RAKBank reports 60% increase in Q2 net income as bad loans drop and interest income rise

The National Bank of Ras Al Khaimah has reported a 60 per cent increase in its second quarter net income, as its interest income climbed and provisioning for bad loans fell amid economic rebound in the UAE.

Net profit for the three months to the end of June climbed to Dh307 million ($83.7m), RAKBank said in a statement on Tuesday to the Abu Dhabi Securities Exchange, where its shares are traded.

The surge in the quarterly income was supported by a 3.7 per cent increase in net interest income to Dh563m.

Impairment charges for the three-month period dropped to Dh140m from Dh296.6m recorded at the end of the second quarter of 2021.

Total income for the reporting period climbed 2 per cent year-on-year to Dh815m, while operating profit before impairments was up 8.5 per cent at Dh447.3m.

The lender continued the momentum gained in the first quarter to deliver a strong set of financial results in the second quarter and in line with the buoyancy in the UAE economy. “Our outlook for H2 2022 remains positive”, said Raheel Ahmed, chief executive of RAKBank.

“Income has been driven by really robust asset growth and balance sheet growth not only on the deposit and lending side,” he told The National in a phone interview. “We have grown corporate [banking], we have grown business banking [and] we’ve grown retail banking.

“The growth has come across all segments of our business and in H2, we are very focused on continuing that growth.”

The UAE economy has bounced back strongly from the pandemic-driven slowdown. The economic momentum has picked up pace this year, driven by a rebound in the tourism and property sectors.

Higher oil prices have further supported economic activity that has improved operating conditions for lenders in the Arab world’s second-largest economy.

Banks across the six-member economic bloc of GCC stand to gain from higher energy prices and a rise in interest rates that will significantly improve their bottom lines as cost of risk continues to decline, S&P Global Ratings said.

On average, a 100-basis-point (bps) increase in benchmark interest rates would boost earnings by 13 per cent and result in 1 per cent capital accretion for lenders across the region, the rating agency said.

However, Mr Ahmed, a former Barclay’s executive who replaced Peter England in December, said the extent of interest income increase would vary among banks depending on the composition of their portfolios.

“Generally, yes, rising interest rate environments are accretive to banks,” he said. “We think that it will be marginally positive for us, and it will be positive for the industry.”

Over the past 24 months, there has been a steady decline in the provision for loan losses. Last year, impairment charges accounted for about 30 per cent of pre-impairment operating profit for UAE banks, compared with roughly 55 per cent in 2020, a report by Fitch Ratings said.

“We have historic low NPL [non-performing loan]” and that is driven by a combination of factors, including the macroeconomic scenario and steps by the government in terms of decriminalising cheques that started “proper debt restructuring conversations”, Mr Ahmed said.

RAKBank’s assets at the end of June grew almost 12 per cent per cent annually to Dh60.8 billion, driven by gross loans and advances that increased 7.8 per cent to Dh35.8bn. Customer deposits grew nearly 7 per cent to Dh39.6bn during the period, the lender said.

“Just to give you a sense, we supported the financing of 2,400 budding entrepreneurs and SMEs [small and medium enterprises] up to the tune of Dh1.8bn in lending,” Mr Ahmed said.

But he expects lending growth to slow in the second half of the year as corporates in the UAE are flushed with liquidity and have low financing needs.

“I wouldn’t be surprised if loan growth rate in H2 tapers off [compared with] H1. But, I think there will still be positive loan growth,” he said.

The effect of rising inflation will be less severe in the UAE compared to some other markets and it is unlikely to the derail economic momentum both in oil and non oil-related sectors.

“Like the [Covid-19] pandemic and like many other things, the UAE has managed inflation much better than many other markets in the world,” Mr Ahmed said.

“That is why, relatively, the impact of inflation rise, while it is impacting consumers, is perhaps much less than is being felt in other markets.”

Updated: July 26, 2022, 2:36 PM