The United Arab Emirates and regional banks are expected to continue cutting costs following hundreds of redundancies in recent months, according to a new report.
Reductions by local lenders have totaled a combined 1,500 staff in 2015 and 2016, according to some estimates, with redundancies in the hundreds at the likes of Rakbank, First Gulf Bank, HSBC and Standard Chartered, Albawaba reported.
Despite this, the average cost-to-income ratio (CIR) in the UAE increased 0.6% last year to 34.8%, compared to 34.2% in 2014, according to KPMG, a global network of professional firms providing audit, tax and advisory services.
In its (P)GCC listed bank report, the company said the cost of doing business rose in the emirates during 2015 with seven top banks analyzed reporting single-digit increases in their CIRs last year.
This led banks to cut staff in the second half of the year as liquidity continued to tighten due to tumbling oil prices.
The KPMG said it expected a focus on cost efficiencies across the (P)GCC (comprising of Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman) banking sector to continue.
“We expect this trend to continue in the long-term with cost reduction, operational efficiency, digitalization and innovation all likely to be high on board agendas for the foreseeable future,” it noted in the report.
Brink of Default
Dubai that teetered on the brink of default during the global recession, is bucking the economic slowdown afflicting most of its oil-rich Persian Gulf Arab neighbors, Bloomberg reported.
While economic expansion in the Middle East’s financial and transport hub is set to moderate to 3.3% this year, domestic investments—boosted by preparations for hosting the Expo 2020 international trade fair—will drive a “rapid acceleration” to more than 5% by 2020, said Zeine Zeidane, the International Monetary Fund’s mission chief to the UAE.
That contrasts with the outlook for Dubai’s oil-reliant neighbors, who have slashed spending in response to the decline in crude prices. Abu Dhabi, the richest of the UAE’s seven sheikdoms, may be tightening its belt too fast: The IMF expects its economic growth to slow to 1.5% this year from 4.3% in 2015.
Dubai, home to the world’s tallest skyscraper, borrowed tens of billions of dollars to build an economy reliant on trade, transport, finance and construction, attracting global banks such as Goldman Sachs with the allure of tax-free business parks.
After a spell of breakneck growth, the edifice threatened to come crashing down when the global financial crisis pushed the real estate market into a slump and took Dubai to the brink of default. Authorities have since tightened regulations and repaired the emirate’s public finances.
Dubai and Abu Dhabi have been ranked as the 23rd and 33rd most expensive cities to live in (respectively) according to Mercer’s 2015 Cost of Living Survey. The two cities have experienced a significant jump compared to 2014, with Dubai soaring 44 places from last year’s position at 67 and Abu Dhabi going up 35 places from 68th in 2014.
Safe Haven
Dubai’s 'diversified economy' is helping it to overcome the negative impact of lower oil prices felt by other regional exporters, Zeidane said in an interview on Monday. It's safe-haven status in a region 'ridden by conflict', a weaker dollar and the strong performance of trading partners such as India are also supporting the economy, he said.
The IMF comments come amid concern over Dubai’s property market, with home prices expected to fall by 10% this year because of the spillover from lower oil prices, according to S&P Global Ratings. A slowdown in the hiring and expansion of companies is also putting pressure on the market, the ratings firm said in a report last month.
The IMF expects the UAE’s economy to expand 2.3% this year. The subdued pace is largely due to the projected slowdown in the capital Abu Dhabi, home to 6% of global oil reserves and the world’s second-largest sovereign wealth fund.
