RAKBank records 93% increase in Q1 profit on loan growth and lower impairment charges

Provisions for impairment losses during the period declined more than 62% annually

RAKBank's customer deposits increased 5.4 per cent to Dh38.5 billion in the first quarter of 2022. Photo: RAKBank

National Bank of Ras Al Khaimah reported a 93 per cent increase in its 2022 first-quarter net profit on growth in loans and customer deposits as well as a drop in provisioning amid continued economic recovery in the UAE.

Net profit for the three months to the end of March climbed to Dh220.1 million ($59.9m), RAKBank said in a statement on Tuesday to the Abu Dhabi Securities Exchange, where its shares are traded.

Total assets in the first quarter grew 10 per cent annually to Dh58.6 billion, driven by gross loans and advances, which rose more than 9 per cent to Dh35.8bn, and customer deposits, which increased 5.4 per cent to Dh38.5bn, the lender said.

Provisions for impairment losses during the period declined more than 62 per cent annually to Dh134.5m.

“We have delivered this very significant increase in net profit by improving our return on equity by 460 basis points to 10.5 per cent, improving our returns on assets to 1.6 per cent, while maintaining one of the highest impaired loan coverage ratio in the industry at 138 per cent,” said Raheel Ahmed, chief executive of RAKBank.

Although net interest income and net income from Islamic financing grew 1.6 per cent annually to Dh540.4m, the bank's total income decreased 9.2 per cent to Dh726.9m on the back of “one-off trading losses in the proprietary book due to a sudden increase in interest rates” in the first quarter, which affected the bond book and “certain derivative positions”, the lender said.

Non-interest income declined almost 31 per cent during the period due to macroeconomic and geopolitical reasons.

“We saw a reduction in our non-interest income driven by lower trading forex and derivatives and investment incomes. However, we expect that this will not be repeated in subsequent quarters,” Mr Ahmed said.

Banks in the UAE are reporting higher profits this year as the country's economy continues to recover from the Covid-19 pandemic.

Emirates NBD, Dubai's biggest lender by assets, reported an 18 per cent surge in first-quarter net profit to Dh2.7bn, while Abu Dhabi Commercial Bank also recorded a 32 per cent rise in net profit for the first three months of this year supported by lower impairment charges and higher fee income.

Lenders in the Emirates also stand to gain from a rise in interest rates that will significantly improve their bottom lines as cost of risk continues to decline amid economic growth, S&P Global Ratings said last month.

The Central Bank of the UAE increased its benchmark interest rate in March after the US Federal Reserve raised its key rates to rein in inflation. The Fed is expected to raise rates five more times this year, which will be reflected in the region as well.

In the UAE, lenders' net income will increase 15 per cent and return on assets will rise 1.4 per cent for every 100 basis points increase in interest rates, S&P said. Despite the interest rate increase, lending growth is likely to accelerate, underpinned by the UAE’s economic growth.

“The impact of the rising interest environment, Russia-Ukraine conflict and increase in inflation will have to be managed carefully,” Mr Ahmed said.

“However, the UAE economy continues to grow strongly and there has been a significant improvement in both business and consumer sentiment.”

The return on assets ratio in the first quarter of 2022 was 1.6 per cent compared with 0.9 per cent in the first three months of 2021, while return on equity stood at 10.5 per cent, up from 5.9 per cent in Q1 2021, the statement said.

In December, RAKBank announced the appointment of Mr Ahmed as its new chief executive, replacing Peter England, who is retiring to Australia after leading the bank for eight years.