RAK: Strong returns

Despite sluggish global market conditions, banks in Ras Al Khaimah are showing strong returns. The National Bank of RAK (RAKBANK) posted a net profit of Dh1bn ($272.3m) for 2010, a 38.1% increase over 2009, according to year-end results released on January 30.

The growth was a result of a combination of increases in shareholders’ equity and customer deposits, the latter of which rose 32.7%, from Dh12.9bn ($3.5bn) in 2009 to Dh17bn ($4.6bn) in 2010. Additionally, income from banking fees, commissions, foreign exchanges, investments and other sources totaled Dh605m ($164.7m), a 22% increase.

RAKBANK’s growth was an encouraging sign after a year of weak global market conditions. Though net credit losses increased 7.1% year-on-year (y-o-y), from Dh251.9m ($68.6m) to Dh269.8m ($73.5m), there was a significant decrease in losses toward the end of the year – impairment charges registered at Dh59.5m ($16.2m) in the last quarter of 2010, compared to Dh81.3m ($22.1m) in the first quarter of the year. Additionally, the bank saw positive growth in its liquidity ratio, which increased from 16.8% at the end of 2009 to 18.2% at the end of 2010.

Graham Honeybill, general manager of RAKBANK, attributed the bank’s success to careful planning and a cautious lending policy. “RAKBANK’s profitability is a result of the bank’s prudent policies and underwriting processes,” he said in a press release. “We also took advantage of the significant business opportunities identified in the first six months of 2010 to increase lending volumes.”

Commerical Bank International (CBI), established in RAK in 1991 (and now headquartered in Dubai), has not yet released its year-end report, but sights are set high after the bank posted growth of 121% in the first nine-months of 2010. This took profits to Dh108m ($29.4m), up from Dh49m ($13.3m) in the same period of 2009. This rise has been largely attributed to lower provisioning losses and higher income from fees, the former of which was down by 44% and the latter up by 26%. Liquidity remains high at CBI, meaning that the bank has substantial loan capacity at the ready as economic conditions become increasingly favourable.

“The strong nine-month performance demonstrates our focus on improving fee income, selective lending and strict credit control,” Douwe J Oppedijk, CBI’s CEO said in a press release. “We expect the momentum to continue.”

The success of local banks came in line with growth of many other UAE-based financial institutions. The National Bank of Abu Dhabi announced a 22% y-o-y increase in net profit; the National Bank of Fujairah reported a net profit of Dh170.9m ($46.5m), up 64%; and Sharjah-based United Arab Bank posted a 10% y-o-y increase, with a net profit of Dh308m ($83.9m). As with RAKBANK and CBI, much of this growth has been attributed to a decline in loan losses and increases in liquidity.

In line with growth, RAKBANK and CBI have plans to expand in the coming years. RAKBANK has been increasing its network of branches and ATMs, currently operating 29 branches across the UAE, and plans to open 11 more by the end of 2012. The bank has also expanded its online presence with the launch of RAKBANK Direct, a new website which allows customers to apply online for credit cards, deposit accounts, savings options and insurance policies. Meanwhile, CBI has announced its intention develop another segment of the market as it rolls out Islamic financial services early in 2011.

Though many banks remain hesitant to lend in current global market conditions, the growth in RAK’s financial services industry during a difficult year is a testament to solid fiscal management. “RAKBANK is a prime example of a bank that has a successful retail banking model that has managed to grow stronger out of the crisis,” John Tofarides, a financial analyst at Moody’s Investors Service, told The National in January. While challenges remain, it is likely that continued prudence in lending, along with expansion into a variety of niche segments such as Islamic financial services, will ensure that local banks continue to grow in 2011 and beyond.


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