BUS RAKBANK Branch1-1573817609800
A RAKBank branch. The bank got a big boost from non-interest income by Dh138 million yearon- year to Dh907 million. Image Credit: Gulf News Archives

Dubai: National Bank of Ras Al Khaimah (RAKBank) reported net profit of Dh839.4 million for the nine-months period, up 24.9 per cent year-on-year. For the third quarter of 2019 the bank’s profits were up 18.5 per cent year on year to Dh284.5 million.

The latest set of numbers is not the result of any one-off gain, rather it has been the result of a gradual change that the bank began about 5 years ago in the loan portfolios that focused on diversification of income streams that supported both profitability and risk mitigation, Peter England, CEO of the bank, told Gulf News in an interview.

“The strategy we set out a few years ago was to increase the net interest income to total income ratio along with a tangible increase in the non-interest income. The change in the composition of our balance sheet also helped to bring in more diversified income streams,” said England.

Non-interest income

Net interest income and net income from Islamic finance for the first nine months of 2019 was Dh2.1 billion, up by 1.2 per cent year-on-year. The bank got a big boost from non-interest income by Dh138 million year-on-year to Dh907 million, mainly due to an increase of Dh74 million in Forex & derivative income and Dh54 million in fee & commission income.

The standout performer of the year continues to be fee income, with all business units recording solid growth in this area relative to their performance in 2018, leading to an impressive 17.9 per cent increase in this line.

“There has been exceptional growth in some of the fee-based income streams, especially the forex (FX) and some of the derivative deals. Overall, our underlying fee income is very strong with very good results coming from cards business. We also have had some very positive results in fee incomes in business banking. In fact, we had reduced fees in some areas but have seen volumes compensating for lower charges,” said England.

A few years ago, the bank’s forex incomes were negligible. Now the bank has a range of products covering mass market FX product through its instant money transfer all the way up to forex solutions for large corporates including hedging.

Growth challenges

Challenging economic environment has seen the overall loan growth in the UAE settling under five per cent year to date. While RAKBank has reported a Gross loans & advances growth of 4.3 per cent for the first nine months of this year, the bank has deployed substantial funds in loans to select banks and financial institutions in Asia and Africa, compensating for relatively low loan demand in the UAE.

While the 4.3 per cent loan growth reported for the first nine months of the year does not include the loans and advance made to other banks and financial institutions, England said if those too are taken into account, the bank’s year on year loan growth is in excess of 8 per cent.

“Our loan growth is in line with the overall market trend. About 4 per cent is the expected loan growth for the market as a whole this year and similar numbers for next year. That present a challenge for many banks, that is why we have decided to do more in the financial institutions space to lend outside of the UAE,” said England.

RAKBank has been actively sourcing institutional business in foreign markets. The bank is in the process of setting up a representative office in Bangladesh. Most of these loans are trade related and are short term in nature such as discounting letters of credit.

“In some cases, we do term lending. For example, in Sri Lanka, we have some term lending to local banks. The bank has such business in parts of Africa while it has cut down significantly on its exposure to institutions in Turkey following the currency turmoil. Of course, from a risk management perspective, we stick by certain country limits and institutional limits,” England said.