Bad loan charges hit bottom line for RAKBank

RAKBank net income drops 9 per cent as bank takes an impairment charge on bad loans.

RAKBank said its net profit in the first quarter dropped 9 per cent after impairment charges related to bad loans more than doubled. Still, its operating profit advanced 10 per cent as fees and interest income increased amid a booming economy.

Net income decreased by Dh33 million to Dh334.6m in the first quarter, the Ras Al Khaimah bank said yesterday. Net interest income and profit from Islamic financing grew by 7.4 per cent year-on-year to Dh639.2m as the bank focused on accumulating low cost transaction accounts and income from Islamic financing, it said. The latter increased to Dh22.8m.

“Our first quarter performance is in line with the message we have been sending to markets,” said Peter England, RAKBank’s chief executive. “The focus for 2014 is to strongly grow the bank’s top line to help buffer a level of net credit losses which is more representative of the ongoing position for a loan book like ours after two years of abnormally low credit losses.

“We expect to see solid increases in top line performance over the next three quarters as the full impact of our loan pipeline starts to come through. We are seeing good solid growth in almost all of our lines of business and have managed to slow down the level of attrition through refinancing on our national loan portfolio.”

UAE banks have mostly reduced provisions they set aside for bad loans in the past year amid an improvement in the fortunes of companies and individuals. Last year the economy of the UAE grew by more than 4 per cent as the Government spent on infrastructure projects and real estate and equities recovered from a multi-year lull amid cheap financing. That has been good news for banks as businesses return to profitability and tap them for loans to expand. Individuals also took advantage of low interest rates and geared up to buy homes, cars and other consumer items.

Even so, there have been some residual bad loans that banks have are having to take losses on.

RAKBank said its total impairment charge for the quarter stood at Dh130.3m compared to Dh61.4m at the end of the same quarter last year. Compared, however, to the fourth quarter of 2014, its impairment charges were reduced by Dh27.2m. Non-performing loans were steady at 2.4 per cent of the loan portfolio and the annualised net credit losses to average loans and advances closed at 2.3 per cent, it said.

“Operating income has grown strongly by Dh72m during the first quarter of 2014,” Mr England said. “However, it has been offset by an increase in expenses of Dh37m and an increase in net credit losses of Dh69m. Net interest margin has actually improved to 8.3 per cent for the quarter ended March 31 2014 from 8.1 per cent in the same quarter last year. Therefore the increase in bad debt has led to a drop in net profit, but we expect income growth to outstrip the increase in provisioning over the course of the year.”

Elsewhere, Commercial Bank International said, without giving a comparative figure, that its net income for the first quarter was Dh72.8m. Emirates Investment Bank, a boutique Dubai-based investment bank, also reported first quarter earnings yesterday. It said net income rose 26 per cent to Dh19.5m from Dh15.4m.

Follow us on Twitter @Ind_Insights