This article first appeared in The Edge Financial Daily, on March 23, 2016.

KUALA LUMPUR: Bank Kerjasama Rakyat Malaysia Bhd (Bank Rakyat) has warned that profit growth will be flat this year, amid tough operating conditions.

Nevertheless, its managing director Datuk Mustafha Abd Razak is confident that the Islamic bank’s profit before tax and zakat will stay above the RM2 billion mark.

For the financial year ended Dec 31, 2015 (FY15), the bank saw its profit before tax and zakat fall 8.2% to RM2.01 billion from RM2.19 billion in FY14.

“For FY16, we are looking at a loan growth of between 5% and 7%, supported by the three segments of personal, car hire purchase and housing loans,” Mustafha told a news conference to announce the bank’s financial results for FY15 yesterday.

Its loan growth stood at 6% in FY15.

Bank Rakyat’s net profit also dropped 8.1% to RM1.82 billion from RM1.98 billion in FY14, hurt by higher cost of funds of about 12% to 13%.

Mustafha attributed the lower net profit to higher cost of funding to depositors, despite registering a higher total income.

However, revenue for FY15 rose 6.1% to RM6.43 billion from RM6.06 billion the previous year, contributed mostly by income from financing of RM4.65 billion.

Bank Rakyat also declared a lower dividend of 13%, amounting to RM385 million, for FY15, compared with 15% totalling RM450 million in FY14.

Total deposits for FY15 expanded 3.6% or RM2.46 billion to RM70.98 billion compared with RM68.52 billion in FY14, of which retail deposits accounted for 21.2% compared with 16.9% in FY14.

Non-performing loans were lower at 1.85% in FY15, compared with 2.04% in FY14.

“We are improving the group’s asset quality and this was in line with what we said last year in trying to reduce it to [the] industry’s standard of 1.7%.

“In 2016, we expect things to be manageable,” said Mustafha.

Mustafha also said Bank Rakyat had allocated RM413.5 million in capital expenditure for FY16, which will be used to enhance its information technology and grow its business through agencies.