Saudi Arabia’s Al-Rajhi Bank is planning to expand its branch network by close to 20 per cent by 2020 and focus on the mid-tier corporate sector, small and medium-sized enterprises (SMEs) and mortgage market, says its CEO Steve Bertamini. The lender is aiming to grab new opportunities as the kingdom implements its National Transformation Programme (NTP).

“Right now, we are sitting on 535 branches and over the next four years we probably will add at least another 100 branches,’’ Bertamini told MEED in an interview in Dubai.

Saudi Arabia, the biggest oil exporter in the world, relies heavily on sale of hydrocarbons for revenues. The price of oil has fallen more than 50 per cent from a mid-2014 peak of close to $115 a barrel, denting the kingdom’s financial clout. Riyadh is facing an estimated $118bn budget deficit in 2016, or about 16 per cent of its GDP, and has cut spending and aims to diversify its economy away from oil by following the NTP roadmap.

Al-Rajhi, which added 10 new branches in 2015, plans to expand aggressively in retail banking. As part of its broader social and economic reforms, Saudi Arabia is also trying to increase participation of female nationals in the country’s economy and the bank sees the initiative playing in its favour. “We have about 120 female-only branches already,” says Bertamini. ”Every new branch we do also has a female section, so that is a good place for us to invest and grow into. 

The CEO says the slowdown in the economy has not really affected Al-Rajhi as 73 per cent of its portfolio is concentrated in the retail sector and it is now targeting the mid-corporate sector of SR100m-SR500m entities and SMEs.

“It’s an area we want to disproportionally grow in. It’s a much better risk. Because we have such a good distribution network, it is much easier for us to bank those type of customers, in addition to doing more for SMEs, which are up to the SR100m range,’’ he says. 

Al-Rajhi has also signed an agreement with the Housing Ministry to exclusively offer mortgages in the kingdom as part of the government’s agenda to increase homeownership, MEED reported on 25 September.

“We have signed an exclusive arrangement with the Housing Ministry and we want to be in the prime position to help the kingdom achieve that goal,’’ says Bertamini. “We have done a lot of work [in this sector] and we are about 18 per cent of the mortgage market [at the moment].”

Saudi Arabia has ambitious targets to address the housing shortage in the biggest Middle Eastern economy. The Housing Ministry in June said it is planning to spend up to SR59.2bn ($15.8bn) over the next five years to build affordable homes.

The ministry in a May statement also said it wanted to ensure 75 per cent of Saudi citizens own houses by 2020. This amounts to homes for about 1.5 million families in the country and the authorities hope to develop and deliver 100,000 units this year, in addition to 300,000 over the next few years.

“First of all, it [NTP] will increase homeownership and as the largest retail bank in the country, we want to be the bank to finance these purchases. We want to be in the prime position to help the kingdom achieve that goal,’’ says Bertamini, adding that the agreement with the ministry is “not a long-term exclusive agreement, but we get to go first, which is always a good place to be in”.

Al-Rajhi will offer mortgages under a scheme where the government effectively sets aside part of the downpayment on the buyer’s behalf, according to Bertamini. “It’s quite a clever idea to make housing more affordable for people,’’ he says.

The kingdom’s central bank, Saudi Arabian Monetary Agency (Sama), earlier this year had launched an affordable mortgage scheme to fund the purchase of residential real estate by Saudi citizens.  The regulator, in a February statement, said it has started the scheme in coordination with housing and finance ministries, although it did not give the size of funds to be allocated, or when the programme will start.

Under the mortgage structure, homebuyers had to pay 15 per cent of the property value as an advance, while the lenders were to contribute 70 per cent of the total value. The additional 15 per cent was guaranteed by the Finance Ministry, according to a Sama statement.