RAK: Growing banking prospects

The financial sector in Ras Al Khaimah (RAK) performed well in 2011, with banking institutions weathering uncertain global economic conditions. Expected investments from the government and private sector, meanwhile, are set to keep capital flowing in and offer opportunities for further growth.

On a broader level, the emirate’s finances are in good order. In December 2010, Standard & Poor’s affirmed RAK’s “A/A-1” sovereign credit rating, citing the emirate’s continual economic growth and the stability offered by being a member of the UAE.

The emirate’s two commercial banks have also fared well. The National Bank of RAK, known as RAKBANK, posted largely positive growth in 2011, despite other areas in the world feeling the effects of the debt-laden US and EU. The firm’s board released preliminary results for 2011 in late January, which showed the bank posted a net profit of Dh1.2bn ($326.67m), up 20.2% compared to 2010.

Higher revenues from net interest income boosted profit margins, the company said. According to the report, “The bank has continued to seek business opportunities in its chosen segments (retail and small and medium-sized enterprises, SMEs) and as a result, net interest income rose to Dh1.98bn ($539.01m), an increase of 23.4% over 2010,” said Graham Honeybill, the CEO of RAKBANK.

The bank’s total assets jumped by 14.6% to close at Dh24.5bn ($6.7m). This growth has been supported by a combination of increases in shareholders’ equity and customer deposits, with total deposits growing by 11.73% to close at Dh18.3bn ($4.9bn) compared with Dh16.4bn ($4.5bn) in 2010. Commission was impacted by the new rules on retail lending but overall other income grew by 7.9% to Dh652.9m ($177.7m).

At Commercial Bank International (CBI), founded in RAK in 1991, third-quarter 2011 results were mixed. CBI implemented regulatory changes in 2011 that resulted in lower income fees and commissions. These revenue streams fell 32.5% year-on-year (y-o-y) from Dh110.35m ($30.04m) to Dh74.52m ($20.29m) for the first three quarters of 2011, CBI’s report said.

Some of this revenue loss, however, was recouped in other areas. During the same period, net interest income increased 14.1% y-o-y, from Dh254.77m ($69.36m) to Dh290.64m ($79.12m).

Overall, the company’s net profit for the first three quarters of 2011 slipped 41.73%, from Dh107.89 ($29.37m) to Dh62.86 ($17.11m). The company acknowledges the year was one when both the company and global financial markets were in transition, and its current management is optimistic about coming opportunities.

“We pursued business growth in selected pockets of growth and continued our conservative stance in light of the turbulent macro environment globally,” said Mohamed Sultan Al Qadi, the chairman of CBI, in the third-quarter financial report. The nature of market conditions in present times and the fast-changing variables require quick actions to provide customer-centric products and solutions."

Indeed, for 2012, a number of new opportunities are set to arise for financial institutions. Last March, the UAE federal government earmarked Dh5.7bn ($1.55bn) for building up crucial infrastructure such as transport, electricity and water connections. In June, the government also allocated an additional Dh7bn ($1.91bn) in housing loans for RAK residents. These anticipated capital inflows could create a number of opportunities for the construction and utilities sectors, which will in turn require more services from RAK’s financial institutions.

And it is not just the government that is investing in the sector. The private sector is also showing increased interest in the emirate. RAK’s free zones have been magnets for businesses looking to set up offices in the UAE. Last year, the RAK Free Trade Zone (RAK FTZ) saw more than 2000 new companies register, a y-o-y increase of 16%, according to The National. Given RAK FTZ’s focus on SMEs, this steady stream of new companies could create a number of opportunities for business lending.

“RAK FTZ has partnered with several local banks that have programmes to assist SMEs, such as HSBC, National Bank of Abu Dhabi, Emirates NBD and Bank of Baroda,” said Oussama El Omari, the CEO of RAK FTZ, when speaking with Khaleej Times in December. “These banks have their own solutions that are geared for SMEs to help them start their companies faster and with minimal procedures.”

Although conditions in other markets are presenting challenges, factors such as growing FTZs and government spending increases are set to bring in extra capital and give an overall boost to the economy. As a result, RAK’s financial sector seems well positioned as the new year gets underway.

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