Capital Intelligence affirms the ratings of Saudi Arabia's Al Rajhi Banking and Investment Corporation

The long-term foreign currency rating of A+, the short-term foreign currency rating of A1 and the financial strength rating of A+ are all unchanged, as is the support rating of 2. All ratings carry a Stable outlook.

ARB, whose principal owner is the Al-Rajhi family (44%), and 46% of whose shares are held by the general public, is Saudi Arabia's third-largest bank by total assets with a market share of about 13%. It ranks second by capital funds, and continually ranks as the kingdom's most profitable bank. For many years ARB was Saudi Arabia's only fully Shari'a-compliant bank, but others have joined it in the past decade.

Historically a retail bank, the Bank is currently expanding its corporate business. By virtue of its strong retail base, it has one of Saudi Arabia's least concentrated balance sheets, on both the asset and the liability sides. The expansion of its corporate business has not resulted in neglect of its retail business, which continues to grow, and which the Bank is supporting by means of a renewed branch expansion programme.

Strong capital ratios include a robust CAR, which helps to offset an otherwise tight liquidity profile. While some changes in SAMA's method of calculation of CAR have limited the opportunity for ARB to grow that figure, it remains the highest among Saudi banks. The liquidity position has improved in 2009, and any concerns about it are further mitigated by the size, breadth and stability of its retail deposit base.

By virtue of write-offs, recoveries, and large loss provisioning against its Islamic Financing Facilities (IFFs) in 2008, the Bank greatly improved its asset quality, which had weakened in 2007. Both the absolute amount and the share of non-performing IFFs were reduced substantially and coverage increased almost to a factor of two. While exposure to financially troubled Saudi corporates is estimated to be minimal, the possibility exists that the need to provide for that exposure could affect the Bank's 2009 earnings. However, it is CI's estimation that the Bank's strong earnings power and capital position would make that provision easily manageable.

ARB's ongoing reputation is that of Saudi Arabia's most profitable bank, with an ROAA well ahead of that of its nearest competitor. Profitability is driven by a high investment income differential as a result of the Bank's large pool of non-interest bearing deposits.

ARB's control of expenses has continued, but despite that control it has managed to improve the visual appeal of its sizeable branch network and to add such attractions as VIP rooms for HNW clients at many branches.

ARB was established in 1987, as the successor to a family-owned money-changing operation which had existed since the 1930's. Since the accession of the current CEO to the position vacated by his father, the Bank has expanded technology, conducted a revamping of its branch operations and rapidly expanded its corporate banking operations.