When Saudi Arabia's Al-Rajhi Bank enters a new market, be it through a wholly-owned standalone subsidiary or a branch, then competitors stand up and take note. They are, after all up against the largest Islamic banking group in the world, with financial muscle and influence to match.
This year Al-Rajhi Bank started operations in neighboring Kuwait and more recently in Jordan, where it was granted a license by the Central Bank of Jordan last year to open a branch in Amman. This is a far cry from only a decade or so ago when the bank was renowned for its insularity, parochialism and conservative approach to banking - both in terms of geographic expansion and product innovation. Even in more recent years, Al-Rajhi Bank was a notable absentee from the flourishing global sukuk market, for instance, both as an originator and as investor on the grounds that its Shariah Board was not satisfied with the structures of the sukuk on offer in the market.
The rationale then was that the bank's balance sheet was large enough and very profitable and therefore there was no need to venture beyond the shores of Saudi Arabia and into exotic products whose Shariah-compliance was contentious. This was symptomatic of an institution which had the audacity (or the folly some would say) to take the entire risk of the SR800 million Al-Shuaiba Power Plant (Eastern) on its books by refusing to sell down the financing to others or through a syndication.
However, the breakthrough came in 2010 when Al-Rajhi Bank collaborated with Cagamas Berhad, the National Mortgage Corporation of Malaysia and leading securitization house, to develop and launch the Sukuk al-Amanah Li al-Istithmar (Sukuk ALIm), which was the underlying structure for Cagamas's RM5 billion Islamic Commercial Paper (ICP) and Islamic Medium Term Note (IMTN) program. This "first-of-its-kind" and "innovative" structure was sold to investors in Saudi Arabia and is a manifestation of Al-Rajhi's new-found strategy of bridging the gap and facilitating cross-border activity in the Islamic capital market between Malaysia and the Middle East.
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