Overall: Management expects 2016 to be very challenging year. RAK expects its provisioning in 1Q16 is to be higher than 4Q15 due to continued pressure in the small business and expat retail segments. It expects this pressure to begin to ease off from 3Q. The improvement in provisioning is contingent on a recovery in the economy. We believe it remains well capitalised and its pre-provision profitability is robust. That said, RAK Bank continues to be the most sensitive among UAE banks to the health of the consumer and SME segments, the outlook for which remains challenging. We have a Neutral rating.   Loan growth outlook: It aims to grow its loan book by 5-10% in 2016, underpinned by the corporate segment where it is under-penetrated. It is beginning to do more underwriting in the emirate of RAK (mainly large non-government businesses in the RAK free zone).  It expects a flat to negative year for loan growth in the retail segment. RAK Bank remains committed to the small business segment however it intends to de-emphasise  growth in RAK Finance (uncollateralised, higher risk loans) and focus on traditional small business lending (lower risk trade and working capital loans, greater scrutiny of the use of the loan proceeds).   SME credit quality: RAK Bank highlighted that there has recently been greater corporation among banks to help resolve the stress in the commercial and SME segments, which has helped. However, the small business segment continues to face challenges. Management highlighted that in 4Q15, it continued to see new NPLs in this segment. RAK Bank expects provisioning pressure to sustain over the next two quarters.  Management reckons that provisioning in 1Q2016 is likely to be worse than 4Q2015 (cost of risk of c490bps).   Retail credit quality: RAK Bank has experienced stress in the expatriate consumer segment with increased loss rate across most products – cards, personal loans and autos. The only exception is the bank’s mortgages portfolio. Management however highlighted that the pick-up in provisioning in the retail portfolio is not as severe as in the SME sector. Management further pointed out that deterioration in the retail segment is not only caused by redundancies, but also by a drop in income of individuals whose work is commission based.     Operating costs to remain in focus: Management has taken a very strict approach towards costs in 2015 to cope with the deterioration in asset quality. Management believes that it has room to trim costs further if necessary. RAK Bank’s cost to income ratio dropped to 38% in 2015 from 42% in 2014.   Liquidity situation improves: Management stated that liquidity pressure in the system has eased off and liquidity has become a bit cheaper to get relative to 2H2015. RAK Bank has not had to aggressively pursue expensive deposits, as it continues to receive a steady flow of deposits from small business accounts. Management stated that foreign banks have exited the small business banking segment in the UAE, creating an opportunity for RAK Bank to acquire new clients and become more active in this space.   Capital adequacy and dividends: Management expects a gradual decline in CAR to low 20% by 2017 from 24.4% at the end of 2015 as it looks to grow the size of its balance sheet. It intends to keep its pay-out reasonably high (2015: c60%). (Company, Shabbir Malik)