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UAE banking sector crisis: 3,000 jobs cut

Today, UAE banking is now thriving but back then, the country faced only the toughest conditions since the 2008 global financial recession.

What took place cause some commotion as UAE banks were counting the cost of weakening economy and competitive market.

Here is an account of what took place.

The banking sector in the country has been in a state of upheaval over the past 12 months after 3,000 jobs were slashed in the UAE’s two main cities, Abu Dhabi and Dubai.

Nearly 900 jobs were cut across the banking sector in Abu Dhabi over the past year, with the number of employees in the sector dropping to 12,500 in the first quarter of 2017.

Read: UAE banking job cuts exceed 1,100 as Emirates NBD lets go of 300 staff

According to a report from the Statistics Centre Abu Dhabi (SCAD) on Tuesday, the sector saw a 6.9 per cent year-on-year decline in the number of employees compared to the 13,400 employees in Q1 2016. SCAD said the figures were for all commercial and Islamic banks it studied in Abu Dhabi.

The drop also comes amid consolidation in the sector, with two of Abu Dhabi’s largest banks, First Gulf Bank (FGB) and National Bank of Abu Dhabi (NBAD), merging in April 2017.

In its analysis, the Statistics Centre also said that banks in Abu Dhabi collectively recorded AED7.7 billion in net income in the first quarter of 2017. Nearly 82.6 per cent of that income was earned by commercial banks, while the remaining 17.4 per cent went to Islamic banks.

Abu Dhabi Islamic Bank cut more than 400 jobs between the first quarters of 2016 and 2017. A spokesman for the bank, which employs about 2,500 people across the UAE, said the bank will not comment on a rumour.

The economic slowdown in the past two years, triggered by lower oil prices, has emphasised the need for consolidation, with several publicly listed banks reporting lower year-on-year profit growth and some reporting a decline in profitability, especially during 2016.

This is propelled by slower economic growth in the UAE, with data from the International Monetary Fund (IMF) predicting a 1.3 per cent growth rate in the country’s Gross Domestic Product (GDP) in 2017 compared to 2.7 per cent in 2016.

Dubai banks cut jobs

Emirates NBD, Dubai’s largest lender, laid off approximately 300 people in Q1 2016 at two of its subsidiaries to cope with a weaker economy.

The bank made 100 people redundant from Emirates Money as part of a move to merge the small-business finance provider with Emirates NBD’s operations to save costs. Emirates Islamic (EI), the group’s sharia-compliant unit, also shed close to 200 people.

This culling came close on the heels of similar moves by several other local and international banks in the UAE. Collectively, 800 jobs were slashed.

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Barclays let go of nearly 150 members of its Dubai staff in Q1 2016 as a part of its global plan to restructure its corporate banking business. The bank was not immediately available for comment.

National Bank of Ras Al Khaimah (RAKBank), the sixth-largest lender by market value on the Abu Dhabi bourse, announced in Q1 2016 that it will let up to 250 expatriate staff go in order to “to better reflect business volumes and improve efficiency across its operations”. RAK Bank could not be reached to comment on the latest headcount fall.

Another lender in the country, FGB, had cut nearly 100 jobs, while HSBC and Standard Chartered reduced the strength of their staff in the UAE by 150 each.

Toughest conditions since recession

BMI Research warned in January that GCC banks are facing their toughest conditions since the global financial crisis this year, with the combination of lower oil prices, reduction in capital expenditure and increased drawdowns in government deposits squeezing liquidity and weighing on lending opportunities.

Meanwhile, the possibility of a banking crisis would have a massive impact on the economy because of the sheer volume of the sector.

The UAE’s banks top the list of the banking sectors in terms of asset volume in the GCC region, with a total value of approximately $711 billion (AED2. 61 trillion) in 2016, according to statistics from the Central Bank of the UAE.

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This reflects the extent of the sector’s importance in terms of supporting the UAE’s economy, according the UAE’s official news agency WAM.

The Saudi Arabia banking sector came second, with a total asset value of $602bn, while the banking sector of Qatar came in third place with $349bn, followed by Kuwait with $198bn, Bahrain with $193bn and finally Oman with around $70bn.

In terms of banks with the largest assets, the anticipated merger between the National Bank of Abu Dhabi and First Gulf Bank came in the second place with around $183bn, while the Qatar National Bank took first place with around $198bn.

The Emirates National Bank of Dubai (Emirates NBD) came in third place with valued assets of $122bn, followed by the National Commercial Bank of Saudi Arabia with $117bn, the National Bank of Kuwait with $79bn, Ahli United Bank at $34bn and Muscat Bank at $28bn.

The merger between the National Bank of Abu Dhabi and First Gulf Bank took the lead in terms of capital stock, whose value reached $26.6bn, followed by the Qatar National Bank with around $16.5bn, Emirates NBD with $14.7bn, the National Commercial Bank of Saudi Arabia with $14.1bn and the National Bank of Kuwait with $9.5bn.

Mukund Bhatnagar, Principal at A.T. Kearney, said: “Clearly, there is room for consolidation. It will require clearing hurdles such as the ownership structure, with governments and founding families owning significant stakes in many GCC banks. Regional expansion is another option. For some, this may mean deeper penetration of neighbouring emirates, while bigger players should consider broadening their international footprints.”

According to BMI Research, the slowdown in the banking sector would likely be sustained over the next five years.

Moody’s affirms ratings of five UAE banks

In a positive turn of events, credit rating agency Moody’s Investors Service affirmed the long-term ratings of five banks based in the UAE on May 30.

First Abu Dhabi Bank (FAB) is at Aa3, Abu Dhabi Commercial Bank (ADCB) at A1, Al Hilal Bank PJSC (AHB) at A1, Union National Bank PJSC (UNB) at A1 and Abu Dhabi Islamic Bank (ADIB) at A2.

The outlook on FAB, ADCB, UNB long-term deposit and ADIB’s long-term issuer ratings has been changed from negative to stable. The stable outlook on the banks’ long-term ratings mirrors the stable outlook on UAE’s issuer rating, which signals that the capacity of the government to provide support is not expected to change.