United Arab Emirates, 05 August 2020: The National Bank of Ras Al-Khaimah (“RAKBANK”) has announced a consolidated Net Profit of AED 306.6 million for H1 2020, a decrease of 44.7% compared to the first half of 2019 due to higher IFRS 9 provisions that are set aside as precautionary measures to combat the possible economic impact of COVID-19. Total Income of AED 1.9 billion for H1 2020 was down by 4.5% on a year-on-year basis. As at 30 June 2020, Total Assets stood at AED 54.3 billion, decreasing by 5.1% year-on-year and by 4.9% year-to-date.
RAKBANK CEO, Peter England, commented: “While the increased IFRS 9 provisions at RAKBANK have weighed down on our net profit, our overall performance for the 1st half was solid. In fact, if we exclude the IFRS overlay set aside for potential future bad debts our operating profit including ordinary provisions was very similar to the 1st half of 2019. Spending habits of consumers and businesses overall have been subdued which is reflected in the Bank’s Gross Loans and Advances, which contracted by 2.2% year-on-year. That said, RAKBANK witnessed an increase in CASA deposits by AED 1.0 billion compared to 31 December 2019 which is indication of changing behaviour of clients, as well as the Bank’s operational resilience during this crisis.”
Performance highlights: H1 2020
- 6-month Net Profit of AED 306.6 million decreased by 44.7% year-on-year
- Total Income declined by 4.5% compared to H1 2019
- Operating expenditures reduced by 9.5% year-on-year which resulted in an improvement in cost income ratio to 37.1%
- Gross Loans & Advances dipped by 2.2% year-on-year; down 4.7% year-to-date
- Total Deposits at AED 35.1 billion, down by 4.8% year-to-date as the Bank required less funding for its lending activities
- Annualised Return on Assets stood at 1.1% and Return on Average Equity at 7.9% respectivel
Performance review H1
Total Operating Income decreased by 4.5% to AED 1,903.9 million as compared to the same period of the previous year.Total Income was down by AED 89.8 million compared to the first half of 2019, mainly due to decrease in non-interest income by AED 72.9 million and the decline of AED 16.9 million in Net Interest Income and Net Income from Islamic products. Likewise, the Net Interest Income and Net Income from Shariah-compliant Islamic financing weakened by 1.2% year-on-year to AED 1,362.7 million and the non-interest income reduced by 11.9% to AED 541.3 million, mainly due to the year-on-year decrease of AED 65.2 million in net fees and commission income and AED 22.9 million in forex and derivative income respectively.
Total Assets decreased by AED 2.8 billion or 4.9% year-to-date and by AED 2.9 billion year-on-year mainly due to the reduction in customer Loans & Advances and Cash & Balances with Central Bank.
Provisions for credit loss increased by AED 232.9 million year-on-year and this was mainly due to additional precautionary provisions taken in view of the expected deterioration of the current economic and operating environment. The Non-Performing Loans and Advances to Gross Loans and Advances ratio closed at 4.5% compared to 4% as at 31 December 2019. Additionally, the annualised Net Credit Losses to Average Loans and Advances ratio closed at 5.0% compared to 3.8% in H1 2019 due to the higher provisions under IFRS 9.
Capitalization and liquidity
The Bank’s total Capital Ratio as per Basel III, after the application of the prudential filter, was 18.3% compared to 16.8% at the end of the previous year. The regulatory eligible liquid asset ratio at the end of the period was 9.8%, compared to 12.9% as at 31 December 2019. Similarly, the advances to stable resources ratio stood comfortably at 89.6% compared to 89.1% at the end of 2019.
H2 2020 outlook
“We entered this crisis from a position of strength through the early adoption of several actions aimed at ensuring the safety and security of all our stakeholders, as well as supporting their financial well-being. I’d like to highlight that our credit quality at RAKBANK has been stable throughout the first half of 2020 and the current increase in the impairment provisions is largely a precautionary measure taken to protect the Bank from the potential deterioration in credit quality for the impending quarters. As a proactive step, the Bank reserved additional ECL provision amounting to AED 232 million. RAKBANK is constantly taking the necessary steps to optimise operating costs as much as possible without impacting our operations or business, with the ultimate aim of increasing efficiency and utilizing appropriate technologies.” Peter England concluded.
Income statement highlights
|Net Interest Income and net income from Islamic financing||666.5||695.7||1,362.7||1,379.5|
|Operating Profit Before Provisions for Impairment||564.1||596.9||1,198.0||1,213.4|
|Provisions for Impairment||(411.0)||(312.1)||(891.4)||(658.4)|
Balance sheet highlights
|Gross Loans & Advances||34.6||36.3||35.3|
Key ratios highlights
|Return on Equity||7.9%*||14.9%||15.6%*|
|Return on Assets||1.1%*||2.0%||2.1%*|
|Net Interest Margin||4.8%*||5.1%||5.2%*|
|Cost to Income||37.1%||39.5%||39.1%|
|Impaired Loan Ratio||4.5%||4.0%||3.7%|
|Impaired Loan Coverage Ratio||128.2%||118.4%||131.8%|
|Total Capital Adequacy Ratio Basel III||18.3%**||16.8%||17.3%|
**After application of Prudential Filter
Total Assets decreased by AED 2.8 billion to AED 54.3 billion compared to 31 December 2019 with the major reduction resulting from customer Loans and Advances, down by AED 1.7 billion and central bank balances also decreased by AED 1.1 billion. On the other hand, RAKBANK’s Wholesale Banking lending grew by 14.0%, up by AED 1.2 billion year-on-year. That said, the Personal Banking’s loan portfolio decreased by AED 1.3 billion and the Business Banking’s loan portfolio also declined by AED 632.7 million compared to 30 June 2019.
Likewise, Customer deposits decreased by AED 1.8 billion to AED 35.1 billion compared to 31 December 2019. The reduction was mainly in time deposits, which decreased by AED 2.8 billion but was partially offset by the increase of AED 1.0 billion in CASA deposits.
Throughout the year, the Asset & Liability Committee (ALCO) focused on increased monitoring around the Bank’s liquidity position. Also, during the height of this health crisis the Central Bank of the UAE (CBUAE) reduced its Reserve requirement against CASA balances by 50% and announced the comprehensive support program, also known as the TESS program (Targeted Economic Support Scheme).
Under the TESS program that was initiated to increase liquidity and directly benefit consumers in the UAE, RAKBANK received zero cost funding amounting to AED 1.42 billion that was directly passed on to its customers through the Principal and Interest deferrals.
RAKBANK is currently rated by the following leading rating agencies, with their ratings provided below:
|Rating Agency||Last Downdate||Deposits||Outlook|
|Moody’s||June 2020||Baa1 / P-2||Negative|
|Fitch||May 2020||BBB+ / F2||Stable|
|Capital Intelligence||August 2019||A-/A2||Stable|
RAKBANK, also known as The National Bank of Ras Al Khaimah (P.S.C), is one of the UAE’s most dynamic financial institutions. Founded in 1976, it underwent a major transformation in 2001 as it rebranded into RAKBANK and shifted its focus from purely corporate to retail and small business banking. In addition to offering a wide range of Personal Banking services, the Bank decreased its lending in the traditional SME, Commercial, and Corporate segment in recent years. The Bank also offers Islamic Banking solutions, via RAKislamic, throughout its 27 branches and its Telephone and Digital Banking channels. RAKBANK is a public joint stock company headquartered in the emirate of Ras Al Khaimah and listed on the Abu Dhabi Securities Exchange (ADX).
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