FIRST SEMESTER SESSION 2019/2020 (A191)

BWBB3033 INTERNATIONAL BANKING

GROUP B

INTERNATIONAL BANKING SERVICES, PRODUCTS, AND REGULATION IN

MALAYSIA
(AL RAJHI BANK)

SUBMITTED TO:
DR. EDDIE ERMAN CHE JOHARI

PREPARED BY:
NO NAME MATRIC NO
1. WAN AHMAD NABIL BIN WAN MOHD HATIM 256432
2. SITI HUMAIROH BINTI HADARI 256702
3. NURUL NISHA NATASHA BINTI KHASIM 258959
4. NURATHIRAH BINTI KAMARUDDIN 258996
5. NUR TASNEEM BT MOHD ZIN 259018
6. AHMAD FAWWAZUL KHAIR BIN AHMAD KHAIRI 259191
1.0 THE BACKGROUND INFORMATION OF AL RAJHI BANK

Al Rajhi Bank is a Saudi Arabian bank and the largest Islamic bank by capital in the world
on year 2015 (Mohammed, 2015). Established in 1957 by Saleh bin Abdul Aziz Al-Rajhi and
Brothers Co., Al Rajhi Bank is one of Saudi Arabia's biggest banks with more than 9,600
employees and assets worth $88 billion. The bank started initially as a group of banking and
commercial operations that, under the umbrella of Al Rajhi Trading and Exchange Company, came
together in 1978. In 1987, the company switched to a joint stock company and was rebranded as
Al Rajhi Banking and Investment Corporation after two years. The bank was rebranded as Al Rajhi
Bank in 2006.

It is listed on the Saudi Arabian Stock Exchange and is publicly owned by about 75% of
their shares. Al Rajhi Bank is a full-fledged Islamic bank that offer wholesale, retail and
commercial banking and investment services. Currently, Al Rajhi Bank has branches in Kuwait,
Jordan, and Malaysia and Syria as an affiliate.

On 2 November 2017, Mr. Muhammad Afaq has been named as Chairman of Al Rajhi
Investment and Banking Corporation (Malaysia). Mr. Afaq brings nearly thirty years of Islamic
banking experience with him. Mr. Afaq has also won many Islamic Banker of the Year awards
and other accolades with a good track record of building global business, recognizing him as a
pioneering and influential Islamic banker (Al Rajhi Bank, 2019).
2.0 PRODUCTS AND SERVICES OFFERED TO LOCAL AND FOREIGN
CUSTOMERS IN MALAYSIA

All of the products and services offered by Al Rajhi are sharia-compliant products. Al Rajhi
provides a comprehensive suite of products and services, encompassing retail banking, corporate
banking, and Treasury products and services for local and foreign customer in Malaysia.

2.1 PRODUCTS OFFERED TO LOCAL AND FOREIGN CUSTOMER IN MALAYSIA

i. Savings Account
There are several products and service offered by Al Rajhi under retail banking for
local in Malaysia and foreign customer. One of the products are Commodity Murabahah
savings account-i. Murabahah literally means a sale on mutually agreed profit. Commodity
Murabahah is one of the financing products offered by Al Rajhi by using financing
contracts. In the basic business transaction of Murabahah, the bank initially will buy certain
tangible asset, then sell it to the client who wants to own that asset. Technically, in the case
of Commodity Murabahah, Al Rajhi will buy certain commodity from a broker and sell to
the client who does not want to own the commodity, therefore, they sell the commodity to
another broker to get cash. . This cash deposit product is based on the Tawwaruq principle.
(Alsayyed, N. 2010). However, Tawwaruq also given a wider meaning in seeking cash by
various means such as gold, silver etcetera.

The procedures are required to complete the placement of deposit under this
Commodity Murabahah Savings Account-I are The deposit for the Commodity Murabahah
transaction will be credited to an idle account by the bank and the bank undertakes not to
use the deposit until the Murabahah Purchase transaction is completed. Secondly, the
customer will be appoint an agent identified by us to carry out the transaction of
Commodity Murabahah on your behalf. Thirdly, the agent will purchase identified
commodities on your behalf from commodity suppliers and the representative will sell the
goods to us on your behalf upon completion of the transaction and they will pay the
customer the Murabahah Sale Price in compliance with these terms and conditions.
 The features and benefits of commodity Murabahah saving account-i are low initial
deposit of RM 20 for the person who want to open the account,. Besides, It provides the
convenience of opening, accessing and closing your account without visiting the branch
and can be use from anywhere in the world via alrajhibank.com. Next, Al Rajhi services
are delivered through a variety of channels such as branches, ATMs, POS, online banking
and mobile banking and ATM access all over the nationwide such as cross under banking
ATM under Al-Rajhi Group in Singapore, Brunei, Philippines, Indonesia, and Malaysia,
as well as worldwide ATMs via Plus ATM network, and cashless shopping.

ii. Current Account

The other products offer by Al Rajhi bank to local and foreign are Al Rajhi current
account-i. Al-Rajhi current account-i is a form of deposit account that allows, among
others, payment by way of cheques. The person who want to open this current account
should ready initial deposit of RM 500 for individual and non-individual for local customer
once your account is in operation. Besides, you also have the option to deposit in other
currencies, with the minimum initial deposit of US$1,000 or its equivalent required. Unlike
most current Malaysian banking industry accounts, Al Rajhi Bank does not allow you to
maintain a minimum balance, and surprisingly, it does not charge a service fee. Other than
that, the sum, as well as the Perbadanan Insurans Deposit Malaysia, will be assured for up
to RM250, 000 under the Qard rule.

As normal, this Islamic current account at a small cost of issuance will be

accompanied by a checking facility. In turn, you can receive an ATM / debit card that is
accepted throughout the world at over 35 million retail outlets. You will also have access
to the ATMs and ATMs of Al Rajhi Bank display VISA PLUS or MEPS signs 24 hours a
day. You can choose to keep track of your past transactions. Besides, you can enjoy
cashless convenience with Al Rajhi's Shariah debit card with Visa-enabled payment at over
35 million locations worldwide. Any person over the age of 18 may apply for Al Rajhi
Current Account-i. Up to 2 people are allowed to open a joint current account.
iii. Foreign Currency Deposit
One of the Foreign Currency Deposit products offered by Al-Rajhi are commodity
deferred purchase agreement. This product offered both local and foreign customer. At Al
Rajhi, it offer deposit arrangements in Ringgit and other foreign currencies through
Commodity Murabahah transactions. The offered commodities are regulated and
exchanged either on the London Metal Exchange or on the trading platforms of Bursa
Malaysia, both of which are safe and available. Besides, Commodity Deferred Purchase
Agreement (CDPA) is a Shariah-compliant term deposit facility that allows Treasury
customers to position with the Al-Rajhi through a commodity trading agreement using
Shariah-compliant products as the underlying assets for sale and purchase transactions.
With their excess funds, the consumer will be able to generate periodic returns and use
them primarily to meet short-term requirements. The benefit rate is announced in advance
and accepted by all involved parties. Others, the benefit from this product is flexible
tenures, ideally one month minimum position or as agreed by both parties. Next, the
requirement for this foreign currency deposit is minimum nominal amount of 1 million.
(Al Rajhi Bank.,2019)

Next product for foreign currency deposit is Foreign exchange (FX) spot. This
product can manage your foreign exchange needs with Shariah-compliant foreign
exchange products according to your market and risk profiles as we offer competitive
foreign exchange sales and purchase rates. Foreign exchange spot trading is an agreement
for immediate delivery, rather than future delivery, to buy or sell one currency against
another currency. Benefit for this product is the solutions for customers of the Bank to
make any foreign exchange transactions or payments Quick, effective and fair pricing for
all foreign exchange transactions of your vanilla spot.

iv. Letter of credit

It is also called documentary credit. It is a written commitment by the bank issued
after the request is made by the importer that payment will be made to the beneficiary.
Payment will be made if the exporter will be provide the documentary terms & conditions.
Evidence will be provided in the form of specified document. The letter of credit offered
 by Al-Rajhi to both local and foreign customer is Express Letter of Credit-i. It was fully
secured against deposit account. The certificate of letter of credit included method of
payment, it maintains balance of security between the buyer and the seller and it is
governed by the uniform customs and practices for the documentary credit.

Next, Whenever Al-Rajhi issue the letter of credit at need to collateral

(guarantee).Whenever Al-Rajhi open the Letter of credit, it charges the fee at the rate of
the certain percentage of the amount. The Letter of Credit-i from Al Rajhi Bank comes in
handy. It often used in international trade to remove the risks associated with the country
of the importer, the Letter of Credit-i acts as a direct guarantee that the goods or services
purchased by you will be billed to your seller. To issue for is Express Letter of Credit-i.
Letter of Offer with minimum supporting documents and only take one day to get out your
Express Letter of Credit-i subject documentation being completed.

v. Affluent
The most exclusive product offer by Al-Rajhi Bank is Gold-i. With Al Rajhi, both
local and foreign customer can invest in fine gold, particularly during economic
uncertainty, to safeguard your portfolio. Besides, Al Rajhi Gold-i also fulfills the accepted
law of Shariah in trade. Al Rajhi Gold-i is now available in branches across the country.
Minimum purchase for the gold is 10 gram and additional purchase is at multiple of 5
grams.

The person who want to open this account also should age 18 years and above and
offered for individual account holder and joint account holder. There are many benefit to
invest the gold included hedge against inflation and even during the economic downturn
and market volatility, gold has shown positive results. It serves as the best inflation hedge.
Next, Gold has seen strong long-term asset appreciation and has emerged as needed in
one's portfolio of investments. Others, diversification of your portfolio, gold is an easy and
convenient way to diversify your portfolio.
2.2 SERVICES OFFERED TO LOCAL AND FOREIGN CUSTOMER IN MALAYSIA

The service that offered by Al-Rajhi bank is information on E-payment service and fees.
Al-Rajhi publish information on selected e-payment services and fees on the websites of Bank
Negara Malaysia (BNM), Bank Association in Malaysia (ABM), and the Association of Islamic
Banking Institutions in Malaysia (AIBIM). The aim of the initiative is to promote transparency
and to facilitate a comparison of the various e-payment services offered by banking institutions in
Malaysia by members of the public. The release of a new Internet and mobile web browser for
online banking under the core brand alrajhi@24seven. The new alrajhi@24seven provides online
banking services for customers, including trouble-free viewing of account balances and transaction
flows. It also provides a refreshed and minimalist look for customers, engaging and simple
experience in online banking. (Rasheed, R., & Chauhan, A. 2015)

Next service that offered by Al-Rajhi is Zakat service. With Al Rajhi Bank, the customer
can now fulfill your personal obligations. Al-Rajhi bank accept payments for Zakat Al-Mal on all
the branch counters throughout the Klang Valley in collaboration with Lembaga Zakat Selangor.
This service is designed specifically for all Muslims seeking to fulfill their duties. Besides, you
can pay your zakat by JomPAY. Zakat al-Mal is an annual payment dependent on a Muslim person
or organization's amount of wealth. This fee is mandatory for any Muslim person or organization
that has completed Nisab (minimum taxable amount) and Haul (one Muslim Hijri calendar year)
requirements. The fee is 2.5 percent of Zakat's total wealth. On trade, rental income, personal
income, investments, gold and silver, shares and livestock, Zakat Al-Mal can be subdivided into
Zakat
3.0 THE RELATIONSHIP BETWEEN THE MALAYSIA’S SUBSIDIARY AND IT’S
HEADQUARTER IN HOME COUNTRY.

The real branch for Saudi Arabia is in Riyadh, Saudi Arabia. The branch in Malaysia is the
first in banking market of international. In Malaysia, the first operation is in October 2006 which
is in Jalan Ampang. The current bank is about 17 branches included Sungai Petani, Penang and
Melaka. The relationship between the headquarter and Malaysia branch is good.

The headquarter help the other branch by increasing the development of the product of the
bank. The new way have been introduced by Al Rajhi bank in January of 2019. It was improvement
in framework which make it will be easy to market the product in the market than before. It also
helping in improving the digital services that already have in the the bank. Lastly, it can improved
the respond towards the requirements of changing customer.

Next, is by making the expansion of Al Rajhi bank become simpler. The Temanos Islamic
Banking can make Al Rajhi Bank expansion become high in speed. For the best result, they only
required 4 to 6 month of high speed expansion. Its help in cutting the cost of ownership, get rid of
complexity and can speed up in transforming. It also helping in lowering the cost of the operation
and give the highest level digital experience to the customer.

Furthermore, Al Rajhi also embracing the revolution of the digital. In the Middle East,
there were rapidly increasing in term of banking of digital. Research being made said in Saudi
Arabia 80% of them prefer banking online. Almost half of them prefer to do bank that is online
digital. United Arab Emirates also show the same result as Saudi Arabia. About the smartphone,
Saudi Arabia also shows 88% which is 8% higher which also conclude double the size of global
average. Involving in digital services to service to protect the hard won market share is also
pressure. The development of digital presence of Al Rajhi is already successful but wanted to
revolve into a better mobile and online services. All transaction that being made by the customer
are completed through digital. It was important to give a good product to the customer and
improved the user experience.
 There are certain verification that need to be go through before any product getting an
approval. For the first step, there will be profiling of certain data involving old and new customer,
bank, and owner of the beneficial. The second step is the bank will also check the history of the
customer to determine whether the customer is risky or not. The database is being check through
a trusted third party database. Next, the source and the purpose will also be check to mitigate risk.
Veracity of document and good information will make any process smooth and fast. The upper
managament that is senior will determine wether to enter or reject the contract. For the high risk
customer there will be monitored by the bank continuously. There will be on regulatory reporting
on Cash Transaction Report (CTR) and Suspicious Transaction Report (STR) in the bank.

According to Encik Muhammad Azizi Bin Sani the manager of customer relation of Bank
Al Rajhi in Penang. In Malaysia Al Rajhi side, eventhough Al Rajhi Malaysia share a same name
as Al Rajhi Arab Saudi. Al Rajhi in Malaysia is only considered son of Al Rajhi Saudi Arabia but
have a different system. The headquarter cannot interfere with the customer other than their own
customer such as Al Rajhi Malaysia cannot view or access Saudi Arabia customer account and
also otherwise. So in special case in order to interact with the headquarter, Al Rajhi Malaysia need
to have a special interaction such as email in order to view some issue.

4.0 REGULATION REGARDING MONEY LAUNDERING

Al Rajhi Banking & investment Corporation (Malaysia) Berhad’s (ARBM) gives full of
commitment to manage the compliance risks in the Bank. The Compliance at ARBM includes
such as taking on ethical conduct, ensuring all customers are treated with fairly, implementing
good standards of market conduct, ensuring adequate product transparency and disclosure,
protecting customers’ data, combating money laundering and terrorist financing, meeting up other
regulatory standards

ARBM is continuing gives extra efforts to meet and exceed customers’ expectations and
also protect the credibility or integrity of the financial system. Hence, ARBM provide
enhancement on their framework and practices which is contained in the Compliance and Anti-
Money Laundering (AML) Statement (Al Rajhi Bank Malaysia, 2019).

The ARBM Compliance Programme is a fully broad, multifaceted programme and it is part
of the corporate governance. It covers many areas but in this report, we are focusing on the Anti-
Money Laundering (AML) Compliance Programme. In this programmes, they want to ensure their
customers comply with all applicable laws, rules and regulations mandated by the governments of
Malaysia and the Kingdom of Saudi Arabia as well as other relevant international standards or
recommendations.

The Compliance Risk Management Framework and Policy provides the foundation to the
Compliance Programme. It details the structure, policies, roles and responsibilities and processes
for compliance risk management across the Bank. Other policies that are included to support the
Compliance Programme such as corporate governance processes, code of conduct, AML & CTF
policy and etc. The policies are reviewed every two years or when necessary. This is important to
ensure they are updated to reflect the most current local laws and regulations and also international
best practices to be implemented by the bank.

As money laundering and terrorist financing are mostly cross-border crimes, the AML &
CTF department performs several tasks to ensure the Bank's commitment to apply the rules and
regulations on anti-money laundering and terrorist financing by:

i. Risk based approach (RBA)

Risk based approach (RBA) is adopted by the ARBM in order to determine the
necessary actions that are required to be taken to deter and detect the use of its branches,
products, services and delivery channel for money-laundering, terrorist-financing and other
illegal purposes.

The Group adopts a risk based approach to the management of money laundering
and terrorist financing risks in line with the regulations issued by Saudi Arabian Monetary
 Authority local regulations in jurisdiction in which the Bank operates in and global
standards and guidance.

ii. Customer Acceptance Unit (CAU)

Customer Acceptance Unit (CAU) conducts due diligence on new and existing
customers having accounts at the Bank for all financial services such as deposits accounts,
credit facilities and etc. The bank does not entertain or deal with walk-in customers. All
high risk customers and valuable owners are subject to Enhanced Due Diligence (EDD).
So, approval must be obtained from Senior Management and the Chief Compliance Officer
(CCO) before starting or continuing business relationship. The bank does not deal with
individual or entities with anonymous or deal with those in countries prohibited or have
any business relations with shell banks or those under any other sanctions. The bank also
does not allow non-face-to-face banking relationships.

The CAU interfaces with the Business/Support Units to obtain information from
the customer and where applicable, verify the information independently through the use
of reliable data providers or source documents as a mandatory part of the Customer Due
Diligence (CDD)/Know Your Customer (KYC) process.

According to policy requirements and procedures, it outlines the non-negotiable

processes the Business/support Units are required to comply with which include KYC
Requirements such as CDD and EDD, Know Your Employees (KYE) and Know Your
Vendor (KYV) and monitoring and reporting of STR on suspicious customers. The records
are kept for at least 10 years as imposed by the regulators while documents initiated from
or to the client are kept on a permanent basis.

iii. Screening and Risk assessments

The Central Screening Unit (CSU) looks at all customers’ inward and outward
cross-border payment regardless of amount. This function is fully supported by an
automated system to detect transactions through real time screening. Payments will be
released only after adequate review and authorization by CSU.
 iv. Monitor, investigate and analyze and report cases of suspected money
laundering and terrorist financing
AML Compliance Department has a dedicated team that investigates unusual
financial or transactions activities of their customer through the Transaction Monitoring
System developed by third party vendor. For customers that are identified as suspicious,
Suspicious Transactions Report (STR) is reported to the Financial Intelligence and
Enforcement Department (FIED) in Central Bank of Malaysia. In addition, the team also
reviews internally submitted STRs by branches or departments before submission to FIED.
On an on-going basis, customer profiles are reviewed and updated periodically and the
frequency of review is determined based on the customer’s risk rating.

Other information that relates with the regulation in money laundering is SAS. SAS
is the leader in business analytics software and services, and the largest independent vendor
in the business intelligence market. SAS Anti-Money Laundering gathers, manages and
refines a lot of information from all areas of a financial institution. It then turns the data
into knowledge that will help a business automatically identify and classify suspicious
behavior. SAS helps banks meet government regulations, protect shareholder confidence
and maintain a strong reputation. Ibrahim Rashid, CIO of Al Rajhi Bank (2014) said that
the project comes at a crucial time for Al Rajhi Bank, as they work towards their vision to
provide a world-class integrated banking system that ensures excellence in both banking
regulations and AML.

CONCLUSION

International banking started in 1974, when Malaysian government started to allowing and
welcoming international banks in their financial market. However, international banks were only
permitted to set up representative offices. By realizing this as opportunity many international bank
started to show an interest toward Malaysian financial sector. Banks from seven countries have
open a representative offices in 1990 (Marashdeh, 1994)
 Al Rajhi Bank has a greater understanding of the overall service level and customer
satisfaction. Because of its international bank image, Al Rajhi Banks are efficient and have more
resources and good connections with the industry, enabling them to provide higher quality of
service. Al Rajhi Bank provide several Islamic product and services to the society which is
definitely advance in term if digital marketing compared that our local product. Unfortunately,
they unable to win local people with their products and services

Al Rajhi Malaysia is a fully-owned subsidiary of the world's largest Islamic asset bank, Al
Rajhi Bank of Saudi Arabia. They began with a focus on retail banking, but a decade later, it
struggled to make progress in that area. According to Janek (2017) as a chief financial officer,
competition in the retail banking space will not be easy but Al Rajhi Malaysia aims to leverage
some of the innovations of its parent company to increase deposits and bring more innovative
products.

In ARBM's mission to be a leading Islamic bank with strong Shariah principles, they are
committed to the goal of maintaining the integrity of the bank, the business community with which
they interact and, more importantly, the financial system. The Bank pays extra attention to the
well-being of all key stakeholders. These principles are deeply entrenched in their AML / CFT
compliance program. The Bank implements a zero-tolerance approach to bribery and corruption
and, as such, prohibits bribery in any form, whether direct or indirect. It is prohibited for employees
and third parties representing the Bank to receive, accept, offer, pay or authorize bribery or any
other form of corruption (Al Rajhi Bank Malaysia, 2019).
REFERENCES

Al Rajhi Bank. (2019). Overview. Retrieved from Al Rajhi Bank Web site:
https://www.alrajhibank.com.my/page/about-us/corporate-info-92/overview
Al Rajhi Bank Malaysia. (2019). Compliance & AML Statement. Retrieved from Al Rajhi Bank
Web site:
https://www.alrajhibank.com.my/images/page_pdfs/Compliance_AML_Statement.pdf
Marashdeh, O. (1994). Foreign Banks Activities and Factor Affecting Their Presence in Malaysia
. Asia Pacific Journal of Management, 113-123.
Mohammed, N. (2015, July 31). Al Rajhi Remains World’s Largest Islamic Bank. Retrieved from
Islamic Finance Web site: https://www.islamicfinance.com/2015/07/al-rajhi-worlds-
largest-islamic-bank/
Raj, A. P. (2017, September 29). Al Rajhi Malaysia to tweak its growth strategy. Retrieved from
The Edge Malaysia Web site: https://www.theedgemarkets.com/article/al-rajhi-malaysia-
tweak-its-growth-strategy
Temenos Headquarters SA. (1999, 3 26). Temenos Core Banking Solution and Al Rajhi. Retrieved
November 13, 2019, from Temenos: https://www.temenos.com/community/success-
stories/al-rajhi/