariah interpretation, was and is always a challenge. But at the end of the day, we have the full suite of retail (home, personal, savings, car financing) and corporate products. As we do more sophisticated products, we start to test the boundaries more and more. Some of our products which we have designed in Malaysia such as our savings Mudaraba are now marketed in Saudi Arabia.
Has Al-Rajhi Bank been affected by the credit crunch?
We have a very strong parent and because of our business model, we have not been affected as such by the credit crunch. Our parent has just announced SR6 billion in net profits for 2008. In the Malaysian market, companies are reviewing their businesses and there has been a reduction in deals in the market. Both individual and corporate investment from the Middle East into Malaysia has slowed. Non-performing loans in the Malaysian market have declined although this may be due to a lag effect.
Going forward, what are your priorities for the next few years?
On the retail front, it is to create a balanced portfolio, for instance expanding our home financing business. We also want to generate more fee income business, including wealth management business. We also want to cross-sell products to our customers. We also have an embryonic SME financing business in Malaysia.
Why is Al-Rajhi Bank absent from the Sukuk market?
The bank has not found a structure which is acceptable from a Shariah-compliant perspective. Also the bank is predominantly a retail bank and has only begun investment and capital market activities in the last few years.
What is the potential for Saudi-Malaysian banking and business relations?
There are many synergies. When Saudi Telecom Co. (STC) bought a 25 percent stake in Maxis, the Malaysian mobile phone operator, we financed a 1.5 billion ringgit tranche of that acquisition. That is a validation of the bridging role Al-Rajhi Bank can play. I am sure there will be many more such opportunities. Likewise, there are Malaysian companies which are bidding and winning contracts in the Kingdom.
