Efficient Al Rajhi is set to broaden its scope

Al Rajhi Bank, the largest Islamic lender of retail products in Saudi Arabia, is set to grow as it expands its business by focusing on lending to medium sized companies, analysts said.

Al Rajhi Bank, the largest provider of Islamic retail products in Saudi Arabia, is set to expand its business by focusing on lending to medium-sized companies, say analysts.

That niche "remains a relatively untapped market in Saudi Arabia", said Faisal al Azmeh, a banking analyst at NCB Capital in Riyadh. "The government's increasing efforts to develop the non-oil sector could further boost demand for corporate credit." NCB Capital initiated coverage on Al Rajhi with an outperform rating and price target of 88.7riyals a share, up almost 20 per cent from its current trading position.

Shares lost 0.3 per cent to 77.5 riyals yesterday.

The Islamic lender has maintained its market leadership in personal finance over the years, with 451 branches and 2,750 ATMs, the largest network among its peers.

Al Rajhi can also boast solid efficiency. Its cost-to-income ratio was 25.6 per cent last year compared with the industry average of 34.6 per cent, Mr al Azmeh said.

Despite its large network and expansion, Al Rajhi maintained the lowest operating cost for each branch, he added.

"Going forward, we expect the bank to continue to improve its cost efficiency, pre-provision profits and net profits in coming years," Mr al Azmeh said.

The bank is forecast to report a net profit of 7.4 billion riyals for this year, compared with a profit of 6bn riyals last year.

"Al Rajhi owns subsidiaries in Kuwait and Malaysia that offer a wide range of Islamic products and services," Mr al Azmeh said. "This benefits the bank in terms of diversified income streams, strong foothold and gaining a brand name as the largest Islamic bank in the region.

"While these operations are small in size and currently operate at break-even, they enable Al Rajhi to have better brand recognition internationally."