Opportunities to improve relationship banking at Al Rajhi Bank

¶ … Opportunities to Improve Relationship Banking at Al Rajhi Bank

In an increasingly globalized and competitive marketplace, many banking professionals today are faced with the need to develop informed and timely responses to changes in consumer demand, as well as fluctuations in the global economy that can have a positive or negative effect on investments. In affluent nations, this need has become especially pronounced as billion-dollar deals are routinely involved, and bankers working relationship banking operations stand to assist banks in attracting and retaining wealthy private and highly fluid commercial enterprises as long-term clientele. The enormous amounts of money that are involved make it important to formulate such responses in ways that add value to the banking operation including providing a competitive advantage. In some banks, relationship banking at this level is termed "privilege banking" or "prime account management," but the common feature of these business units is targeting high net worth clients, and the bank of interest to this study, the Al Rajhi Bank, calls the process "private" or "privilege banking." Irrespective of the precise term that is used, though, these high net worth customers stand to generate significant fees and provide valuable networks for banks seeking access to this capital and discussed further below.

Purpose of the Study

The purpose of this study was four-fold as follows:

1. To investigate productivity within the relationship banking department of Al Rajhi Bank in order to identify opportunities for improvement.

2. To generate, research and evaluate possible ways to improve productivity within the relationship banking department.

3. To draw conclusions from the findings and make recommendations taking account of the overall financial, legal, environmental and human resource implications for this banking organisation.

4. To prepare proper plans for implementing the recommendations for management approval

Review and Analysis

Background and Overview

Although there is no universal definition for privilege banking, these banking divisions typically provide high net worth customers with a broad array of products and services that are designed to make their lives easier and eliminate the worry and hassle that are associated with financial services in the 21st century. According to Smith and Walter (1999), "The effective management of wealth is exceedingly time consuming. Individuals in the wealth-building phase of their lives, in particular, typically work under severe time constraints. They therefore expect a prompt response to their banking needs, and will want to deal with someone with the authority and ability to make quick decisions" (p. 89). Because privilege banking clients tend to have limited time for financial decision making, they also tend to be less sensitive to banking fees and charges (Smith & Walter, 1999). Some of the more salient factors that are involved in the provision of privilege banking services include those set forth in Table 1 below.

Table 1

Factors Involved in the Provision of Privilege Banking Services

Factor

Description/Implications

Yield

These clients demand the utmost in discretion from their private bankers, with whom they maintained lifelong relationships initiated by personal recommendations. Such high net worth clients have given way to more active and sophisticated customers. Aware of opportunity costs and often exposed to high marginal tax rates, they consider net after-tax yield to be far more relevant than the security traditionally sought by high net worth clients. They may prefer gains to accrue in capital appreciation rather than interest or dividend income, and can be expected to have a much more active response to changes in total rate of return.

Security

The world today is arguably a more stable place than it has ever been. The probability of revolution, war, and gross confiscatory taxation has dropped in many regions of the world. Nevertheless, a large segment of the privilege banking market remains highly security conscious. Such clients are generally prepared to trade off yield for stability and safety.

Confidentiality

Secrecy is a major factor differentiating international from domestic private banking. Clearly, with every government in the world subject to international pressure, "secure" funds against which another country makes legal claim can rapidly become insecure if their presence is advertised to those who have leverage over the authority regulating the custodian banker.

Privilege Banking at Al Rajhi Bank

Today, Al Rajhi Bank network covers include more than 570 bank branches, 2,750 automatic teller machines (ATMs) and 21,000 point-of-sale devices installed across the Kingdom of Saudi Arabia. In addition, with the support of its established operations in the Middle East, Al Rajhi Bank established its first overseas operations in Malaysia in October 2006 as Al Rajhi Banking & Investment Corporation (Malaysia) Berhad (About Us, 2012). Beginning with the first main branch at Jalan Ampang which opened in October 2006, Al Rajhi Bank currently has 24 branches across the country, including 15 in the Klang Valley, and one each in Johor Bahru, Melaka, Penang, Ipoh, Kota Bharu, Kuantan, Kuching, Sg. Petani, and Kota Kinabalu (About Us, 2012). The bank is currently expanding its suite of products and services to meet its growing customer base including the representative ones shown in Table 2 below.

Table 2

Aj Rajhi Bank's Representative Suite of Products and Services

Service(s)

Description

Internet Banking

Al Rajhi Internet Banking lets customers perform secure banking transactions from the comfort of their home. It's secure, free and available 24/7.

Mobile Banking

Say bye-bye to long queus [sic], subscriptions fees and incompatible phones. With Al Rajhi SMS banking, you can keep track of your finances, top up your prepaid and transfer funds on the go. No Internet access required. Just strong thumbs to work those SMS buttons!

Phone Banking

These days, a lot of transactions are taking place over the phone. Secure banking, for one, with Al Rajhi Bank. In addition to general and balance enquiries, you can pay bills and conduct fund transfers via phone banking. We're just a call away.

Zakah

Now you can fulfill your personal tithing obligations with Al Rajhi Bank. In collaboration with Lembaga Zakat Selangor (LZS), we accept payments for Zakat Al-Mah at all our branch counters throughout Klang Valley. This service is specially designed for all Muslims who seek to fulfill their obligations as per Quran Surah At Taubah: 103 - "Take alms from their wealth to purify them and sanctify them with it."

Wealth Creation

Unit Price: Our Unit Trust Plan is a large umbrella that holds within it several unit trust funds that create a mutually beneficial network profiting all participants. Relying on the wisdom of the Shariah, our Unit Trust products give you leverage over the pitfalls of the current global economic climate.

Gold: All investment into physical Gold will allow you to create and preserve your wealth from time to time. Gold has been proven to be able to protect the real value of monies for centuries.

Wealth protection: The fruits of your life-long labour should be appreciated by the ones you love most. To preserve your inheritance for future generations and ensure a fair distribution of your family fortunes, Al Rajhi Bank offers professional and experienced Estate Planning services.

Safety Deposit

The days of tucking away one's valuables under the mattress are gone. In times like these, you need a Safe Deposit Box for round-the-clock security and total confidentiality.

Beyond the foregoing banking products and services shown in Table 2 above, Al Rajhi Bank's suite of products and services also includes a privilege banking division. The main responsibility of this division is to manage high net worth customers, including sales of the bank's products and services. At present, this division has nine staff members with the assigned numerical totals shown at Appendix A. The head of the department is responsible for the overall operations of the privilege banking division and the chief manager is tasked with overseeing the sales and operations issues. A senior sales manager is also responsible for two assistant sales managers, and a receptionist and driver round out the division's personnel complement.

Nevertheless, this department is not working in an optimally coordinated and organized fashion and it lacks a clear overall vision and mission. It is reasonable to suggest that one of the overarching reasons why Al Rajhi Bank is lagging behind its local and regional competitors is this lack of coordinated effort, especially in the privilege banking. A number of constraints add to this problem, including a dearth of monitors and software applications that provide the ability to control the activities of high net worth customers on a daily basis. The privilege banking division's Web page does not include information concerning relationship banking and assigned personnel lack the requisite investment experience and expertise. Finally, the products offered by Aj Rajhi Bank's privilege banking division are limited.

It is possible to discern the respective strengths as well as the weaknesses of this bank division, though, using a SWOT analysis. According to Cravens (2003), the purpose of SWOT analysis is to identify key issues that will allow an informed strategic approach. A SWOT analysis seeks to identify the strengths, weaknesses, opportunities, and threats related to the environment; strengths are comprised of positive aspects that are internal to the entity and weaknesses are regarded as being those negative aspects that are internal to the entity. Opportunities are positive aspects that are external to the entity and threats are considered to be negative aspects that are external to the entity (Cravens, 2003). The analytical components of the SWOT analysis are applied to Aj Rajhi Bank's privilege banking division in Figure 1 below.

Strengths

Weaknesses

Reputation as leading bank focusing on HNI

Location

Products "credit card" and "Loans"

Contacts

Links

Enthusiasm, self-motivated

Door to door service

Diverse/dynamic staff

Product knowledge

System Support (swipe, cheque, O.D)

No unique products for P.B

Sole I.D for P.B

Sector Code for P.B

P.B member support and recognition in Branches

Communication gap between departments

Lack of work flow for products

Media/Marketing

Turnover time on loans

Accounts not linked to R.M

Target based

Opportunities

Threats

Niche Market (Untouched)

Customization of products

Presence of P.B in Branches

Lack of Media coverage leaves opportunity to build image

Lead P.B concept in Omani market

Priority for P.B

R.M notification (link of accounts)

Direct transfer of customers with salaries of 1500+ to P.B

Direct transfer of 25k+ deposit to P.B

Service-based rather than target based.

No copyright on products

I.R fluctuation

Product launch with lack of work flow

Ratio monitor

Lack of P.B presence in Branches

Money laundering

Small Team (A surge in business could be impeded by size of team)

Adequate space required for office. (Premises of P.B should reflect the status of members)

Figure 1. SWOT Analysis of Privilege Banking at Aj Rajhi Bank

The strengths, weaknesses, opportunities and threats identified in Figure 1 above indicate Al Rajhi Bank is well situated to take advantage of the burgeoning privilege banking sector if it can leverage its strengths to overcome its weaknesses to develop and sustain a competitive advantage. In this regard, there are some similarities as well as differences between the banking products and services offered by Al Rajhi Bank and other banks in the region catering to high net worth clientele as shown in Table 3 below.

Table 3

Representative Privilege Banking Services

Bank

Description

ICICI Bank at http://www.icicibank.com / privilege-banking/personal / about-privilege-banking.html

At ICICI Bank, the staff understands that privilege banking customers deserve special attention. Privilege Banking products and services are designed to meet all banking and financial needs of select customers. As our valued Privilege Banking customer, privilege banking customers enjoy Dedicated Service Area, Priority Service and Special Privileges making their banking experience truly special.

As a Privilege Banking customer, all requests and applications made are processed on priority. Faster access to Privilege Bankers at our branches and Customer Care makes banking effortless.

1. Preferential Access - Reduction in waiting time.

2. Enjoy priority service at our branches and at Customer Care.

3. Over the Counter Servicing (OTC) - Prompt resolutions

4. A range of service requests are processed over the counter.

5. Priority Processing - Fast-tracked through dedicated teams.

6. All account opening requests and loan/credit card applications processed on priority.

7. Priority Updates - Be updated even while on the move. Updates through SMS on the status of service requests.

The priority services are provided on a best effort basis. The services are at the sole discretion of ICICI Bank and can be modified, withdrawn at its discretion.

http://www.uob.com.sg/privilege banking/index_pv.html

At UOB Bank, the world of Privilege Banking [means] the measure of true wealth goes beyond mere numbers. It's a world where privilege banking customers' dreams are celebrated and relationships treasured. A world where preferential treatment becomes an affirmation.

With over 70 years of experience in Asia, UOB is committed to helping privilege banking customers manage their financial health, preserve their lifestyle and maintain their priorities wherever life takes them.

Welcome to the privileged life. Privilege is having access to a regional network. A regional strength privilege banking customers can leverage to their advantage whenever they want to.

Wealth advisory: UOB Privilege Banking clients can rest assured knowing that their money is in the hands of an experienced team of Client Advisors and Product Specialists. Committed to building a long-term relationship with privilege banking customers, they'll be continuously engaging these customers to address their evolving needs.

Wealth products: At UOB Privilege Banking, we understand that every individual has a different risk profile and financial need. That's why we offer a wide array of wealth products to cater to privilege banking customers' needs and preferences including: short- and long-term investments, liquid assets, protection and legacy planning, financial solutions and various leverage products.

NDB Bank at http://www.ndbbank.com/prsnl _serv/privilege_banking.jsp

The NDB Bank emphasizes that it realizes that privilege banking customers' time is precious, and that when it comes to their banking, service is key. That's why NDB has designed Privilege Banking as an exclusive service for our most valued clients.

Privilege Banking clients receive the personal attention and carefully individualized services that fit perfectly with their lifestyle and expectations. Our relationships are developed over time, founded on trust and mutual understanding.

All privilege banking clients are assigned a dedicated Relationship Manager, who will take the time to get to know them and their needs, and find out exactly how they want things done. Ensuring value addition to privilege banking customers. The Relationship Manager will become a trusted financial adviser. Using their understanding of financial markets, and drawing on a pool of product specialists, they will help privilege banking customers manage their finances, letting them know what their options are, offering advice, and thereby helping them fulfill their aspirations. An exclusive Privilege Floor presents an environment of comfort and calm, with private meeting rooms, priority processing and the necessary business facilities ensuring that everything resolves around privilege banking customers and meeting their needs. Privilege banking clients find most bank services charges are waived and preferential rates offered. Additionaly [sic], a pre-approved overdraft facility is available, with preferential rates.

In addition, all privilege banking customers are recognised as among the bank's most important clients and [are] acknowledged with consistently superior service.

Privilege Floor: Private meeting rooms, priority processing and the necessary business facilities are provided on this floor, to ensure that everything resolves around the privilege banking customer and meeting their needs.

With NDB Privilege Banking, benefits will reach beyond the realm of financial services.

The Privilege Visa Debit Card allows these customers continuous access to your money locally and internationally, via VISA enabled merchants and ATMs around the world, and is the key to unlocking a host of special Privileges.

Privilege clients are entitled to an NDB Privilege Credit Card. This Credit Card is aimed at offering these clients absolute peace of mind, security and convenience wherever they go.

National Bank of Oman at http://www.nbo.co.om/sadara_ other_privileges.aspx

The National Bank of Oman offers its privilege banking customers a wide array of services, including:

Invitations: Privilege banking customers receive regular invitations and complimentary passes to events that we know will be of interest to you.

Dining Discounts: Privilege banking customers enjoy delectable discounts at a wide range of restaurants across Oman detailed in our exclusive Dining Booklet. This is yet another privilege reserved just for Sadara customers.

Wide range of other privileges:

Take advantage of substantial savings at many retail and other establishments across Oman.

Dedicated Relationship Manager

All banking for privilege banking customers will be handled promptly and discreetly by a Relationship Manager specially assigned to them.

Access to the exclusive Sadara lounge: Privilege banking customers can conduct their banking in total privacy in the [sic] dedicated Sadara lounge and enjoy the priority service of a teller dedicated just for them.

Preferential rates: Privilege banking customers can take advantage of preferential rates on a host of bank charges including maintenance charges, telex transfers and forex rates.

Privileged treatment: Privilege banking customers can take advantage of a wide range of services including express transaction processing and reserved car parking.

Sadara Banking:

Investment Products: Benefit from exclusive investment opportunities in Oman and across the globe with our wide range of rewarding investment products. Privilege banking customers will have all our experience and expertise at their disposal to assist them in making the right investment decisions.

Insurance Products: We provide privilege banking customers with insurance products that meet your financial protection.

Brokerage Services: Make investing easier and more convenient through our Brokerage Services. We will offer privilege banking customers access to local stock markets, provide you with effective management of mutual funds as well as distribution of international mutual funds.

Sadara Platinum Credit Card: As a Sadara customer, privilege banking customers are entitled to a Sadara Platinum Card, Omans [sic] first vertical Credit Card with a range of unique benefits.

As can be seen from the summaries in Table 2 above, a number of other regional banks have recognized the value of privilege banking divisions and have made significant strides towards achieving an optimal blend of highly personalized banking products and services for this market.

Summary and Conclusion

As noted in the introduction, the purpose of this study was four-fold. These purposes are reiterated and answered in sum below:

1. To investigate productivity within the relationship banking department of Al Rajhi Bank in order to identify opportunities for improvement. The weaknesses identified by the SWOT analysis of Al Rajhi Bank showed that there are no unique products offered, several restrictions on information technology support and a dearth of qualified personnel assigned to branch operations for privilege banking purposes. There was also a communication gap between departments identified, as well as a need for an improved marketing function.

2. To generate, research and evaluate possible ways to improve productivity within the relationship banking department. In some cases, the same threats that are arrayed against the privilege banking division at Aj Rajhi Bank also represent opportunities to improve productivity within the department. For instance, the paucity of media coverage to date provides the opportunity to build the desired image for the department. Eliminating the communication problems between departments was also noted as a way to improve productivity within this banking department.

3. To draw conclusions from the findings and make recommendations taking account of the overall financial, legal, environmental and human resource implications for this banking organisation. Across the board, privilege banking sector was shown to be a growth sector that is comprised of high net worth clientele. By making the needed investments in this bank department today, Aj Rajhi Bank can promote long-term business relationships with these high-value customers.

4. To prepare proper plans for implementing the recommendations for management approval. Recommendations for management approval are presented below.

Recommendations

The research showed that the defining characteristic of successful high quality privilege banking services was the amount of attention that was paid to each and every client. High net worth clients have an enormous array of banking needs that can provide banks with revenue streams over the long-term that will help ensure their solvency and profitability. Therefore, the following recommendations are provided:

1. Immediately copyright all privilege banking products and services where feasible;

2. Allocate sufficient resources to resolve the communication and information technology constraints that are adversely affecting the ability of the privilege banking department to achieve its goals.

3. Implement an aggressive media campaign to promote the bank's privilege banking services.