The Al Rayan Bank ventures into Saudi

The Kirnaf Instalment Company will be based in Riyadh and is being established by a consortium of business figures led by Sheikh Abdulla Al Romaizan. Other major investors in the firm include the Al Abdullatif Investment Group and Sheikh Ali Al Jedaie.

Al Rayan takes the lead

The Al Rayan Bank will be a strategic partner in the new enterprise, which is costing $320m to set up, and it sees its commitment as fitting in with its expansion policy. The Qatari lender will take a 20 per cent stake in Kirnaf and will also have a seat on the board.

The new firm will offer a variety of products including home and car loans and an operating licence has already been obtained. Kirnaf will eventually have a network of 45 branches spread right across the kingdom.

Kirnaf has only come about after lengthy research by the Al Rayan Bank and its partners into the personal finance market in the kingdom, which revealed that the sector grew by 400 per cent between 2000 and 2005. Indeed, personal finance in Saudi is set to be worth around $91bn by 2015, up from $63.8bn presently.

Another major consideration for Kirnaf's founders is the fact that Saudi Arabia's economy is set to grow by 33 per cent over the next four years, with the kingdom's GDP hitting $481bn. Kirnaf's shareholders are hoping such a healthy financial footing should lead to an equally robust increase in the need for personal finance products.

A report by the Jeddah based National Commercial Bank (NCB) in August suggested the home finance sector in the kingdom, one of the areas that Kirnaf will target, was presently 'non-existent' but undoubtedly offered 'huge potential'.

Much depends on the government giving final approval to the country's draft mortgage law which should happen by early next year at the latest. Once this is in place, the NCB predicts outstanding housing credit should spiral from $1.1bn this year to $12.3bn by 2010, if 55% of all homes are purchased via home finance by the end of the decade.

It would certainly appear the Al Rayan Bank has made an investment in an area offering strong opportunities for significant growth and its CEO, Adel Mustafawi, said the lender's first foray into Saudi Arabia was likely to be followed up with other ventures elsewhere in the GCC and beyond.

Bonds and Mudharabas

It is just under a year since the fledgling Al Rayan Bank launched its first major project in Qatar when it took on the role of lead promoter for a new $2bn Smart Industrial City. In the intervening 12 months, it has tied up some major financing deals, opened its main branch on Grand Hamad Street in Doha and seen its deposits go through the roof.

The Al Rayan Bank will launch a $1.5bn fund before the end of the year which will offer investment opportunities in the real estate and industrial sectors. This follows on from its successful arrangement of several sizeable Mudharabas, or Islamic profit-sharing agreements - one with a semi-governmental body worth $622.5m in July, and two more, worth a total of $730m, with the Barwa Real Estate Company.

There is little question the Al Rayan Bank has already made a significant impression on Qatar's finance sector and this is borne out by its results for the first half of the year. The bank's total assets increased by more than $1bn in the space of just six months to $2.3bn, while its customer deposits increased from a relatively paltry $61.3m at the end of last December to an impressive $819.3m by June 30.

Opening up ownership

The bank has also this week announced that it is hoping to receive approval from the country's market regulators to open up more of its shares to foreign ownership. Presently, a maximum of 31 per cent of its shares can be owned by non Qatari nationals and the bank is keen to ramp this up to 49%.

It is expected the go-ahead will be received within the month and that more overseas institutional investors will be attracted to the stock, thus leaving the bank less exposed to the vagaries of speculators. One consequence of the potential for increased foreign ownership could be a major lift in the bank's share price.

With its desire to expand regionally borne out by its new Saudi venture and with core fundamentals such as its assets and deposits moving rapidly upwards, the Al Rayan's stock would seemingly make a pretty shrewd buy for any interested foreign investor.

See also:
Qatari lenders look to join the spending spree
Al Khaliji: the latest bank to hit Qatar
The Al Rayan Bank gets down to business