Loan defaults hit RAKBank profits

RAKBank became the latest lender to report a fall in profits for 2015 on Wednesday, with the bank forced to increase provisions for loan impairments in the wake of increasing SME loan defaults. The bank has followed other local institutions in adjusting its focus away from the small business sector, looking instead to increase penetration […]

RAKBank became the latest lender to report a fall in profits for 2015 on Wednesday, with the bank forced to increase provisions for loan impairments in the wake of increasing SME loan defaults.

The bank has followed other local institutions in adjusting its focus away from the small business sector, looking instead to increase penetration among larger businesses.

Net profit at the bank fell 3.5 per cent to Dh1.4bn in 2015, falling slightly short of analyst estimates, as impairment provisions rose 77 per cent to Dh1.1 bn for the year.

“Provisions for loan impairments increased by Dh460.1 million from the year as a result of larger payment defaults from the unsecured loan products and SME and Commercial Banking units,” the bank said in a statement yesterday.

RAKBank’s non performing loan ratio rose to 3.2 per cent last year, a 28 per cent increase on 2014’s figure. The bank did not provide a breakdown of results for the fourth quarter.

“The Bank has faced stronger than expected headwinds in our Retail and Small Business Finance portfolios due to the challenging global and regional environment which is beginning to have an effect on some segments in the UAE,” said RAKBank chief executive Peter England.

RAKBank announced last month that it was cutting jobs as part of a restructuring drive, with up to 250 jobs understood to be at risk.

The fourth quarter saw the bank move its SME business into its retail segment, and rebrand its business banking segment to wholesale banking, “in line with the bank’s strategy to increase penetration into larger businesses and to focus on growing its commercial and corporate banking portfolio, trade sales, financial institutions lending, and asset based financing”.

Several of the UAE’s largest banks have reported a rise in non-performing loans over the past months, as falling oil revenues take their toll on the country’s small business sector in particular.

The IMF last month cut the UAE’s growth forecast to 2.6 per cent for 2015 from its previous forecast of 3.1 per cent, citing collapsing oil prices, a worsening Chinese economy and looming regional public spending cuts.

National Bank of Abu Dhabi, the country’s largest bank by assets, last week reported a 25 per cent decrease in fourth quarter profits, with impairment charges more than doubling year on year.

Sharjah’s United Arab Bank announced last week it was winding down its SME unit following rising bad loans among small business customers, many of whom had fled the country with unpaid debt.

RAKBank shares were trading 0.91 per cent lower at Dh5.45 in mid morning trading on the Abu Dhabi stock exchange.

jeverington@thenational.ae

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Source: Business

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