Business

Return to lending lifts RAKBank

RAKBank, Commercial Bank of Dubai and National Bank of Umm Al Qaiwain see gains, but stepping up lending leads to greater benefits for RAKBank.

Gregor Stuart Hunter

January 31, 2011

RAKBank led gains among banks reporting earnings yesterday, helped by a return in lending that analysts expect will continue throughout the year.

Commercial Bank of Dubai (CBD) and National Bank of Umm al Qaiwain (NBQ) also reported a rise in profits.

But all three banks have lowered their loan-to-deposit ratios to less than 100 per cent, within limits mandated by the Central Bank to ensure the financial health of the UAE's lenders. The banks did not provide detailed financial reports or earnings for the fourth quarter.

RAKBank said profits for the year had soared 38.1 per cent compared with 2009, to Dh1 billion (US$272.2 million), much of which was achieved by increased lending.

Net interest income rose 30.9 per cent to Dh1.61bn as the bank loosened its purse strings, it said. Total advances were up 22.1 per cent to Dh16.4bn.

John Tofarides, a financial analyst at Moody's Investors Service, said RAKBank had showed stronggrowth through expansion of its consumer banking division.

"RAKBank is a prime example of a bank that has a successful retail banking model that has managed to grow stronger out of the crisis," Mr Tofarides said.

Elsewhere in the banking sector, CBD reported a 2.2 per cent increase in profits to Dh821m, despite a 35 per cent increase in provisions to Dh555m.

CBD was expected by analysts to have set aside large provisions because of its exposure to Dubai Government-related companies.

The bank cut net loans and advances to Dh27.2bn by the end of the year, a 4.2 per cent decrease on 2009.

Meanwhile, NBQ nudged into positive territory for the year despite cutting net lending by more than Dh500m and accumulating greater reserves of funds.

The bank recorded a slight increase in net income for last year of 2.8 per cent to Dh350.8m, despite a decline in operating profit, which fell 10.9 per cent to Dh445.1m.

Net loans and advances also fell 6.9 per cent to Dh7.7bn as NBQ pulled back access to credit. But it maintained strong cash balances, with a Tier 1 ratio of 24.4 per cent, indicating it retains a great deal of potential to lend.

NBQ's troubles with bad debts appeared to have receded, as impairments fell 40.6 per cent to Dh94.2m.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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