Operating Income
AED 3.8 billion
Customer Deposits
AED 34.1 billion
Total Assets
AED 52.7 billion
Realising strategic rewards
Strategic rewards cannot simply be measured in terms of revenue and profit. They derive from taking the right decisions to grow a balanced business, both in terms of driving revenues and making them sustainable and robust. While there were headwinds in the UAE’s economy in 2018, which we needed to factor into our lending strategy and overall expectations, as well as pressure on fee income and increased costs, our net revenues have progressed compared to the previous years, demonstrating beyond question the underlying strength and maturity of the Bank. To put it simply, the work we have done over the last few years has significantly improved the ‘quality’ of our earnings.
At the beginning of 2018 we initiated our latest 3-year strategic plan. This took on board all the learnings and achievements of our previous strategic plan, which saw significant restructuring, diversification of our balance sheet, de-risking and building a more balanced business portfolio. One key element of the previous plan was our decision to re-enter the wholesale banking market. The direction we took then has proved to be the right one. It has positioned us well for the next stage of the journey, and we have become a more mature financial institution. We have a much broader set of offerings and capabilities that span not only our traditional strengths but also incorporate new areas such as cross-border lending, treasury, derivative and hedging services amongst others.
Our new strategy focuses on improving the performance of business units and continuing to innovate in our product and service offering. Innovation gives us an edge over the competition. For instance, it helps us identify new international remittance channels, some using blockchain, enhancing our contactless cards for ATM use and POS machines, and exploring the world of third-party technology providers through partnerships with organizations such as Fintech Hive and Marketplace Scan, to see what our next paradigm shift might be.
Innovation also lies behind our diversification, by helping us to strengthen our offering to SMEs (for whom we remain the leading Bank in the UAE) and making a clearer distinction between this and our Personal Banking business. We derive a considerably higher proportion of our income from the SME business than any other bank in the UAE, and this is why we entered strategic agreements with both RAK SME and Dubai SME in 2018, to continue supporting this vital segment of the UAE economy. It is also the thinking behind our partnership with Etisalat, to set up the Hello Business Hub providing a one-stop solution for SMEs and start-ups to operate in the UAE.
This does not mean that we are not also seeking to grow and differentiate ourselves elsewhere. We became a merchant acquirer this year, further cementing our position as a leading Bank for consumers and businesses in the country, and our 2018 partnerships with FC Barcelona and Air Arabia, both supported by co-branded cards, show the efforts we are making to further build this area of our business. As mentioned earlier, we have become leaders in the instant remittance market, which we enhanced this year with partnerships that bring 25 more destinations within reach of our customers. Also, the Bank recognizes the potential for growth in financial institutions lending and supporting our emergence as a trade bank to attract a new breed of customer.
Our net revenues have progressed compared to the previous years, demonstrating beyond question the underlying strength and maturity of the Bank
Robust performance
RAKBANK’s increase of AED 107.0 million or 13.2% in Net Profit does not tell the full story. Overall, we were able to reduce provision for credit losses by AED 131.8 million, or 8.5%, and our Total Operating Income held steady at AED 3.8 billion. Our Operating Expenses increased by AED 41.9 million, primarily due to staff costs and investment in new technology, and Total Assets grew by 8.5% to AED 52.7 billion. A healthy growth in corporate loans contributed to the increase of Gross Loans & Advances by 4.8% year-on-year. Customer Deposits increased by AED 2.0 billion (rounded) to AED 34.1 billion, a 6.1% increase compared to 2017.
Operating Income was AED 3.8 billion for the year, increasing by 0.4% compared to 2017. The Group’s Net Interest Income increased by 1.7% to AED 2.8 billion. Whilst Non-Interest Income declined by 2.6%, mainly due to a challenging bond market, our underlying ‘flow’ of income has improved significantly, which is a positive sign for the future. Meanwhile, Operating Expenses increased 2.9% year-on-year and the cost-to-income ratio closed at 38.9%. After taking into consideration our profit and the proposed dividend, and considering the impact of the adoption of IFRS9 on 1st January 2018 total capital adequacy ratio as per Basel III at the end of the year was at 17.2% compared to 20.7% at the end of 2017.
Excellence in what we do
We remain focused on achieving excellence in customer experience. This requires investment across our business, in technology, in our people and throughout our processes. To spearhead our promise to customers we introduced a Customer Service Charter to demonstrate our commitment to excellence in service delivery, while setting out minimum levels of service excellence, accessibility, security, compliance and sustainability.
Echoing this promise, we made several improvements to the Bank’s customer service standards. Service highlights included the launch of the RAKBANK Business mobile app, for customers to manage a range of banking activities securely and conveniently, and an improved credit card application process for new customers, by which it is possible to receive and activate a card within 24 hours. Winning both the Dubai Quality Appreciation Award and Dubai Service Excellence Scheme Awards (the latter for the second time) confirmed RAKBANK as an organization that is driving a culture of excellence through the adoption of best practice and its diligent application.
Outlook for 2019
The business climate in 2018 remained uncertain, but for established SMEs it was better than it has been for some time, and we believe this is likely to continue into 2019. An issue for such business in the past has been over-leveraging, but the growing influence of the UAE Credit Bureau has brought more discipline into the segment, which has fed down to the quality of lending at RAKBANK. The property market continues to look challenging for 2019, and general global economic conditions look more uncertain with challenges in trade and other areas. However, in our view the local economy is showing signs of a return to healthier levels of growth, and we are in a better position than ever before to benefit from improving conditions in the UAE, and especially our home Emirate of Ras Al Khaimah.
Despite a movement towards bank consolidation in the UAE in 2018, we consider ourselves a robust institution with a distinctive niche, a tried and tested business model, and a reputation that we have worked hard to build and strengthen. We are a very different bank to the one that started business in 1976 and have changed and grown significantly – particularly in the last 5 years. We will now continue on our transformation journey, becoming a stronger and more diverse bank in 2019 and beyond.