RAK Bank reported net profit (pre-minorities) of AED317 million, down 15.2% Q-o-Q and 17.0% Y-o-Y. The bank’s earnings came ahead of our expectation of AED302 million (Bloomberg consensus AED321 million), mainly due to lower-than-expected operating costs. RAK Bank’s board proposed a cash dividend of AED0.50/share (in-line with our estimate) which is subject to final approval of the Central Bank. This translates to a pay-out ratio of c60% and a dividend yield of c9.0%.   Main positives: i) Lower operating costs (-15.0% Q-o-Q and -12.9% Y-o-Y); ii) Strong deposits growth (+4.2% Q-o-Q and +12.9% Y-o-Y)   Main negatives: i) Spreads likely to have come under pressure; ii) Higher-than-expected provisioning (cost of risk rose to 493bps from 389 bps in 3Q2015)   Our view of the results: Results were a mixed bag. Provisioning rose 28.6% Q-o-Q (18% ahead of estimate), as NPL ratio rose to 3.20% from 2.94%. We believe the increase is due to stress in the bank’s RAK finance portfolio, which accounts for c22% of the bank’s loan book. Operating costs surprised positively, as they decreased 15.0% Q-o-Q and 12.9% Y-o-Y. Management attributed the drop to reduction in outsourced staff costs and marketing costs. RAKB said in January that it is cutting c250 mainly expatriate staff as part of a restructuring drive. RAKB remains well capitalised and its pre-provision profitability is robust. That said, RAKB’s outlook is most sensitive among UAE banks to the health of the consumer and SME segments. We have a Neutral rating on the stock. (Earnings release, Shabbir Malik, Murad Ansari)   RAK Bank: AED5.50 as of 02 February 2016, Rating: Neutral, FV: AED7.40 per share, MCap: USD2,512 million, RAKBANK UH / RAKB.AD