RAKBank has been one of the leading UAE banks to book solid top-line and income numbers from 2023. CEO Raheel Ahmed thinks conditions are good for an encore. Image Credit: Shutterstock

Dubai: Under UAE’s corporate tax, businesses big and small have to be up to date on their tax filings and all associated documentation. In other words, there cannot be any room for laxity.

That, according to a top banker, will only end up helping UAE businesses, especially SMEs, with tapping loans and other banking services.

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“Already, the VAT requirements have played a big role in documenting business transactions,” said Raheel Ahmed, CEO of RAKBank. “I know business people talk a lot about the 9 per cent corporate tax rate, but it's still very, very competitive.

“The more documentation you have from SMEs on tax filings, definitely it will translate into more lending to those businesses.”

High prevailing interest rates and the UAE’s introduction of corporate tax will be the defining features of the business landscape during 2024. In the recent financials from UAE’s listed companies, provisions for CT have started to show up in the records. From here on, it will become only more pronounced.

RAKBank is coming off a peak profit year, with Dh1.88 billion before tax and which comes off a 54.6 per cent spike over 2022. The higher lending rates helped, but Ahmed makes a pointed reference to there being significant appetite for loans from clientele.

"We have not seen demand shrink during the increase in US Fed interest rates..." says Raheel Ahmed of RAKBank. Image Credit: Supplied

A changing SME profile

As one of the UAE’s biggest lenders to small businesses, that says a lot. “There have been a significant shift in our SME business profile, where their fund flows are becoming more and more domestic,” said the CEO.

“Many SMEs here were traders, and they would they would buy things from one place and then ship it to another.

“As the size of the UAE economy increases, we are seeing a much larger share of SMEs tied into the domestic economy. I think that’s healthy – because when businesses don’t have too much stake in the local economy then you would see a much steeper boom-bust cycle.

“The way UAE SME profiles are shaping up, it means less chances of them being overly exposed to geopolitical changes.”

Making the case for provisions

In 2023, the bank’s overall loans and advances were at Dh42 billion, with a 10.1 per cent increase. Ahmed sees loan demand remaining consistent, even with uncertainty over exactly when the US Federal Reserve will start cutting rates. (And which will instantly get reflected in local lending rates too.)

“Whether for business loans or consumer, we have not seen demand shrink during the increase in US Fed interest rates,” said Ahmed.

This is the feedback other leading UAE banks have been saying during the 2023 financial reporting season. Another big positive for the banking sector is that most leading players had seen declines in their impairments.

In RAKBank’s case, the provision for credit loss increased to Dh1 billion against Dh797 million in 2022, which is a 26.1 per cent increase.

“Our increase is more prudence and also shows the rapid growth in our balance-sheet,” said Ahmed. “We basically support a lot a lot of SMEs, who are either just setting up or starting to scale up and need working capital needs.

“We have to be careful both in terms of our credit quality as well as not over-leveraging clients in terms of their business.

“Yes, the cost of borrowing is slightly higher, but the alternatives available to them would most probably be at a much higher level than what we could offer them.

“As far as the quality of our loan book is concerned, I think like many other banks, it's a very benign credit environment. The advent of the UAE Al Etihad Credit Bureau and the various regulations the Central Bank and ministry have issued in terms of cheque bounce and so on too have helped.

“That’s really helped to mature the credit profile of both individuals and companies.”

And make for a safer environment for banks to lend in…