Al Rajhi Bank

The positive outlook on ARB reflects the bank's continued superior financial performance and strong asset quality indicators. It also reflects the positive outlook on the sovereign ratings. We could raise the rating if ARB sustained its superior earnings capacity while maintaining a RAC ratio above 10%, without a major drift in its asset quality indicators, over the next 12 months. We could also upgrade the bank if we took a similar action on the sovereign. We could revise the outlook to stable over the next 12 months if ARB's capitalization deteriorates because of higher-than-expected growth or dividend payout. We could also revise the outlook to stable if ARB's earnings generation capacity weakens, for example because of significant migration of deposits

...Al Rajhi Bank (ARB) is likely to continue to outperform the market in terms of profitability in 2022-2023. 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 as a whole, given the bank's focus on mortgage financing. We also believe that, over the next few years, ARB will retain better-than-average earnings capacity due its low cost of funding--although we have started to see some migration of deposits to remunerated products. 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 regarding asset quality, we believe the related risks are manageable. This is because ARB's mortgage loan borrowers assign their salaries and are predominantly employees of government and government-owned companies. We understand that most...

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