RAK Bank puts expansion plans in GCC on hold

In spite of the healthy growth rate, RAK Bank chairman is cautiously optimistic and is holding expansion plans outside the UAE.

“We have to be fair of ourselves,” Sheikh Omar bin Saqr Al Qasimi, said. “Our size is not that big to adventure outside. We are very positive about going out to neighbouring countries like Kuwait, Qatar and Oman but we are withholding our thoughts on that. We looked at these countries but we have no actual dates to penetrate them.

Currently our plans are centred only in the UAE. We are expanding but slowly and in a conservative manner.”

Established in 1976, RAK Bank operates through 27 branches spread throughout the UAE, with four more planned to open in 2010.

The government of Ras Al-Khaimah is the majority shareholder, with a 52.75 per cent stake at end-2009. The remaining shares are listed on the Abu Dhabi Securities Exchange and are widely held.

To avoid another debt trap, Sheikh Omar said, UAE banks need to increase the use of collateral and strive to follow the international norm of reporting non-performing loans within six months.

“We should follow the international standards in reporting NPLs. This is the best way to do it and we in RAK Bank applies this,” he said.

While international practice calls for writing off a debt after 150 to 180 days of non-payment of instalments, many banks still follow the UAE Central Bank's cut-off, writing off a bad loan only after 360 days.

Sheikh Omar said banks should go back to basics – lend only to those who have the capability to pay, the amount of which is commensurate to their income and increase the use of collateral or a borrower's pledge of specific asset to a lender – to secure repayment of a loan.

“Some of the banks were taken by the flow and the trend that things will only go up, so they kept on lending to people who are not capable to pay. I do blame some of the banks. And the only way to stop this is for the central bank to put restrictions on lending,” he said.

Sheikh Omar says he’s “happy” with the performance of RAK Bank, which for the second quarter of 2010 reported net profit of Dh240.24 million, up 31 per cent from Dh183.44 million in the same period last year.

The net interest income rose 37 per cent to Dh394.15 million while the fee and commission income rose 22 per cent to Dh135 million.

Against the backdrop of a shrinking economy, the bank booked Dh726.2 million net profit in 2009 a 14.2 per cent surge in comparison with 2008. Net interest income came in at Dh1.23 billion, soaring 37 per cent on the year.

According to Fitch Ratings, RAK Bank’s 2009 earnings proved resilient, in a year when most other UAE banks reported weakened profitability. However, the net impairment charge increased sharply in 2009, which represents 26 per cent of pre-impairment operating  profit, reflecting the weaker operating environment in the UAE.

Asset quality weakened somewhat in 2009, with impaired loans increasing to 2.6 per cent of gross loans (up from 1.5 per cent).

Fitch said the bulk of the bank's mortgage exposure is in Dubai, where property prices have suffered sharp corrections. It said majority of the portfolio was originated prior to the rapid appreciation in property prices in Dubai and loan-to-value ratios (LTVs) are adequate at around 70 per cent. RAK Bank’s loan-to-deposit ratio, as calculated by Fitch, was at 107 per cent at the end of 2009.

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