RAKBANK CEO expects challenging second half

The chief executive of UAE lender RAKBANK has suggested the second half of the year will remain challenging for the bank after recent profit declines.

The bank, which is one of the most exposed to the country to the small and medium enterprise segment, recorded a nearly 45 per cent dip in second-quarter profit year-on-year from Dhs353.9m to Dhs195.4m.

This was largely due to a significant increase in provisions for loans and advances, which increased from Dhs233.8m in Q2 2015 to Dhs437.1m in Q2 2016.

“The second half for us will be still very challenging,” Peter England told reporters.

“We are struggling on the top line income side as well now, provisions will slowly start to taper off. We are seeing some signs of improvement in our small business portfolio particularly, but it’s going to be a tough year for us.”

Despite the forecast, England said there were signs of improvement, arguing many of the business owners who didn’t intend to repay their debts had already fled the country.

“I think to a large extent those who are left are serious about remaining the UAE and trying to work things out,” he said.

Last year, UAE Banks Federation chairman Abdul Aziz Al Ghurair told reporters that SMEs owners had fled the country with $1bn of unpaid debts.

England was speaking at the announcement of the bank’s new home loan product, designed to bring together a customers’ current account, savings and mortgage.

The product links interest payments to the balance of the account, allowing potentially large savings over the lifetime of a 25-year mortgage, according to the lender.

The CEO stressed that despite the launch the bank was still committed to the SME sector, but was focussed on broadening its balance sheet

“To be very blunt we are one of only two banks which are active in that [SME] market now,” he said. If you look back 18 months ago there were 30 banks active in that market.”

RAKBANK recently re-entered wholesale banking and said it was significantly increasing its product offerings and headcount in the segment earlier this year.

“We’ve gone back into wholesale banking and are now really trying to build a retail banking proposition,” he said.

This was despite the bank confirming 250 job cuts in January, a measure England said was designed to reduce duplication in selling products.

RAKBANK expat staff to be hit by 250 job cuts

However, he predicted it would take three or four years for the retail business to equal the bank’s traditional SME focus.

England predicted loan growth would remain largely flat this year because of the impact of lower economic sentiment on the SME sector.

“The business banking side, even though we are firmly committed to the sector, there is just not as much demand, so the business banking book is shrinking. It will continue to shrink for some time not because we’re not lending, [but] because there is not as much demand as there was,” he said.

“We’re making up for that to an extent on the wholesale side and this [retail] side. My broad feeling is year-on-year will be low single digit [growth].

This compares to 10 per cent the previous year, he said.

During a presentation he said the firm was looking to double its share of the home loan market with its new product, from 12 per cent of new business to more than 20 per cent.