More than 600 employees were made redundant by UAE banks last year as they reduced the number of branches, reveals the UAE Banks Federation's (UBF) annual report.
Data revealed that local and foreign banks reduced staff by 1.6 per cent last year from 36,971 at 2016-end to 36,367 by end of December 2017. Local banks reduced 476 employees while foreign banks laid off 128 workers.
Similarly, local banks reduced the number of branches by 75 to 771 last year while foreign banks shut down three branches as customers are increasingly moving towards online banking.
"The reduction in the physical infrastructure and employees is because of consolidation, improving cost efficiencies and greater focus on alternate, digital channels," UBF said.
VAT, high oil price brighten UAE banking sector outlook
UAE banking sector remained robust last year on the back of strong economic momentum in the country, and 2018 looks even better on the back of higher oil prices, VAT revenue and better growth across deposits and credits, according to the UBF report.
Abdul Aziz Al Ghurair, chairman, UAE Banks Federation, sees 2018 to be an exciting year for the UAE in general and the banking sector in particular.
"Anticipated higher oil prices, VAT revenue, further diversification of the economy and the build-up to Expo 2020 will lead to a better government fiscal position, higher investments and spending to further drive the economy. On the back of improved economy, UAE banking sector will have better growth across deposits and credits. Expected interest rate hikes by the US Federal Reserve will eventually raise interest rates in the UAE and will help banks to improve profitability," he said.
UBF report forecast that construction sector will drive lending given demand for Expo 2020.
The report cautioned that interest rate increase will put further pressure on retail, construction and tourism sectors of the UAE economy and lending from the banking sector.
It said implementation of other key initiatives such as VAT, Basel III and IFRS9 will have an impact on profitability, for which banks need to be prepared.
However, implementation of IFRS9 from January 2018 will drive banks to pick quality loan demand and this in the long-term will have a positive impact on reducing non-performing loans on new loans, which has been a concern in previous years, to drive banking into a more profitable zone.
According to the Central Bank, UAE economy grew 1.5 per cent in 2017. And IMF forecast faster growth of two per cent in 2018 and 3 per cent in 2019.
Despite some headwind factors, the UBF report said that it is anticipated that growth in non-oil GDP is expected to pick up from 2018 and outpace oil GDP growth, with the Ministry of Economy citing that the non-oil sector could account for 80 per cent of UAE's economy by 2021.