RAKBank is investing up to Dh600 million ($163.5 million) until 2026 as part of a four-year strategy to increase the digitalisation of its services and develop new business lines as it looks to diversify its revenue base and boost growth, its chief executive has said.
The bank’s growth strategy is focused on making RAKBank a “more holistic partner” for its clients, giving them more than just lending and deposit facilities, Raheel Ahmed told The National in an interview.
“We refreshed our previous strategy in 2022 and we got full support from the board. We have a plan all the way to 2026 and we expect to invest between Dh400 million to Dh600 million over that period,” he said.
From a balance sheet mix perspective, RAKBank has already made a lot of changes this year and the lender intends to continue with that momentum in 2023.
“Now we want to get more into cash management, trade, FX [foreign currency], hedging and treasury products,” he said.
The bank is also evaluating how it can further diversify into trade financing, invoice discounting and supply chain financing as it looks to “go up that curve”.
On the personal banking side, RAKBank is looking to grow its wealth management, as well as its transaction and payments businesses.
“We want to grow these fee-based products and services, which should create more diversity without adding more risk to the bank's profile,” Mr Ahmed said.
The planned diversification will add a “new pillar” to RAKBank’s business. However, in the scheme of overall things, “it will not be a material contributor this year”.
“It will get set up and will get momentum and then from 2024 onwards, I think it will become a bigger and bigger proportion of our business,” Mr Ahmed said.
The lender is also considering launching debt and equity advisory services for its clients, but it is a plan for the later stages of its expansion drive, he said.
RAKBank, which previously focused largely on extending financing to small and medium enterprises, has already changed its business mix and is “chasing risk-adjusted returns”.
“We used to be an SME bank largely [but] now, if you look at our assets, our lending is 20 per cent to SMEs, 40 per cent to personal [banking] and 40 per cent to wholesale banking,” he said.
RAKBank has recovered well from the coronavirus-induced slowdown that dented profitability and pushed the ratio of non-performing loans up across the banking industry in the region.
On Monday, RAKBank reported a more than 53 per cent jump in its full-year net profit to Dh1.16 billion, the highest pace of growth in more than a decade.
The lender’s non-performing loan ratio improved to 3 per cent in 2022, from 4 per cent a year earlier. The impaired loan provision coverage ratio increased to 181.7 per cent last year, up from 133.7 per cent in 2021.
The UAE’s macroeconomic fundamentals and higher interest rates also supported top and bottom-line growth last year, Mr Ahmed said.
The UAE economy made a strong recovery from the coronavirus-induced slowdown on the back of government initiatives, higher oil prices, a strong performance in its property sector and a rebound in travel and tourism.
The Arab world’s second-largest economy is estimated to have grown by 7.6 per cent last year, the highest in 11 years, after expanding by 3.9 per cent in 2021, according to the UAE Central Bank.
Overall, the country’s economy is projected to grow 3.9 per cent in 2023, the Central Bank said.
The continued economic momentum this year bodes well for the RAKBank, which expects to grow sharply, although at a slower pace than the last year after a V-shaped recovery in 2022, Mr Ahmed said.
“When you come with V-shape reset, you cannot sustain 50 per cent [or] 60 per cent growth rates every year. But do we see a solid positive momentum going forward? Yes, we do,” he said.
The bank is currently not looking at expanding beyond the UAE's borders and will remain focused on building the right technology, data and analytics infrastructure.
“I think we still have maybe a year or 18 months of foundations to develop before we think about expansion,” Mr Ahmed said.
“For a mid-size bank like RAKBank, we have enough growth opportunity in the country,” he said.
“I think 2023, in particular, [there] will be a lot of focus on the domestic market and growing market share.”
