Earnings down 45% Q-o-Q, miss estimates. RAKB reported a net profit of AED108mn (EPS: 0.06) for 3Q16, down 45% Q-o-Q and 71% Y-o-Y. Earnings missed our estimate of AED239mn (Bloomberg consensus: AED214mn).   Our view of the results: A weak set of results. Earnings missed expectations mainly due to higher-than-expected provisioning and weak spreads. The bank’s cost of risk rose to 700bps from 600bps in 2Q16 and 390bps in 3Q15. RAKB’ SME portfolio and expat retail segment has been weighing on the bank’s credit quality.  Spreads weakened to 6.87% from 7.09% in 2Q16 due to a combination of lower asset yield and higher cost of funds. Yield is weakening as the bank i) increases focus on lower margin corporate segment to mitigate its credit quality risk and ii) the RAK Finance book contracts (write offs & repayments offsetting new origination). The near-term profitability outlook (9M16 ROE: 7.3%) for RAKB remains challenging in light of the challenges in the SME segment, however we believe the bank is well positioned to absorb this shock (9M16 pre-provision ROA: 6.2%; CAR: 24%).     Main Positives: Lower-than-expected operating costs. Main Negatives: i) Pressure on spreads (-22bps Q-o-Q to 6.87%); ii) Elevated provisioning (cost of risk 700bps); iii) Subdued loan growth (-1% Q-o-Q and -0.4% Y-o-Y). (Company, Shabbir Malik)   RAK Bank: AED5.00 as of 26 October 2016, Rating: Neutral, FV: AED6.10/share, MCap: USD2,284mn, RAKBANK UH / RAKB.AD