Capital Intelligence (CI), the international credit rating agency, announced that it has maintained the Financial Strength Rating (FSR) of National Bank of Ras Al-Khaimah (Rakbank) at ‘BBB+’.
The Bank’s robust profitability, strong retail banking franchise, very high capital adequacy ratio (CAR), improved liquidity and good management are factors underpinning the rating. The Bank also has low non-performing loans (NPLs) and CI notes that the loan-loss reserve coverage ratio is strengthening.
However, restructured performing loans remain high, and these – along with the Bank’s high NPL net accretion rate, comparatively small balance sheet and ongoing heightened credit risks in an otherwise improving operating environment – are constraining factors. In view of the improving liquidity ratios and strengthening loan-loss reserve coverage ratio, the Outlook for the FSR is changed to ‘Positive’ from ‘Stable’.
The Long-Term and Short-Term Foreign Currency (FC) Ratings are affirmed at ‘A-’ and ‘A2′, respectively; the Bank’s good financials and management and the strong likelihood of support from the UAE authorities underpin these ratings. The Support Rating is maintained at ’2′. The Outlook for the FC ratings is ‘Stable’.
Rakbank’s asset quality ratios continue to be sound overall, with NPLs remaining at a low level and the loan-loss reserve coverage ratio rising in 2013 and in H1 2014. The Bank’s loan-loss provisions together with a special non-distributable reserve in capital for credit risk exceed its NPLs. The Bank is profitable enough to make sizeable additional provisions if required. A negative observation is the Bank’s high level of restructured performing loans. However, these mainly represent loans with modified payment arrangements with no loss of earnings to the Bank. Moreover, restructured loans are performing well and the likelihood of the portfolio affecting the Bank’s future asset quality is presently low.
The Bank’s large capital provides additional cover. Rakbank has maintained its CAR at a solid level over many years – despite the good growth in risk-weighted assets. This was mainly due to its strong earnings, a large part of which has been ploughed back into net worth over the years. Capital formed more than a fifth of the balance sheet at end 2013.
Rakbank’s liquidity ratios have strengthened in recent periods and are now on a par with or better than the peer group average. With customer deposits rising considerably faster than net loans, the net loans to customer deposits ratio has improved over the years. A medium-term note issuance in H1 2014 further strengthened the net loans to stable funds ratio in the first half.
The expansion of the investment portfolio has contributed to the growth of liquid assets. Rakbank’s customer deposits and capital fund a major portion of its balance sheet, and its short-term interbank liabilities are very low. The deposit base is characterised by a very high level of demand and savings balances, which have risen substantially in recent years; this has contributed to the Bank’s low – and improving – funding cost.
Although balance sheet maturity gaps remain wide in the very short-term due to the Bank’s small portfolio of short-term loans and its large demand and savings balances, a large portion of these balances tend to remain with the Bank indefinitely and provide a measure of stability to the funds base. A major positive feature of Rakbank’s customer deposit base is relatively lower customer concentrations compared with other banks of similar size.
Rakbank’s profitability continues to be the strongest among local banks in the UAE. Its very wide net interest and profit-sharing margins, good growth in loan volumes and a large and well diversified non-interest income base underpin its consistently strong operating profitability and return on average assets.
Rakbank is a small to medium-sized bank in the UAE with a strong focus on consumer and commercial banking where it has built a good reputation for quality customer service. 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 34 branches across the country and is primarily a retail banking institution. It had total assets of Dhs34.5 billion at end-June 2014 (equivalent to $9.4 billion).
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