The National Bank of Ras Al Khaimah, or RAKBank, expects its wholesale banking loan portfolio to grow by about 19 per cent year-on-year until 2021 and expects its SME and mortgage financing books to expand this year, despite tough market conditions, its chief executive said.
The lender, which had traditionally lent to smaller businesses, launched its wholesale banking operation four years ago to include commercial loans and lending to financial and corporate sectors as it sought to diversify its business.
"We have gone from literally zero to Dh11.5 billion [in wholesale banking] by the first quarter of this year," Peter England told The National.
“Following the trajectory, we are looking for that book to continue to grow about 19 per cent for the next three years. We had none of this business four years ago so we think we have the ability to grow."
RAKBank's wholesale banking loans portfolio is made up of Dh4bn of corporate loans, Dh5.4bn in financial institutional lending and about Dh2bn in commercial loans, said Mr England, who took over as chief executive of the lender more than five years ago. The bank reported a Dh1.2bn rise, or 17.8 per cent year-on-year growth at the end of the first quarter in the wholesale business segment.
He expects the overall banking loans market in the UAE to grow by 4 or 5 per cent this year, in line with UAE Banking Federation chief Abdul Aziz Al Ghurair’s estimates of 5 per cent, and expects RAKBank’s business banking loan portfolio to perform slightly better than the market this year. Its business banking lending increased by Dh173.5 million at the end of the first three months of the year from a year-earlier period, the lender said last month.
“The bulk of that loan growth till 2021 will come from wholesale and financial institutional segments,” Mr England said. “Our personal banking book will grow roughly at a cumulative growth to about 3 per cent per annum. Our business banking portfolio will grow at about 5 per cent annual compound growth rate."
Loan growth in the UAE’s banking system is projected to return this year with increased profitability after softer economic conditions on the back of a global economic slowdown and drop in oil prices dented appetite for credit. UAE lenders have gone through the worst cycle of anaemic lending growth and write-offs for bad loans, particularly on the their exposure to small and medium-sized enterprises, many of which found it difficult to stay afloat during the slowdown a couple of years ago.
However, as the economic momentum picks up pace, the health of SME sector is also improving and Mr England sees little downside risk in lending to the sector, especially to smaller businesses. The ratio of non-performing loans to the SME sector has also been on the decline and will continue on the downward trajectory as economy improves further, he noted.
“Things are much better than what they were 24 months ago,” he said. “We are optimistic about the sector. The worst is over and we remain firmly committed to it.”
RAKBank’s exposure to SME accounts for Dh8.4bn of its total lending book of Dh34.6bn. Its SME book grew last year by Dh500m and the bank hopes to expand it by another Dh500m in 2019 to about Dh8.9bn or so. It may, however, be challenging as SME sector business owners are “more cautious in terms of not borrowing a lot”, he added.
While SME’s are on the path of recovery, the UAE’s real estate sector is still facing some headwinds on supply glut concerns. Property prices softened over the past few quarters and there is still some room for a downside as developers continue to launch new projects ahead of the Dubai Expo 2020.
Still, Mr England sees scope to expand RAKBank’s mortgage loan portfolio, financing only the finished real estate schemes.
“I would like to see some more growth in our [mortgage financing] book but it would not be by taking high risks. I’m happy with the model that we have adopted at the moment,” he said.
The bank’s total mortgage portfolio has reached Dh4.7bn and it plans to expand it further to Dh5.1bn by the end of this year.
“It’s [the current growth] a little bit slower than what I would like but I think we will be able to close it above Dh5bn,” Mr England said.
RAKBank, which reported a 31.7 per cent year-on year rise in its first-quarter net income largely driven by the bank’s treasury and markets business, sees the profit trend continuing for the remainder of the year.
“From the trends we are seeing, if the first quarter [number] is multiplied by four, we would be somewhere around there [for full-year results],” he said.
“There doesn’t seem to be anything on the horizon that would [potentially] move that number.”
