Al Rajhi Bank

The positive outlook on ARB reflects that, over the next 18-24 months, we may consider an upgrade should the bank retain its stronger-than-average earnings capacity while maintaining strong capitalization, high liquidity buffers, and robust asset quality. A positive rating action over the next 18-24 months would depend on ARB's ability to sustain superior earnings capacity compared with the rest of the banks in Gulf Cooperation Council countries, while maintaining a RAC ratio above 10%. An upgrade would also hinge on a proven track record of the currently rapidly expanding mortgage portfolio. We may revise the outlook to stable if we no longer consider ARB's capitalization to be strong, with the RAC ratio dropping below 10%. This, in our view, may

...Al Rajhi Bank (ARB) is likely to continue outperforming the market in terms of profitability in 2021-2022. S&P Global Ratings expects ARB's financing portfolio to continue to expand by 15%-20% over the next few years, compared with 10%-12% for the banking sector, due to its focus on mortgage financing. We also believe that, over the next few years, ARB will retain better-than-average earnings capacity due to its unique cost-free funding structure. We note the bank's high projected earnings buffer, at around 180 basis points (bps) compared with 127 bps for rated Saudi peers, or 107 bps for rated peers in Qatar, Kuwait, or the United Arab Emirates. ARB's earnings buffer corresponds to the top quartile of banks rated at '###+' or 'A-' in Europe, the Middle East, and Africa. Mortgage financing will propel ARB's rapid growth. ARB's mortgage portfolio will keep expanding by around 30% annually over the next few years. Although we consider this growth high and associated with potential uncertainties...

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