Al Rajhi Bank · Al Rajhi Bank Primary Credit Analyst ... No reprint or dissemination without S&P's ... The ratings on Saudi Arabia-based Al Rajhi Bank reflect the bank's

Al Rajhi BankPrimary Credit Analyst:Nicolas Hardy, Paris (33) 1-4420-7318; [email protected]

Secondary Credit Analyst:Paul-Henri Pruvost, London (44) 20-7176-7210; [email protected]

Table Of Contents

Major Rating Factors

Rationale

Outlook

Profile: The World's Largest Islamic Bank With Systemic Importance To

The Kingdom

Support And Ownership: Family Ownership Is A Neutral Rating Factor

Strategy: Challenging Diversification Out Of Domestic Retail Banking

Risk Profile And Management: Adequate And Improving Risk

Architecture Designed For A Stable Business Model

Profitability: Stellar Financial Performance With Improved Quality Of

Core Earnings, But Which Are Set To Decline

Capital: Among The Strongest In The Gulf Region

December 24, 2008

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Al Rajhi Bank

Major Rating Factors

Strengths:

• Strong customer franchise in the retail sector

• Superior and sustained profitability

• Lower-than-peer concentration risks in loans and deposits

• Strong capitalization

Counterparty Credit Rating

A/Stable/A-1

Weaknesses:

• Low business and geographic diversification

• More difficult environment due to lower oil prices

• Increasing competitive pressure

• Large maturity mismatch

Rationale

The ratings on Saudi Arabia-based Al Rajhi Bank reflect the bank's healthy customer franchise in the domestic retail

sector, superior and sustained profitability, concentrations in loans and deposits that are lower than peers', and

strong capitalization. The ratings are constrained by the bank's low business and geographic diversification and

large maturity mismatch. In addition, the bank will have to operate in a more difficult environment due to lower oil

prices and increasing competitive pressure.

Al Rajhi is the third-largest bank in terms of assets in the Kingdom of Saudi Arabia (AA-/Stable/A-1+). With the

most extensive distribution network in the kingdom (about 430 branches), the bank has built up the widest demand

deposit base. Given its size and retail entrenchment, Standard & Poor's Ratings Services considers Al Rajhi to be a

systemically important bank in Saudi Arabia, which we classify as "interventionist" toward its banking sector.

Reflecting our opinion that extraordinary government support would be likely in case of need, we uplift the

long-term rating on the bank one notch above its stand-alone creditworthiness.

Al Rajhi is among the most profitable banks in the Gulf. Its robust profitability has been largely driven by increasing

business volumes, high margins, and low labor costs. The bank has benefited from strong momentum in the Saudi

economy and is well positioned to weather expected pressure due to its historical focus on its core retail domestic

market.

Asset quality is satisfactory, with a ratio of nonperforming loans (NPLs) to gross loans of 2.6% on Sept. 30, 2008.

Coverage by provisions is high at more than 130% on the same date. The NPL ratio is set to decline in

fourth-quarter 2008 to a level close to the average for peers, as a result of active write-offs. Al Rajhi relies mainly on

short-term retail deposits for funding and therefore maturity mismatches are material, as for most banks in the

region. Business and geographic diversification remains limited, despite a recent foray into Asian Muslim markets

through its Malaysian subsidiary established in 2006. Al Rajhi faces the challenge of widening the scope of its

business lines by enhancing its corporate and investment banking capabilities in a more competitive market, while

maintaining its strong financial profile and performance. Capitalization is among the strongest in Saudi Arabia and

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the whole Middle East. The bank intends to keep its dividend payout policy conservative, to alleviate further

pressure on capital coming from the recent rapid growth of risk assets and the likely deterioration of the economic

environment.

Outlook

The stable outlook reflects our expectation that Al Rajhi will retain its strong financial profile and leading

commercial position in retail banking, despite increasing competition. We could raise the ratings if the bank

materially improves business diversification out of retail lending, geographic diversification proves successful, and it

further widens the funding mix to reduce maturity mismatches. The ratings may come under pressure if asset quality

or capitalization weakens dramatically.

Profile: The World's Largest Islamic Bank With Systemic Importance To TheKingdom

With Saudi Arabian riyal (SAR) 163.3 billion ($43.5 billion) in assets on Sept. 30, 2008, Al Rajhi is the third-largest

Saudi bank and the world's largest Islamic financial institution (IFI). Particularly strong in retail banking, Al Rajhi

operates the kingdom's largest domestic branch network, allowing excellent access to individuals and small and

midsize enterprises (SMEs). The large amount of nonremunerated sight deposits captured through its domestic

network accounts for one of the bank's main strengths. As a former moneychanger, it also manages a large portion

of foreign workers' remittances to their home countries, a very profitable business. Al Rajhi has a limited but slowly

expanding international network. Recent developments include the opening of a bank subsidiary in Malaysia in

2006. It also received in 2008 a branch license in Jordan and Kuwait.

Support And Ownership: Family Ownership Is A Neutral Rating Factor

Al Rajhi has operated with a full banking license since 1987. The bank is listed on the Saudi stock market. The Al

Rajhi family has a stake of about 45% in the bank's capital and the General Organization for Social Insurance

9.9%. Seven out of the 12 board members are family members. Although the family ownership structure brings its

own risks, Al Rajhi's shareholding structure is neutral for the ratings since the Al Rajhi family has until now

supported a conservative provisioning policy and the Saudi Arabian Monetary Authority (SAMA) strictly controls

related-party lending. In addition, family members are now less involved at all managerial levels than in the past.

Given its size and retail entrenchment (with a market share in excess of 15%), we consider Al Rajhi as a systemically

important bank in Saudi Arabia (considered interventionist to its banking sector). Therefore, the long-term rating on

the bank is one notch higher than the stand-alone creditworthiness.

Strategy: Challenging Diversification Out Of Domestic Retail Banking

Al Rajhi's main strategic objective is to protect its retail franchise and domestic entrenchment. The bank's potential

to further develop its retail business and franchise is limited. Indeed, retail lending growth has been slowing down in

the country following regulatory tightening and the sharp drop in stock prices in 2006 and 2008. Moreover,

competitive threats to retail-focused banks have become more obvious since the distinctive benefits of being an



Al Rajhi Bank

Islamic bank started to vanish after most Saudi banks turned their conventional retail business lines into Islamic

ones. Al Rajhi still benefits from a first-mover advantage and strong brand name recognition, however.

The bank has placed more emphasis on corporate banking in the past two years and has ambitious plans for further

growth. It remains to be seen if the slowing economy will allow the bank to achieve its growth target while

maintaining its asset quality. The bank has managed to rapidly capture a growing market share of corporate

banking and nearly triple the size of its portfolio within three years, targeting mostly the top-end and the

middle-market segments, with an initial emphasis on the kingdom's infrastructure projects and now on a more

diversified base by economic sector. The bank's corporate book, including mutajara with corporates, now accounts

for about half of the overall lending book, compared with a third only a year ago. This strategic move has proved

successful thanks to a very supportive environment and growing demand for Islamic products. Al Rajhi's business

profile and financial results remain skewed toward retail banking, though. A slowing business environment and the

resulting tougher competition in the corporate segment, where the bank is not an historic player, could limit any

further forays if the bank is to maintain strict and conservative lending policies.

Al Rajhi's asset management capabilities remain underdeveloped compared with peers'. The bank plans to

strengthen its position and focus on this segment, however. Al Rajhi Financial Services has since January 2008

grouped the bank's investment-banking business lines into a separate legal entity. Although some Saudi banks have

chosen to benefit from foreign expertise through joint ventures--as these labor-intensive, high-value-added, and

technically complex services are better delivered within a global group--Al Rajhi decided to wholly own this

specialized subsidiary and build it organically.

Geographic diversification will come slowly from the bank's foray into Asian markets, starting with the operations it

launched in Malaysia in 2006. The bank had about $800 million of deposits on Sept. 30, 2008, and operated 19

branches, with plans to increase this to 50 within the next five years. On the asset side, the main focus has been on

the corporate segment. We understand that Malaysia is the first step of a more ambitious expansion program in

Asia. The bank will adapt the speed of implementation with changing market conditions.

Risk Profile And Management: Adequate And Improving Risk ArchitectureDesigned For A Stable Business Model

Al Rajhi's risk profile is average in the Saudi context. The bank's risk architecture has improved and is falling in line

with what we would expect from a financial institution of such a stature in the Saudi market. The bank is subject to

the same regulatory oversight despite the specificities of its business model as an Islamic bank. The bank's disclosure

is therefore as stringent as it is for other domestic banks. Further to the implementation of Basel II requirements, Al

Rajhi was the first Islamic bank in the region to publicly disclose according to Pillar 3 in 2008. Credit risks are

mitigated by lower-than-average concentration; market risks remain limited despite some vulnerability to an interest

rate decline. Funding remains short-term by nature, while asset tenors are widening. Limited access to liquidity

management tools, as for any Islamic bank, requires the bank to maintain a large portion of its balance sheet in

simple liquidity products. Al Rajhi's financial statements are consolidated and prepared under IFRS. Financial

statements are audited by internationally recognized auditing firms and to date remain unqualified.



Al Rajhi Bank

Enterprise risk management: adequate

Al Rajhi's enterprise risk management is adequate and has been strengthened significantly in recent years. The risk

management function is independent, and recently spearheaded the overhauling of risk policies, procedures, and

tools across business lines. The risk culture has been actively enhanced from its former below-average profile, with a

specific emphasis on hiring new staff to meet higher risk governance standards and developing new risk management

tools. The new risk architecture remains nevertheless untested by a prolonged economic downturn.

Credit risk: the bank's currently solid asset quality is set to be tested by weakening economic conditions

Al Rajhi's loan leverage has remained relatively stable in the past four years at about 65%-70%, following a

significant increase due to its dominant position and strong momentum in the retail segment. The loan portfolio

continued to increase rapidly in recent years, reflecting Al Rajhi's relatively late arrival to the corporate lending

segment, the main driver of growth in the past two years. The total portfolio of mutajara with SAMA, banks, and

corporates stood at SAR63.9 billion on Sept. 30, 2008. It is actively managed, hence the significant volatility of its

components from one quarter to another. Mutajara transactions with corporates have a longer average maturity

than placements with SAMA and banks, and we consider them as Islamically acceptable equivalents to loans and

advances under our methodology.

The bank has an average credit risk profile. This is linked to the fact that it is serving the entire Saudi economy,

including a wide range of retail-banking segments (with about 3 million individuals) and SMEs (in excess of 90,000

customers). The bank does not show the concentration risk usually found among domestic peers. The 20 largest

nonbank exposures represent less than 20% of total nonbank loans. On the other hand, since the corporate

portfolio has increased only recently and the bank's focus is on top-end names, these top 20 exposures account for

about 45% of the corporate book. Nonperforming assets were limited to 2.6% of gross loans on Sept. 30, 2008,

and are expected to decline before year-end to a level that is similar to peers' as a result of active write-offs. The

bank has also put in place a seasoned, dedicated team to boost the recovery of past-due lending facilities. Coverage

by provisions is high at more than 130%. Consumer loans are usually secured by salary transfers, which provide

further comfort. The bank's car loan portfolio, about SAR4.0 billion on Sept. 30, 2008, is significant and shows a

higher risk profile. In corporate credit, the bank overcomes the uncertain legal environment prevailing in Saudi

Arabia through a very centralized credit culture.

Market risk: limited

Saudi banks have to deal with the strong endowment effect caused by unremunerated deposits. They usually suffer

when rates come down. This is particularly true for Al Rajhi, as it pays almost no remuneration on about

three-quarters of its customer deposits. Moreover, the bank does not have a fixed-rate bond portfolio, meaning it

cannot currently hedge its interest rate risk in a straightforward way. Foreign exchange risk is very limited. Al Rajhi

holds a very small equity portfolio in the form of investments in mutual funds. Al Rajhi reported no exposure to

subprime assets or other structured products, since Sharia compliance requirements prevent the bank from investing

in these assets.

Funding and liquidity risk: difficult to manage effectively given Islamic banks' constraints

Al Rajhi features a strong funding profile. The bank benefits from a huge pool of customer deposits, which funds

loans and enables the bank to maintain significant liquid short-term placements. Concentration in deposits is very

limited. Customer deposits amount to 74.9% of liabilities and equity. The remainder is made up of on-balance-sheet

"direct investments" by customers (effectively similar to time deposits), which are in fact the only funds carrying a

cost, as well as some long-term debt. Although most customer deposits are short-term but are effectively rolled over,



Al Rajhi Bank

the bank remains exposed to the transformation risk from funding long-term loans with current and short-term

deposits. The rapid increase of the corporate loan book has expectedly triggered wider maturity mismatches. The

bank has barely started to address the issue of wider access to long-term funds. In addition, market conditions have

halted this strategy for the foreseeable future.

Liquidity is strong but not easy to manage for IFIs, because they lack access to diversified alternative asset classes to

absorb excess liquidity. Prohibited from dealing in fixed-income securities, the bank instead holds a portfolio of

short-term special placements with SAMA, about SAR15.5 billion on Sept. 30, 2008, as part of its "mutajara"

book. Al Rajhi is allowed to withdraw from SAMA up to 75% of the volume of such placements for short-term

liquidity needs, a percentage equal to the one allowed for conventional repo transactions, thus limiting dependence

on the interbank market. Al Rajhi had an additional liquidity cushion in the form of short-term bank placements of

close to SAR11.7 billion on the same date.

Profitability: Stellar Financial Performance With Improved Quality Of CoreEarnings, But Which Are Set To Decline

Al Rajhi is one of the most profitable banks in the Gulf. After stellar performances in 2005 and 2006, with return

on assets (ROA) of 6%-7%, which notably included contributions from exceptionally high brokerage fees, earnings

have returned to more sustainable but still excellent levels in 2007 and 2008. ROA and return on equity for the first

nine months of 2008 stood at 4.7% and 28.3%. However, like peers, earnings are set to decline due to the economic

slowdown, tough competition, and lower business growth. Robust bottom-line profitability should continue to

benefit from low funding costs, limited provisioning needs, and good efficiency. The capacity of the bank to

maintain a very low cost of funding (largely related to its nonremunerated deposits) is a key driver of the bank's

future profitability. One of the bank's challenges remains further diversifying revenue sources out of the pure

intermediation margins that it generates in Saudi Arabia. Ancillary business in corporate banking, investment

banking, and overseas operations should help the bank achieve this goal in the medium term and improve the

quality of core earnings.

Capital: Among The Strongest In The Gulf Region

Al Rajhi's capitalization remains among the strongest in the Gulf region. The continued and rapid growth of assets

during the past 12 months has not been matched by an equivalent rise of capital, however, despite a conservative

dividend payout policy.

Adjusted total equity amounted to SAR25.6 billion on Sept. 30, 2008, representing 15.7% of total assets, versus

18.9% at year-end 2007. On a positive note, the bank is to keep its dividend payout policy conservative in the

future. The Tier 1 capital adequacy ratio is unlikely to decline substantially, reflecting our expectation that the bank

will also maintain an equity base of very high quality.



Al Rajhi Bank

Table 1

Al Rajhi Bank Balance Sheet Statistics

--Year ended Dec. 31-- Breakdown as a % of assets (adj.)

(Mil. SAR) 2008* 2007 2006 2005 2004 2003 - 2008* 2007 2006 2005 2004 2003

Assets

Cash and money marketinstruments

52,893 36,602 33,955 29,418 38,254 37,132 32.40 29.31 32.27 30.95 49.13 57.41

Securities 1,302 572 431 418 537 373 0.80 0.46 0.41 0.44 0.69 0.58

Customer loans (gross) 106,827 86,536 70,049 65,279 40,246 27,443 65.44 69.29 66.58 68.69 51.69 42.43

All other loans 106,827 86,536 70,049 65,279 40,246 27,443 65.44 69.29 66.58 68.69 51.69 42.43

Loan loss reserves 3,734 3,993 3,456 3,446 3,831 3,068 2.29 3.20 3.29 3.63 4.92 4.74

Customer loans (net) 103,093 82,543 66,593 61,833 36,416 24,375 63.15 66.09 63.30 65.06 46.77 37.69

Earning assets 142,774 110,569 95,191 86,432 70,241 59,264 87.45 88.54 90.48 90.94 90.22 91.63

Fixed assets 2,827 2,591 2,022 1,303 950 891 1.73 2.07 1.92 1.37 1.22 1.38

All other assets 3,141 2,578 2,209 2,065 1,698 1,907 1.92 2.06 2.10 2.17 2.18 2.95

Total reported assets 163,256 124,886 105,209 95,038 77,855 64,678 100.00 100.00 100.00 100.00 100.00 100.00

Adjusted assets 163,256 124,886 105,209 95,038 77,855 64,678 100.00 100.00 100.00 100.00 100.00 100.00

Breakdown as a % of liabilities + equity

2008* 2007 2006 2005 2004 2003 2008* 2007 2006 2005 2004 2003

Liabilities

Total deposits 128,523 95,349 79,012 75,835 64,625 53,734 78.72 76.35 75.10 79.79 83.01 83.08

Noncore deposits 6,261 2,593 3,473 2,151 1,053 639 3.84 2.08 3.30 2.26 1.35 0.99

Core/customer deposits 122,262 92,756 75,539 73,684 63,572 53,095 74.89 74.27 71.80 77.53 81.65 82.09

Other borrowings 1,875 1,875 1,875 0 0 0 1.15 1.50 1.78 0.00 0.00 0.00

Other liabilities 7,250 5,280 5,140 6,325 4,694 3,695 4.44 4.23 4.89 6.66 6.03 5.71

Total liabilities 137,648 102,504 86,027 82,160 69,319 57,429 84.31 82.08 81.77 86.45 89.04 88.79

Total shareholders' equity 25,608 22,382 19,181 12,878 8,536 7,249 15.69 17.92 18.23 13.55 10.96 11.21

Common shareholders'equity (reported)

25,608 22,382 19,181 12,878 8,536 7,249 15.69 17.92 18.23 13.55 10.96 11.21

Share capital and surplus 15,000 13,500 6,750 4,500 2,250 2,250 9.19 10.81 6.42 4.73 2.89 3.48

General banking riskreserves

286 198 1,400 1,400 1,400 1,400 0.18 0.16 1.33 1.47 1.80 2.16

Reserves (incl. inflationrevaluations)

7,096 7,096 5,484 3,658 2,250 2,250 4.35 5.68 5.21 3.85 2.89 3.48

Retained profits 3,226 1,588 5,548 3,319 2,636 1,349 1.98 1.27 5.27 3.49 3.39 2.09

Total liabilities and equity 163,256 124,886 105,209 95,038 77,855 64,678 100.00 100.00 100.00 100.00 100.00 100.00

Equity Reconciliation Table

Common shareholders'equity (reported)

25,608 22,382 19,181 12,878 8,536 7,249

Adjusted common equity 25,608 22,382 19,181 12,878 8,536 7,249

Adjusted total equity 25,608 22,382 19,181 12,878 8,536 7,249

*Data as of Sept. 30, 2008. Ratios annualized where appropriate. Year-end data are audited, consolidated, and prepared according to IFRS. SAR--Saudi Arabian riyal.



Al Rajhi Bank

Table 2

Al Rajhi Bank Profit And Loss Statement Statistics

--Year ended Dec. 31-- Adj. avg. assets (%)

(Mil. SAR) 2008* 2007 2006 2005 2004 2003 - 2008* 2007 2006 2005 2004 2003

Profitability

Interest income 6,873 8,583 7,658 5,960 4,141 3,538 6.34 7.46 7.65 6.89 5.81 5.72

Interest expense 566 861 832 274 6 0 0.52 0.75 0.83 0.32 0.01 0.00

Net interest income 6,307 7,722 6,826 5,686 4,135 3,538 5.82 6.71 6.82 6.58 5.80 5.72

Operating noninterest income 1,599 1,599 2,684 2,296 1,051 600 1.48 1.39 2.68 2.66 1.47 0.97

Fees and commissions 1,177 1,052 1,661 1,659 697 305 1.09 0.91 1.66 1.92 0.98 0.49

Trading gains 374 471 390 361 243 187 0.35 0.41 0.39 0.42 0.34 0.30

Other market-sensitive income 0 9 20 35 28 45 N.A. 0.01 0.02 0.04 0.04 0.07

Other noninterest income 48 68 613 242 83 63 0.04 0.06 0.61 0.28 0.12 0.10

Operating revenues 7,906 9,321 9,510 7,983 5,186 4,138 7.30 8.10 9.50 9.23 7.28 6.68

Noninterest expenses 2,150 2,428 1,955 1,813 1,390 1,234 1.98 2.11 1.95 2.10 1.95 1.99

Personnel expenses 1,246 1,451 986 791 651 627 1.15 1.26 0.98 0.92 0.91 1.01

Other general and administrativeexpense

628 689 786 866 584 443 0.58 0.60 0.79 1.00 0.82 0.72

Depreciation 276 288 184 156 155 165 0.25 0.25 0.18 0.18 0.22 0.27

Net operating income before lossprovisions

5,756 6,893 7,555 6,169 3,796 2,903 5.31 5.99 7.55 7.14 5.33 4.69

Credit loss provisions (net new) 655 443 253 536 860 865 0.61 0.39 0.25 0.62 1.21 1.40

Net operating income after lossprovisions

5,101 6,450 7,302 5,633 2,936 2,038 4.71 5.61 7.29 6.52 4.12 3.29

Pretax profit 5,101 6,450 7,302 5,633 2,936 2,038 4.71 5.61 7.29 6.52 4.12 3.29

Net income before minorityinterest

5,101 6,450 7,302 5,633 2,936 2,038 4.71 5.61 7.29 6.52 4.12 3.29

Net income before extraordinaries 5,101 6,450 7,302 5,633 2,936 2,038 4.71 5.61 7.29 6.52 4.12 3.29

Net income after extraordinaries 5,101 6,450 7,302 5,633 2,936 2,038 4.71 5.61 7.29 6.52 4.12 3.29

Core Earnings Reconciliation

Net Income (before MinorityInterest)

5,101 6,450 7,302 5,633 2,936 2,038

Core earnings 5,101 6,450 7,302 5,633 2,936 2,038 4.71 5.61 7.29 6.52 4.12 3.29

2008* 2007 2006 2005 2004 2003

Asset Quality

Nonperforming assets 2,752 3,128 2,045 2,345 1,570 1,594

Nonaccrual loans 2,752 3,128 2,045 2,345 1,570 1,594

Average balance sheet

Average customer loans 92,818 74,568 64,213 49,124 30,396 23,609

Average earning assets 126,671 102,880 90,811 78,337 64,752 55,637

Average assets 144,071 115,048 100,123 86,446 71,267 61,896

Average total deposits 111,936 87,181 77,424 70,230 59,179 50,084

Average interest-bearing liabilities 113,811 89,056 78,361 70,230 59,179 50,084

Average common equity 23,995 20,782 16,030 10,707 7,893 7,043

Average adjusted assets 144,071 115,048 100,123 86,446 71,267 61,896



Al Rajhi Bank

Table 2

Al Rajhi Bank Profit And Loss Statement Statistics (cont.)

Other data

Number of employees (end ofperiod, actual)

7,982 8,036 7,534 6,681 5,711 5,514

Number of branches 423 403 389 385 383 381

Total assets under management 374 451 1,894 1,561 5,009 6,253

Off-balance-sheet creditequivalents

22,746 18,729 10,902 11,259 8,186 24,671


N.A.--Not available.

Table 3

Al Rajhi Bank Ratio Analysis

--Year ended Dec. 31--

2008* 2007 2006 2005 2004 2003

ANNUAL GROWTH (%)

Customer loans (gross) 31.19 23.54 7.31 62.20 46.65 9.49

Loss reserves (8.62) 15.53 0.31 (10.05) 24.87 38.05

Adjusted assets 40.86 18.70 10.70 22.07 20.37 9.41

Customer deposits 42.31 22.79 2.52 15.91 19.73 16.70

Total equity 19.17 16.69 48.95 50.86 17.75 6.02

Operating revenues 12.81 (1.99) 19.13 53.94 25.33 22.46

Noninterest expense 17.75 24.18 7.83 30.48 12.61 6.34

Net operating income before provisions 11.07 (8.76) 22.45 62.52 30.74 30.89

Loan loss provisions 96.67 75.44 (52.86) (37.68) (0.61) 7.50

Net operating income after provisions 5.18 (11.67) 29.62 91.88 44.05 44.22

Pretax profit 5.18 (11.67) 29.62 91.88 44.05 44.22

Net income 5.18 (11.67) 29.62 91.88 44.05 44.22

2008* 2007 2006 2005 2004 2003

PROFITABILITY (%)

Interest Margin Analysis

Net interest income (taxable equiv.)/avg. earning assets 6.62 7.51 7.52 7.26 6.39 6.36

Net interest spread 6.55 7.38 7.37 7.22 6.38 6.36

Interest income (taxable equiv.)/avg. earning assets 7.22 8.34 8.43 7.61 6.39 6.36

Interest expense/avg. interest-bearing liabilities 0.66 0.97 1.06 0.39 0.01 0.00

Revenue Analysis

Net interest income/revenues 79.77 82.84 71.78 71.23 79.74 85.50

Fee income/revenues 14.89 11.28 17.47 20.78 13.45 7.37

Market-sensitive income/revenues 4.73 5.15 4.31 4.96 5.21 5.60

Noninterest income/revenues 20.23 17.16 28.22 28.77 20.26 14.50

Personnel expense/revenues 15.76 15.57 10.36 9.91 12.56 15.15

Noninterest expense/revenues 27.19 26.05 20.56 22.72 26.80 29.83

Noninterest expense/revenues less investment gains 27.19 26.08 20.60 22.82 26.94 30.16

Net operating income before provision/revenues 72.81 73.95 79.44 77.28 73.20 70.17



Al Rajhi Bank

Table 3

Al Rajhi Bank Ratio Analysis (cont.)

Net operating income after provisions/revenues 64.52 69.19 76.78 70.57 56.62 49.26

New loan loss provisions/revenues 8.29 4.76 2.66 6.71 16.59 20.91

Pretax profit/revenues 64.52 69.19 76.78 70.57 56.62 49.26

Core Earnings/Revenues 64.52 69.19 76.78 70.57 56.62 49.26

2008* 2007 2006 2005 2004 2003

Other Returns

Pretax profit/avg. risk assets (%) 5.48 7.34 9.51 9.45 7.83 7.27

Revenues/avg. risk assets (%) 8.49 10.61 12.38 13.39 13.83 14.75

Net operating income before LLP/LLP 878.23 1555.12 2990.19 1151.05 441.36 335.53

Net operating income before loss provisions/avg. risk assets (%) 6.18 7.85 9.84 10.35 10.13 10.35

Net operating income after loss provisions/avg. risk assets (%) 5.48 7.34 9.51 9.45 7.83 7.27

Net income before minority interest/avg. adjusted assets 4.71 5.61 7.29 6.52 4.12 3.29

Net income/employee (currency unit) 847,044 828,472 1,027,422 909,188 523,103 361,594

Non-interest expenses/average adjusted assets 1.98 2.11 1.95 2.10 1.95 1.99

Personnel expense/employee (currency unit) 206,888 186,407 138,671 127,661 116,028 111,226

Core earnings/average risk-weighted assets 5.48 7.34 9.51 9.45 7.83 7.27

Core earnings/average adjusted assets 4.71 5.61 7.29 6.52 4.12 3.29

Core earnings/ Average ACE (ROE) 28.27 31.04 45.55 52.61 37.20 28.94

2008* 2007 2006 2005 2004 2003

FUNDING AND LIQUIDITY (%)

Customer deposits/funding base 93.76 95.40 93.39 97.16 98.37 98.81

Total loans/customer deposits 87.38 93.29 92.73 88.59 63.31 51.69

Total loans/customer deposits + long-term funds 71.34 73.95 72.52 75.41 55.81 45.48

Customer loans (net)/assets (adj.) 63.15 66.09 63.30 65.06 46.77 37.69

Parent Only Analysis

2008* 2007 2006 2005 2004 2003

CAPITALIZATION (%)

Adjusted common equity/risk assets 16.89 23.33 24.06 17.42 18.84 24.44

Internal capital generation/prior year's equity 30.31 27.24 48.95 43.25 17.75 6.77

Tier 1 capital ratio 13.18 23.60 25.30 18.22 18.84 24.40

Regulatory total capital ratio 18.60 24.40 26.50 19.47 23.86 29.40

Adjusted total equity/adjusted assets 15.69 17.92 18.23 13.55 10.96 11.21

Adjusted total equity/adjusted assets + securitizations 15.69 17.92 18.23 13.55 10.96 11.21

Adjusted total equity/risk assets 16.89 23.33 24.06 17.42 18.84 24.44

Adjusted total equity plus LLR (specific)/customer loans (gross) 27.47 30.48 32.32 25.01 30.73 37.59

Common dividend payout ratio 0.00 18.98 13.67 34.47 56.17 77.28

2008* 2007 2006 2005 2004 2003

ASSET QUALITY (%)

New loan loss provisions/avg. customer loans (net) 0.94 0.59 0.39 1.09 2.83 3.67

Loan loss reserves/customer loans (gross) 3.50 4.61 4.93 5.28 9.52 11.18

Credit-loss reserves/risk assets 2.46 4.16 4.34 4.66 8.45 10.34



Al Rajhi Bank

Table 3

Al Rajhi Bank Ratio Analysis (cont.)

Nonperforming assets (NPA)/customer loans + ORE 2.58 3.61 2.92 3.59 3.90 5.81

NPA (excl. delinquencies)/customer loans + ORE 2.58 3.61 2.92 3.59 3.90 5.81

Net NPA/customer loans (net) + ORE (0.95) (1.05) (2.12) (1.78) (6.21) (6.05)

NPA (net specifics)/customer loans (net specifics) (0.95) (1.05) (2.12) (1.78) (6.21) (6.05)

Loan loss reserves/NPA (gross) 135.66 127.64 169.03 146.93 243.93 192.46


Ratings Detail (As Of December 24, 2008)*

Al Rajhi Bank

Counterparty Credit Rating A/Stable/A-1

Certificate Of Deposit A/A-1

Counterparty Credit Ratings History

30-Jan-2006 Foreign Currency A/Stable/A-1

05-Oct-2005 A-/Stable/A-2

30-Jan-2006 Local Currency A/Stable/A-1

05-Oct-2005 A-/Stable/A-2

25-Jan-2000 BBBpi/--/--

Sovereign Rating

Saudi Arabia (Kingdom of) AA-/Stable/A-1+

*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard

& Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country.

Additional Contact:Financial Institutions Ratings Europe; [email protected]

Additional Contact:Financial Institutions Ratings Europe; [email protected]



Al Rajhi Bank

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Al Rajhi Bank · Al Rajhi Bank Primary Credit Analyst ... No reprint or dissemination without S&P's ... The ratings on Saudi Arabia-based Al Rajhi Bank reflect the bank's