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RAKBank sees clear signs of improving business confidence in the UAE with a gradual pick up in credit demand supported by strong economic fundamentals. Image Credit: Atiq-ur-Rehman/Gulf News/archive

Dubai: National Bank of Ras Al Khaimah (RAKBank) has been in the forefront of extending financing to small and medium enterprises (SMEs) in the UAE. The bank is part of various initiatives by Emirates Development Bank, Dubai SME, Khalifa Fund and RAK SME in supporting SMEs and is keen to be part of the post-COVID recovery of this sector of the economy.

Speaking to Gulf News, Dhiraj Kunwar, Managing Director of Business Banking at RAKBank said there are clear signs of improving business confidence in the UAE and the bank expects to see a gradual pick up in credit demand supported by strong economic fundamentals.

How is the corporate credit demand picking up after slump that followed COVID crisis?

To start off, in my opinion we are witnessing a slight increase in credit demand. This was echoed by the Central Bank report that was released recently, whereby UAE banks assets have shown an increased trend in the first quarter of the current year. We understand that the growth may have come from government related entities (GRE) /institutional lending side or from the mortgage book, but now we are seeing a modest uptick across all business segments, suggesting early signs of revival although it is still not close to the pre-COVID levels for Consumer/SME lending.

We are seeing early signs of broad-based recovery in the credit demand. UAE has done relatively better than many countries when managing and containing the COVID crisis.

- Dhiraj Kunwar, Managing Director of Business Banking at RAKBank

COVID-related slump has seen a lot of corporate loans especially SME loans getting deferred or restructured, is that trend continuing?

In the heat of the COVID crisis, we definitely saw a significant number of relief application from both our Business and our Personal Banking customers. Central Bank was very proactive in announcing relief measures, referred to as Targeted Economic Support Scheme (TESS). This was an important step to take, which underscores the resilience of UAE's financial system. However, we have seen a gradual reduction for relief requests since late last year and as of 2021 there has been very little requests for debt relief. In fact, our customers started paying back their loans in normal course, but some businesses are still in need of further support as the COVID impact on certain segments is still evident.

Latest credit sentiment survey of CBUAE points to modest pick-up in corporate credit demand, but largely for refinancing requirements. Are the economic conditions ripe for further loan growth?

Yes, in any economy, refinanced loans are a regular industry practice, but we are seeing early signs of broad-based recovery in the credit demand. UAE has done relatively better than many countries when managing and containing the COVID crisis. However, in my opinion there are three main factors that will shape up the credit growth in times to come and this includes - How the pandemic will pan out, will the current level of oil prices sustain, and lastly how will EXPO 2020 impact the real estate and tourism sectors in the country.

SME was one segments that has been at the centre of asset quality issues for banks since 2014 that led to banks partially retrenching or significantly deleveraging from that portfolio. Is RAKBank planning to expand that portfolio? What is the rationale?

SME lending has been a challenge in many parts of the world, including the UAE. That said, RAKBank has always consistently supported this segment even at the peak of the SME crisis, we never stopped lending to SMEs. After the 2014-15 SME crisis, SME lending itself was transformed and the focus was on diversification. Customers currently have access to different types of lending products rather than just the usual lending solutions extended to small businesses. The bank adopted an approach that significantly diversified its portfolio and focused on the traditional and less costly and less riskier financing such as trade finance or commercial real estate finance and the results were clearly reflected in our books. Banks in the country have adopted smart processes to manage the credit risk and the introduction of credit bureau an value added tax statements has ultimately helped the industry. On the growth front, we are expecting a modest increase in our SME exposure this year.

Recently the bank signed a MoU with Emirates Development Bank to get credit guarantees for SME exposures. Does this significantly reduce the risks on your SME portfolio?

We have been partners of Emirates Development Bank (EDB) for a long period of time and what we recently signed was basically for a new credit guarantee scheme. This partnership will offer the bank a good medium to onboard new prospects. As a part of the agreement, the bank can gain access to a credit guarantee of up to 50 per cent and that significantly reduces the risk on that particular transaction and definitely increases our appetite. However, it does not change the risk on the bulk of our portfolio, which is not under any guarantee scheme. The UAE Government has taken a lot of initiatives to create an enabling environment for SMEs to thrive by accessing the required lending for their development, thanks to institutions like EDB, Dubai SME, Khalifa Fund and RAK SME that emphasize on supporting SMEs and trying to create a sustainable ecosystem.

There are talks in the business circles that banks have significantly tightened the credit norms. Is that true about RAKBank too?

Actually, the credit policy alignment in banks is an ongoing exercise and we, at RAKBank, will keep on evaluating various sectors and industry performance. At times, that leads to the Bank adapting and tweaking some credit parameters. Like I said earlier, our risk appetite on SME segment has not changed significantly, but we keep a close watch on our portfolio performance to manage our credit and compliance risk and I think, it’s required for any sustainable business.

Most of the sectors are still reeling from the slump in the economy accentuated by COVID and prolonged slump in oil price, how this has changed SMEs life, are there indications that the growth is back on track to justify renewed lending?

COVID has shifted consumer behavior where online has become the preferred choice, and for small businesses to endure this current climate, they must adapt. Small businesses should attempt on taking their business online and create an operating system that is more cost efficient. Digital processes are a critical requirement for any business, today’s consumers should be able to order, pay, and operate completely online. Actually, we have seen a surge in demand for our merchant acquiring solutions, in addition, we are witnessing a spike in e-commerce businesses from our SME customers’ list. Recently, SME customers have been approaching us for new credit facilities or requesting for a new project finance solution.

What kind of credit growth are you expecting in your corporate books this year? Which are the sectors you want to focus on while offering funding? And how is business mix changing?

We are not expecting a steep growth of our books this year. It is important to highlight that we have seen many industries such as Healthcare, F&B, and education tweaking their operating model in an effort to recover from the pandemic’s blow. The shift in consumer behavior is reflected in the SME operating model. Plenty of sectoral rotation where consumption and wellbeing related businesses are doing well. We also see digital ready businesses doing much better than the brick & mortar kind of SME businesses. We always appreciate sustainable businesses, where they are committed and have the know-how to deal with the various risks and challenges surrounding their businesses. Credit risk is not the only risk worth highlighting when it comes to small businesses, we constantly advise our SME customers to consider elements such as compliance, fraud, cyber and governance risks as this, in turn, will make a business more sustainable.

What is RAKBank doing in the area of digitization and how do you manage risk on Digital platforms?

RAKBank is investing in the digitalization of various processes be it transaction processing, clients onboarding or payments. We have a separate digital app for business customers because SME requirements for services, payments and trade finance are different from those of a retail customer. Similarly, our Quick Apply solution allows digital onboarding of Business Banking customers. All our digital services comply with the local laws and Central Bank guidelines. We do verify documents and obtain signatures as per the current banking practice. Today’s SME clients are looking beyond just the banking product/services and we are trying to build a digital ecosystem, which offers access to a state-of-the-art banking experience, quality content, unique deals, partnerships that SMEs can leverage and connect to a wider ecosystem.