If there is one stock that should sit at the core of nearly every Shariah portfolio, Al Rajhi Bank is it. Ticker 1120.SR on Tadawul. Market cap hovering around 310 billion Saudi riyals, which makes it the third largest bank in the world by market capitalization, behind only JPMorgan Chase and ICBC as of early 2026. And unlike every other bank of that size, Al Rajhi is fully Islamic. Zero conventional lending book. Zero interest-based operations. It has been the poster child of Islamic finance since the 1950s when Sulaiman Al Rajhi started building the franchise out of a currency exchange business in Riyadh.

Let me walk through the numbers, the business model, the competitive position, and the case for owning it.

What Al Rajhi actually does

Al Rajhi Bank operates the largest retail banking network in the Gulf. It has over 600 branches across Saudi Arabia, operations in Malaysia, Jordan, and Kuwait, and an ATM network exceeding 5,000 machines. The customer base is around 15 million, which is roughly 40 percent of the Saudi population and a meaningful chunk of the foreign worker community.

The bank offers Murabaha (cost-plus financing), Ijara (leasing), Tawarruq (commodity murabaha), and Musharaka (partnership financing) products instead of conventional interest-based loans. For mortgages, it runs a diminishing Musharaka structure. For corporate financing, it uses Sukuk Al Ijara and Wakala arrangements. Every single product on the menu has been vetted by its internal Shariah supervisory board and aligned with AAOIFI standards.

Total assets at the end of fiscal 2025 came to about 856 billion riyals, which is around 228 billion dollars. Total financing book sits at 588 billion riyals. Customer deposits at 620 billion riyals. The loan-to-deposit ratio at 95 percent is higher than you want to see long term, but still within regulatory comfort.

Financial performance

Net profit in 2025 came in at roughly 19.2 billion riyals, up 14 percent year over year. Return on equity is tracking near 21 percent, which is extraordinary for a bank of this size. Return on assets sits around 2.2 percent, far above the 1.0 to 1.3 percent that most big Western banks generate. The cost-to-income ratio is about 25 percent, one of the lowest of any major bank globally. Net financing margin (the Islamic equivalent of net interest margin) is about 3.5 percent.

Non-performing financing ratio is 0.65 percent, which is remarkably low. Provision coverage is above 180 percent. Capital adequacy ratio is around 19.8 percent, well above the Basel III minimum.

The dividend picture is healthy but not spectacular by yield standards. Al Rajhi pays out roughly 45 percent of earnings. At a share price near 85 riyals, the dividend yield is around 3.8 percent. What matters more is the dividend growth trajectory. Dividends per share have compounded at about 12 percent annually over the past decade.

Valuation

At 85 riyals per share, Al Rajhi trades at roughly 16.5 times trailing earnings and about 4.2 times book value. That price-to-book multiple is expensive by any traditional banking standard. Western banks typically trade at 1.0 to 1.5 times book. Even the best regional banks in Asia like DBS Group (D05.SI) or Singapore's OCBC trade at 1.3 to 1.5 times. Why is Al Rajhi so much more expensive?

Three reasons. First, it has no conventional competition inside Saudi Arabia because the regulatory environment and consumer preference both favor Islamic banks. Second, it generates a return on equity that almost no bank of comparable size can match. Third, it has durable growth built into the Saudi Vision 2030 expansion, with mortgage penetration and small business lending both growing double digits annually.

Whether you think the 4.2x price-to-book is justified depends on whether you believe the growth and return picture persists for another decade. The bear case is that interest rate normalization in the US pulls the Saudi riyal peg under pressure or that a lower-for-longer oil price weakens the domestic economy. The bull case is that Vision 2030 continues to compound the bank's opportunity set at double-digit rates.

Shariah profile

Al Rajhi is arguably the single cleanest Shariah-compliant stock available anywhere. Its entire business is Islamic finance, its entire revenue stream comes from permissible activities, and its internal Shariah supervisory board is headed by some of the most respected scholars in the Gulf. There is no conventional debt on the balance sheet. There is no interest income to purify. There is no borderline calculation to worry about.

Under AAOIFI, S and P Shariah, MSCI Islamic, DJIM, and FTSE Shariah, Al Rajhi is a core constituent. It does not just pass the screens, it defines what a fully compliant bank looks like.

Competitive position

Inside Saudi Arabia, Al Rajhi competes mainly with Saudi National Bank (1180.SR) which is larger in total assets but retains a conventional legacy book from the NCB side of the merger. It also competes with Alinma Bank (1150.SR), Bank Albilad (1140.SR), and Bank Aljazira (1020.SR), all of which are fully Islamic but much smaller. Across the Gulf, its peers include Dubai Islamic Bank (DIB.DU), Kuwait Finance House (KFH.KW), and Qatar Islamic Bank (QIBK.QA). None of them approach Al Rajhi's scale or profitability.

If you want Islamic banking exposure, Al Rajhi is the category leader by a wide margin. The next closest pure Islamic banks are Kuwait Finance House at about 65 billion dollars in market cap and Dubai Islamic Bank at around 42 billion dollars. Al Rajhi is roughly four times the size of either.

Risks

The obvious risk is concentration. Al Rajhi is exposed to the Saudi economy, and the Saudi economy is exposed to oil prices, regional geopolitics, and the pace of Vision 2030 reforms. A sustained drop in oil prices below 60 dollars a barrel would likely slow credit growth and pressure provisions. A regional conflict that affected the Kingdom directly would hit the stock price regardless of the fundamental picture.

A second risk is that the Saudi mortgage market, which has driven meaningful financing growth over the past five years, is becoming more competitive. Saudi National Bank, Alinma, and Albilad have all expanded their mortgage books aggressively. Al Rajhi still holds the largest share but its growth rate in home financing has moderated from 30 percent plus a few years ago to around 15 to 18 percent now.

A third risk is that the expansion into Malaysia has been slow. The Malaysian subsidiary has had mixed profitability, and the Jordanian and Kuwaiti operations remain small. If international growth accelerates, the story gets more interesting. If it stalls, Al Rajhi is effectively a Saudi-only story for the foreseeable future.

How to own it

Tadawul is accessible to foreign investors through the Qualified Foreign Investor program, through Swap arrangements with local brokers, or via the iShares MSCI Saudi Arabia ETF (KSA) on the New York Stock Exchange. The KSA ETF holds Al Rajhi as its second or third largest position depending on the day, typically around 8 to 12 percent of the portfolio. If you buy the ETF, you are also getting non-compliant names and need to apply purification.

For direct exposure, a QFI account with a local broker like Al Rajhi Capital or SNB Capital is the cleanest route. Minimum account sizes have come down significantly and now sit around 150,000 to 250,000 dollars at most brokers, though some offer smaller retail entry points for foreign residents of the Gulf.

Bottom line

Al Rajhi Bank is the most important Islamic banking stock in the world. Its size, profitability, Shariah credentials, and strategic position inside Saudi Vision 2030 make it a default holding for anyone building a halal portfolio. The valuation is not cheap at 4.2 times book, but the quality of the franchise justifies the premium in most scenarios. Watch the mortgage growth rate, watch the oil price indirectly through its impact on the domestic economy, and understand that this is a concentrated bet on Saudi Arabia more than a diversified financial services name. For most long-term Muslim investors, 1120.SR belongs in the core of the portfolio.

Al Rajhi Bank (1120.SR): The World's Largest Islamic Bank as a Stock