Complex Made Simple

Will Noor Bank’s merger with Dubai Islamic Bank lead to layoffs?

Dubai Islamic Bank (DIB) announced the completion of the merger of Noor Bank’s operations, after the successful transfer of all banking relationships to DIB. Can this result in Noor Bank employees facing layoffs?

This acquisition brings DIB’s total assets to over 300 billion dirhams ($81.7 bn) Reuters reported in February that DIB could slash more than 500-plus job cuts at Noor Bank In 2019, six mergers and acquisitions were being negotiated in the UAE worth $625 bn

Dubai Islamic Bank (DIB) announced the completion of the merger of Noor Bank’s operations, after the successful transfer of all banking relationships to DIB.

That was the tough part that took almost a year to complete. Will a tougher result happen to Noor Bank employees?

The merger is complete

This acquisition brings DIB’s total assets to over 300 billion dirhams ($81.7 bn).  

The bank’s multi-functional and specialized work teams ensured the transfer of banking operations is completed quickly and smoothly, with minimum interruptions to the system, although Noor Bank did suffer suspension of banking activity during the final migration of data. 

The completion of the merger project happened within 283 days.

Dr. Adnan Chilwan, DIB’s CEO said: “…we succeed in restoring all services before the expected time and with minimal impacts on customers.”

In June 2019, DIB’s board of directors submitted a recommendation to the bank’s general assembly to consider the acquisition of Noor Bank.

In November 2019, DIB revealed that UAE’s Central Bank approved the proposed acquisition.

Last January 2020, DIB revealed that it had completed the full acquisition of Noor Bank through a stock exchange deal.

According to Reuters in Dec 2019, shareholders gave approval for the acquisition through an increase of DIB’s capital from 6.6 billion shares to 7.2 billion shares, with a share swap ratio of 1 new share in DIB for every 5.49 Noor Bank shares, translating into the issuance of about 651 million new DIB shares.

Read: Top UAE banks that adopted blockchain technology and why

Layoffs

However, Reuters reported in February that DIB could slash more than half the workforce with planned 500-plus job cuts at Noor Bank as part of cost cuts across both lenders. DIB has more than 9,000 employees while Noor Bank has between 1,200 and 1,400 full-time staff, according to Reuters.

The acquisition will result in cost efficiencies and contribute to profitability, as well as allow DIB to offer competitively priced products and services across a more diversified portfolio while accelerating the group’s digitization program.

Following their mergers, First Abu Dhabi Bank (FAB), Emirates NBD and Abu Dhabi Commercial Bank (ADCB), downsized employees, citing redundancies.

United Arab Emirates’ Central Bank data shows local banks had laid off 446 people at the end of September in 2019.

COVID-19 is not making things easy as well and has contributed to banking employment losses. In Q1 2020, the top 10 UAE banks reported a combined 22.4% drop in net income quarter-on-quarter, according to a report by Alvarez & Marsal.

DIB recently reported 3.12 bn Dirhams ($850 million) in net profit for the 9-month period which ended September 30, 2020, down 22% year on year (yoy).

The bank’s total income reached nearly 9.9 bn Dirhams ($2.7 bn) for the nine months of 2020 supported by core business growth as well as robust fees and commissions and FX income of 1.32 billion Dirhams ($360 mn), an increase of 19% yoy.

Read:  Meet the company driving ‘Open Banking’ in the MENA

Bank mergers in GCC

“The banks now face larger cost adjustments as low oil prices and the coronavirus fallout constrain growth opportunities and severely dent their profitability,” said Badis Shubailat, analyst at Moody’s Investors Service.  

Pressures building from the oil price and pandemic shocks will increasingly drive purely financially driven transactions, particularly among smaller banks crowded out by larger competitors, the rating agency said.

One of the upcoming mergers is expected to be between two Saudi banks, National Commercial Bank and Samba. 

The new entity would have a 30% market share of Saudi’s banking assets, double that of its nearest challenger, Al Rajhi Banking & Investment Corp. The deal will result in a combined entity with total assets of $213 bn, according to S&P Global Market Intelligence data, and it will create the third-largest bank in the GCC by assets.

 The UAE set the trend with the creation of FAB through the merger of National Bank of Abu Dhabi and First Gulf Bank in 2017. In May 2019, ADCB merged with Union National Bank and the new entity took over Al Hilal Bank as its Islamic arm.  

The GCC banking sector has been undergoing a major consolidation phase with 20 banks negotiating mergers and acquisitions with an estimated $1 trillion worth of assets even months before the epidemic outbreak.

In 2019, six mergers and acquisitions were being negotiated in the UAE worth $625 bn and two in Saudi Arabia worth $256 bn.