SME loan losses hit RAKBank bottom line in third quarter

RAKBank’s profit fell by 70 per cent in the third quarter amid much heavier provisions for losses on loans to SMEs.

Profit attributable to the parent company declined to Dh107.9 million in the quarter, sharply down from Dh370.8m in the year-earlier quarter.

The Ras Al Khaimah bank’s provision for loan losses surged, up 86.1 per cent to Dh511.7m from Dh274.9m a year earlier.

Net interest income and net income from Islamic financing fell 13.5 per cent to Dh686.2m from the year-earlier figure of Dh793.3m.

“2016 has been a very challenging year for RAKBank as we have seen a significant increase of provisions in our legacy SME Business loans portfolio,” said Peter England, the bank’s chief executive. “From 2008 until early 2015 the bank’s core focus had been on SME lending and therefore is it understandable that, as the largest SME bank in the UAE, we would be adversely affected by the very challenging market for SME’s due to a number of factors including a global economic slowdown.”

Mr England said the bank remained “firmly committed” to SME lending, “having completely revamped our entire front end and back end where we continue to book solid business here, albeit under a completely different set of risk parameters than used last year.”

He also pointed to several positive developments in the bank’s business.

“On the positive side, the bank’s diversification strategy commenced in early 2015 has been showing exceptional results with solid growth coming in our corporate and financial-institutions business, as well as a very solid performance by our treasury unit.

He added, “We have commenced completely revamping our personal banking business and have seen significant progress in our revitalised card business and completely changed the market for home lending with RAKBank’s widely acclaimed ‘Home in One’ product which was successfully launched in August of this year.”

Non-interest income was higher for the third quarter, up 8 per cent year on year to Dh262.8m as investment income increased.

For the year to date, RAKBank’s shares are down 20 per cent on the ADX compared to the overall index which is flat for 2016. The bank released its latest earnings after the markets had closed for the day.

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