Since its launch, Bank Albilad has expanded rapidly. Although still small compared with the larger institutions in the kingdom, it is increasingly challenging established lenders.

Islamic banks in Saudi Arabia benefit from virtually free funding, as most sharia-compliant deposits do not pay customers any interest. This has helped rival Al-Rajhi Bank become one of the most profitable lenders in the Middle East, earning more than $2bn in 2012. Bank Albilad is nowhere near that level yet, but it does have the same cost advantages.

Stripping out the impact of one-off gains from land sales on its results, Bank Albilad’s 2012 profit rose by 3 per cent to SR143m. That underperforms the overall banking sector, where profits were up 11 per cent in 2012 to SR35.1bn. Grabbing market share from rivals is something all Saudi banks are trying to do, but they are finding it difficult to achieve as competition intensifies.

Like most banks in Saudi Arabia, Bank Albilad faces shrinking interest margins because of liquidity in the local banks and the intense competition among them to lend. In order to help boost margins, the bank wants to do more retail lending, although this is a common strategy across the Saudi banking sector.

With a capital base much lower than the kingdom’s top banks, Bank Albilad will struggle to compete with the likes of Banque Saudi Fransi, National Commercial Bank, Al-Rajhi Bank, Samba and Sabb. Those lenders either have state-backing, benefit from tie-ups with foreign lenders, or have established scale of operations.

Bank Albilad will continue expanding over the next few years as the Saudi economy grows. But it will face challenges as it moves out of the high-growth start-up phase to become an established part of the local banking landscape.