Dubai: National Bank of Ras Al Khaimah (RAKBank), which made big strides in risk mitigation in its loan portfolios in recent years, has seen strong improvement in its asset quality matrices.

A combination of rebalancing of loan portfolios and proactive risk management strategies have seen a steady decline in bad loans over the past five years. Impairments decreased by 9.9 per cent in the third quarter, year on year and for the nine-month period it was down 6.3 per cent year-on-year. Non-performing loans (NPLs) to gross loans and advances ratio closed the 9-month period at 3.7 per cent compared to 4.2 per cent as at 31 December 2018. At the close of the 9-month period this year the bank reported a coverage ratio of 129.1 per cent.

“We have come a long way from the peak of provisions for impairments. We don’t see any big challenges coming from any of our diversified portfolios,” said Peter England, CEO of RAKBank.

Historically, RAKBank has always been a product-centric bank, with offerings such as credit cards, personal loans and SME lending comprising a relatively high-risk loan book, with SME portfolio topping the risk ladder.

Following the SME debacle and the high impairments that followed, the bank took a conscious decision to rebalance its financing portfolio to make it more profitable and less concentrated in any one particular asset segment. Currently the bank’s SME portfolio (business banking) consists of about 20 per cent with a highly balanced risk profile. Historically, the bank has a very high risk and high return SME lending and very little exposure in trade and working capital space.

“Our total book size [of business banking] is about Dh8 billion. Previously, most of these were in very high-risk products. Currently more than half of that is in less risky type of products such as trade and working capital loans, That is one of the reasons that our profitability has increased consistently over the past four and a half years,” said England.

Personal banking book now is about 45 per cent of the total book size which a few years ago was close to 70 per cent. England said while rebalancing the asset mix, the bank has not shrunk the book size of personal banking, in absolute terms it has grown but as the overall loan book has been diversified with significant growth in corporates and financial institutions business, the share of personal banking exposures have come down.

Persistent decline in real estate prices are expected to cause some asset quality issues for UAE banks, England said. RAKBank is largely protected from such perceived challenges. “We have a relatively low real estate exposures other than residential mortgages. There is hardly any construction related risk on our books. In the mortgage risks are relatively low because current loan to value ratios out portfolios average in the range of 60 to 65 per cent. I don’t expect any major hit from impairments from real estate exposures. I think, despite the difficult economic environment, the impairments should remain around the current levels,” said England.