RAKBANK announces 1st quarter financial results

The current quarter's increase continues the Bank's recent history of solid growth performance.

Funded income grows by 23%
Net interest income of AED 53 million for the current quarter registered an increase of 22% over 31 March 2003 due to the significant increase in the funded assets of the bank.

Gross loans and advances closed at AED 2.9 billion an increase of 8.8% over 31 December 2003 and an increase of almost 42% compared to the 31 March 2003. The Personal Banking portfolio continued to grow throughout the quarter in line with targeted expansion. Various new products and services launched have been successful in line with expectation. The portfolio mix of loans and advances represents 78% personal banking and 22% corporate.

Commission and fee income grows by 60%
Fee and commission income at AED 23 million registered a 60% increase over 31 March 2003. This demonstrates the bank's strategic shift in enhancing its fee income from providing quality services to its customers. The banks investment services and mortgage finance have taken off very well in the current year after their soft launch in 2003 which has also contributed to the increase in non interest income. The bank's trade finance operations have been streamlined with a view to meeting the needs of the sophisticated corporate and high net worth Al Momiaz customers, resulting in increased non funded income.

Expenses
Expenses in the current quarter at AED 37.19 million up by 24% compared to the same period in 2003 as a result of growth in staff numbers, launch of various new products and promotions. While the Bank continues to invest in marketing, technology and other delivery channels resulting in increase in operating expenses, the bank also continues to remain in the forefront of Emiritisation with the national element averaging at 40% in the first quarter.

Assets & liabilities
Total assets as at 31 March 2004 were AED3.94 billion, a 5% increase from 31 December 2003 (AED 3.75 billion) resulting mainly from the growth in loans and advances by AED 229 million. The bank's investment portfolio (including originated debt securities) is also being diversified and closed at AED 126 million compared to AED 59.5 million in December 2003.

The growth in the asset book has been supported by a combination of increases in medium term inter bank borrowings and increase in shareholders funds. Customer deposits however decreased marginally by AED 46 million during the current quarter as some historic high priced deposits fell away.

The successful closure of the rights issue in March 2004 was followed by the distribution of cash and stock dividends for year ended 2003 resulting in a net increase of AED 55 million to the total shareholder funds. A total of 3.75 million shares of AED 10 each were issued at a premium of AED 5 per share on a rights basis which includes the employee share save scheme.

The net charge for loan impairment amounted to AED 6.3 million in the current quarter compared to AED 6.8 million in first quarter of 2003. This pertains to the specific provision mainly in retail banking of AED 12.8 million as offset by specific recoveries of AED 6.7 million.

The Bank has adopted a very conservative lending policy and given the growth in the loan portfolio these provisions are well below industry standards and indicate the quality of the Bank's lending book.

The 31 March 2004 interim condensed financial information as reviewed by our auditors can be found on the Bank's website: www.rakbank.ae.

Capital adequacy
The Bank's liquidity position continues to be strong. The capital adequacy ratio at the end of current quarter stood at 22%, against a minimum of 10% as prescribed by the Central Bank. Tier 1 capital has increased through a combination of rights issue and stock dividends which has positively impacted the capital adequacy ratio reflecting the Bank's continued efforts to grow the balance sheet within a sound policy of Balance Sheet risk management.

Ratings
Moody's Investor Services and Capital Intelligence have completed their review of the bank's financials for year-end 2003 and we expect their assessment shortly. The current ratings stand as follows:

Moody's:

Deposits: Baa1 / P-2
Financial Strength: D+

Capital Intelligence:

Foreign currency: L/T: BBB- S/T: A3
Domestic Strength: BBB-
Outlook: Positive