Rakbank's ratings affirmed with 'stable' outlooks

Rakbank's strategies in the past had focused primarily on retail banking activities for many years and the Bank had built a strong reputation in this segment of the market. The central bank restrictions on retail lending imposed last year have encouraged the Bank to diversify its business. The trade finance, corporate banking and SME businesses are therefore receiving additional attention and these, along with the proposed Islamic banking offering, are expected to drive growth over the coming quarters. Very wide interest margins, strong loan growth and a large and diversified non-interest revenue base have underpinned the Bank's high profitability over the last many years. The increase in net profit in 2011 is attributed to primarily a decline in the funding cost (reflecting the substantial growth in low-cost customer deposits) and the expansion of the credit portfolio.

Rakbank had been less impacted by the problems in the regions than many of the banks in its peer group due to the low level of cross-border and real estate related exposures in its loan book, its deep understanding of its markets - as well as to its strong risk management set up. Its asset quality ratios therefore continue to be much better than the sector average and are regarded as good overall. The loan-loss reserve coverage has fallen from previously very high levels; this was due to the classification of mortgage loans which are secured by the underlying property that was financed. However, the Bank's large capital and very strong operating profitability are mitigating factors. Rakbank's non-performing loans to gross loans ratio is also one of the lowest among UAE banks.

The Bank's net loans to stable funds ratio has strengthened over the last few years, with customer deposits outpacing the expansion of the credit portfolio reflecting aggressive deposit collection activities. A high level of savings deposits (compared to many peer banks) and a large relationship-based demand deposit base coupled with relatively lower customer concentrations than other banks of similar size are some of the positive features of its customer deposit base. However, it is noted that the Bank's key liquidity ratios are slightly tighter than the sector average.

The Bank was incorporated in 1976. It is majority owned by the government of Ras Al Khaimah, one of the smaller emirates located in the northern part of the UAE. Rakbank currently operates 31 branches across the country and is primarily a retail banking institution.