Retail-focused Rakbank doubles down on loan growth

Rakbank is expanding other aspects of its business, including wealth management and trade finance, to bolster its bottom line.

The Rakbank chief executive Peter England expects the bank's loans to have grown by about 15 per cent last year. Jaime Puebla / The National

Rakbank expects its loan book to have grown at twice the rate of its peers last year, helped by higher-yielding loans to small businesses and individuals.

Those sorts of loans could protect the bank from any slowdown triggered by the weakening price of oil, according to the lender’s chief executive, Peter England.

“As long as it doesn’t go too much further and it isn’t prolonged, then one would assume that everything would be fine,” said Mr England of the 60 per cent drop in crude oil prices since June.

“For Rakbank itself, we are not a large corporate lender. We do not do large construction lending. If you look back at the global financial crisis, Rakbank generally did better than most banks in the UAE because we were not exposed to those megaprojects, large-scale construction and so forth.”

Mr England expects Rakbank's loans to have grown by about 15 per cent last year compared with an estimated average of 7 to 8 per cent for the sector. Rakbank has yet to release full-year earnings.

The UAE economy is estimated to have grown more than 4 per cent last year. That was even after the price of oil, which the government relies on to fund 60 per cent of its budget, fell by more than 30 per cent in the fourth quarter.

The decline has prompted banks including Standard Chartered and HSBC to lower their growth forecasts for this year.

The UAE economy is expected to grow 3.8 per cent this year, slowing from last year, according to Shady Shaher, a Dubai-based senior economist for the Middle East and North Africa at Standard Chartered.

So far, however, bankers are sanguine about prospects for loan growth this year, according to a report from the Central Bank released this week.

Top executives at local lenders expect an increase in loan growth in the first quarter after a slight cooling down in the last three months of the year, the report said.

Rakbank gets most of its income from individual customers and small businesses. Other larger lenders, such as Abu Dhabi Islamic Bank, also get a large portion of revenue from retail customers. ADIB, the largest Sharia lender in the emirate, gets 65 per cent of its income from retail clients, according to its latest investor presentation.

Emirates NBD, the biggest lender by number of branches in the country, gets just 38 per cent of its total income from retail banking and wealth management. Last year, out of its total income of Dh14.4 billion, about Dh5.62bn came from the Dubai-based lender's retail banking and wealth management division, while Dh4.82bn came from its wholesale division, which includes corporate lending and investment banking.

FGB, formerly known as First Gulf Bank, the third-largest bank by assets, also gets about 38 per cent of its revenue from banking individual customers.

“Rakbank is one of our top picks because their margins and returns are very high, allowing it to have a very high dividend payout, with the sector’s highest dividend yield,” said Jaap Meijer, the head of financial services research at the Dubai-based investment bank Arqaam Capital. “It is our top dividend play. Retail banks should be more resilient than corporate banks.”

Competition among banks in the UAE for individual customers has been intensifying as low interest rates have made many institutions more aggressive in seeking out the much higher profit margins of retail lending.

Rakbank says it is also expanding other aspects of its business, including wealth management and trade finance, to bolster its bottom line.

“We need to spread our wings,” said Mr England. “We’re very much a UAE-focused bank. We probably are not likely to expand internationally, so for us it’s about trying to get a bigger piece of the pie in the UAE.”

Shares of Rakbank gained 16 per cent last year.