Dear Shareholders,
May peace be upon you.
We celebrated our Silver Jubilee as a banking institution last June 2012, quite fittingly at a time when we were and still are the world's largest Islamic bank. We have also travelled well past our Golden Jubilee milestone as a successful business entity, duly recognized for our business acumen and fair play.
It has indeed been an exciting and rewarding journey; one of pursuing a clear and focused strategy in the face of both adversities and opportunities, but always holding true to our core values and business ethics. As you will see in the pages that follow, the Group's performance during 2012 was again exemplary on all key fronts.
Performance that Counts
As a Saudi Arabian bank, it is no surprise that Al Rajhi's solid performance largely reflects a synergy - one that is built on the strength and stability of our national economy and the Bank's own deep commitment to its values and heritage.
While petroleum continues to underpin the economy, attention is now shifting to other sectors as well. The Kingdom is using its oil revenue and foreign reserves prudently to ensure sustainable and broad-based economic development and job creation. Large investments are being made in sectors such as education, healthcare, housing, power, transport & logistics and construction in addition to natural gas and petroleum.
The Al Rajhi Banking Group is still largely Saudi focused, which accounts for a major portion of the financing portfolio. However, we are also looking at geographic diversification, and have a presence in Malaysia, Kuwait and Jordan. Riding on the back of the Kingdom's 6.8% GDP growth rate in 2012, the Group's total assets grew by 21.1% from SR 220.7 billion to SR 267.4 billion during the year. The net financing portfolio, which accounts for 64.3% of the consolidated total assets, is diversified between retail (individuals) and corporates roughly in the ratio 2.5:1. Net financing grew by 22.5% from SR 140.3 billion to SR 171.9 billion during the year, largely driven by instalment sales which accounts for nearly three-fourths of this amount.
Bottom line net income increased by 6.9%, from SR 7.38 billion in 2011 to SR 7.88 billion in 2012, that saw a proportionate increase in earnings per share that reached SR 5.26.
Capital adequacy remained strong, with Tier I at 14.68% and Tier II at 19.83%, which are well above regulatory requirements.
Our human capital - a major contributor to the Bank's success - grew from 9,282 to 10,054 employees during the year, in parallel with our growth and expansion.
The Bank follows applicable best practices on compliance and corporate governance, and has in place the required systems and procedures which are reviewed periodically by SAMA.
Long-Term Growth
We are committed to deliver superior returns to our shareholders while also making a positive impact on the community, economy and environment in which we operate while pursuing long term profitable growth. These aspects, including our contribution towards the development of small and medium enterprises, are discussed in the section on sustainability.
Banking has become increasingly digital, and is being transformed through technological development, as smart phones, tablets and social media proliferate. Customers today want to do their banking on the go, and want the right tools and information. Conducting transactions, without the need for a personal visit to a branch, is beneficial to both parties in terms of convenience, faster turnaround time as a result of reduced processing times, accuracy and costs. In this context, the Bank employs the latest technology and practices as this is an important part of our business strategy, and we plan to invest extensively to further strengthen our technological capabilities.
Outlook
Saudi banks in general have performed well and posted strong profits despite high levels of provisioning. The latter is more a result of conservative banking regulations and policies that have served us well in insulating the sector in a post-2008 scenario. Average growth in financing is expected to remain around 2012 levels, driven by the retail segment which is perceived to be under penetrated. The new Mortgage Law, that targets the pressing social issue of affordable housing, will provide further impetus for retail and corporate financing over the medium and long term.
Overall, our strengths and strong focus on retail banking will be further leveraged by the valuable contribution made by our other business segments, directly and through cross selling of products and services. In this scenario, the Bank faces the future with optimism and confidence.
Acknowledgements
A good part of the credit for the Group's solid performance must go to the staff at all levels at the Bank and its subsidiaries. We express our sincere gratitude to all of them. In conclusion, we thank our customers for their valued patronage and trust, our shareholders for their loyalty and goodwill, and the Ministry of Finance, Ministry of Commerce and Industry, Saudi Arabian Monetary Agency and Capital Market Authority for their co-operation and oversight.
Board of Directors