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Islamic Finance Driving Forces The Management Team Perspective

Islamic Finance Driving Forces The Management Team Perspective. March 2010, Dead Sea, Jordan. CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of Al Rajhi Bank is strictly prohibited. Contents. Islamic Banking Trends & Challenges Al Rajhi in Jordan.

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Islamic Finance Driving Forces The Management Team Perspective

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  1. Islamic Finance Driving ForcesThe Management Team Perspective March 2010, Dead Sea, Jordan CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of Al Rajhi Bank is strictly prohibited

  2. Contents • Islamic Banking Trends & Challenges • Al Rajhi in Jordan

  3. Islamic Finance represents 1% of global assets. The market has been growing over 30% annually since 2000 and is set for continued strong growth. Prior to 1990 Sarrafs • Financiers in the Islamic world as early as the 8th century • Mostly Retail Banking Retail Corporate 470 1,000 22% 34% 175 420 Future 2000s 1990s • Advanced treasury services • Innovative asset management • Investment Banking • Project finance & Syndication • Capital Markets • Leasing • Commercial Banking 50 60 20 28 Source: Oliver Wyman; Figures are in Billions

  4. 8 Islamic banks outperform market growth in core geographies % in 2003 % in 2008 30% 20% 17% 17% 16% 12% 12% 13% 10% 4% * ** Notes: * Malaysia at 16%, Indonesia at 2% ; ** Estimated total (including Islamic windows) around 40 - 50% Source: Bankscope, CIA Fact Book and Oliver Wyman analysis

  5. Top ten largest Muslim populations Source: CIA Factbook and Oliver Wyman Analysis

  6. This year’s report will discuss potential expansion opportunities in North Africa Islamic banking players increasing interest to become global NOT EXHAUSTIVE 2007- Oct 2009 Turkey 3 out of 4 Turkish Islamic Banks (Turkiye Finans, AlBaraka, Kuveyt Turk) have a strategic GCC partner Jordan 2 new entrants: Dubai Islamic Bank and Al-Rajhi Bank. France • Islamic banks from Bahrain and Qatar reportedly applied for licenses • Kuwait Finance House, Al-Baraka, Gatehouse also reported to be interested Azerbaijan 2008: International Investment Bank (Bahrain) bought 49% of Amrahbank and converting it to an Islamic bank Pakistan 2009: Unicorn increases stake in Dawood Islamic Bank to 37%. Dubai Islamic banks have started operations. (Emirates Global Islamic Bank, Dubai Islamic Bank) Malaysia 2005-7: New Entrants: KFH, Al-Rajhi Bank, AFB (QIB) 2009: Two new foreign players reportedly shortlisted for licenses & takaful license available Morocco 2007: Government authorizes segments of Islamic finance; 10 banks reported to have express interest Egypt 2008: Abu Dhabi Islamic Bank buys 51% of Egypt’s National Bank for Development India 2009: Government issues its first Islamic banking license; operations to commence in 2010. Bangladesh 2009: Sonali and Janata banks, state players, to open Islamic windows. Indonesia 2008: Asian Finance Bank of Malaysia announces investment, operations to commence in 2010 Al-Baraka Group (12 countries): Jordan, Egypt, Tunisia, Sudan, Turkey, Bahrain, Pakistan, South Africa, Algeria, Lebanon, Syria, Indonesia KFH Group (4 countries): Kuwait, Malaysia, Bahrain, Turkey

  7. Reported profitability remains higher for Islamic banksespecially in the GCC region Return on Average Assets for Top 5 banks versus Islamic banks1 Percent , 2008 SELECTED MARKETS Kuwait Qatar Saudi Arabia UAE Malaysia Indonesia GCC Non-GCC 1 Top 3 Islamic banks by assets considered for all countries except the UAE (top 5) Malaysia and Indonesia (top 4). Source: Central banks; annual reports; Bankscope; McKinsey

  8. Change business mix in product areas where Islamic banks have not been traditionally focused or where there is growth potential such as • Credit cards / Personal Loans • Fee-based businesses such as Asset Management, Treasury operations, Capital Market • Islamic Investment Banking(as an upcoming growth area) Enhanced and diversified business mix 1 • Make efforts to lower cost of operation and improve service quality in order to improve competitiveness Efficiency in operations 2 Explore global growth options • Well positioned Islamic banks can consider international growth opportunities in countries with • Sufficient target population and strong un-met demand • Feasible market entry based on competitive environment and regulatory climate 3 Risk management • Upgrade risk management systems and capabilities in anticipation of required capability to manage in crisis environments, i.e. focus on • Credit risk as an important area of focus given high real estate concentration and potential for increased non-performing loans. • Liquidity risk via improved sources of funding, new hedging tools and enhanced infrastructure. Critical to manage liquidity in light of limited sources of funding for Islamic banks. 4 There are still four main priority areas which Islamic banks should focus on going forward Priority area Potential actions for Islamic banks

  9. Robust Business Model is a prerequisite to success in any business Performance Measures Products & Services Channels Customer Brand Talent Robust Risk Management Stable IT infrastructure Efficient Processes Good Governance

  10. Contents • Islamic Banking Trends & Challenges • Al Rajhi in Jordan

  11. The Islamic market in Jordan is smaller than peer countries, but is growing quickly 17 Share of total market; % Size of Islamic banking market based on assets, 2008$b Total Jordanian Islamic assets $m 9.8 Bahrain 3,886 +17% 29.3 Kuwait 3,091 2,878 20.3 Qatar 2,420 IIAB 15.9 Malaysia 2,607 2,253 16.9 UAE 2,066 JIB 1,867 10.7 Jordan 2005 06 07 2008 3.5 Turkey 8.9 8.8 8.8 10.7 SOURCE: Company annual reports; Zawya; Association of banks in Jordan 10

  12. Al Rajhi Bank in Jordan • Installation of innovative Islamic Banking solutions and products already proven successful in KSA and Malaysia Regional Presence • Our expansion to Jordan is an integral part of our regional strategy • We estimate that 700K Jordanian expatriates will be residing in GCC by 2012 (out of which 350K are in KSA / Kuwait) KSA / Jordan ties • Trade between KSA / Jordan is increasing with export flows reaching approximately 3.5 Billion $ in 2008 • Seats on flights between KSA / Jordan are increasing by 12% YoY Regulation / Macro Climate • Jordanian government continuously shows significant progress by reducing debt to GDP, increasing privatizations & public investment as well as opening trade routes. • Central Bank of Jordan has significantly upgraded banking regulations in recent years • Increasing bankable population

  13. We are on track to launch operation in Jordan by end of 2010 1 Business / Operating Model Design Registration with CBJ Systems development kick-off HO / Main Branch location finalization CEO in place Launch of Commercial Operations Sep 2009 Nov 2009 Jan 2010 Mar 2010 Apr 2010 Nov 2010 2 3 4 5 6

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