Cuts coming at local banks?

In theory, the worst of the financial crisis is behind us, which means redundancies should diminish going forward. However, ongoing problems and poor performance at local banks means they may be forced to cut their cloth this year.

While international banks in the Gulf were quick to make job cuts in late-2008 and the early part of last year, very few local banks - publicly at least - made redundancies.

However, they're still facing a number of challenges that are likely to result in the need to par back headcount.

For a start, despite some exceptions, the Q1 results are again likely to show reduced earnings due to banks' reluctance to take swift action over excess lending during the bull market. Loan defaults are increasing and provisions against these stood at over $9bn in February.

Emirates NBD, for instance, has just reported a 12% fall in first quarter profit in Q1 due to higher provisions against bad debts, whereas Mashreq's Q1 profits tumbled by 48% year on year.

Rising defaults and increased unemployment are also hitting banks at a retail level, according to a report from Boston Consulting Group. Add the fact that some local banks could take a hit from Dubai World in Q2, and suddenly the situation looks very shaky.

"We're hearing that a lot of local banks are culling staff, and trying to keep it fairly quiet or just cutting in small numbers," says Peter Greaves, director of financial markets executive search firm McArthur Murray. "I think there is a lot of pain to come out of the local market."

Bahraini banks, for instance, have reportedly been laying off staff going into this year. Bankers held a protest outside the Bahrain Financial Harbour in Manama last week.

"We thought that by mid-2009 this crisis was over and these actions would stop, but by the end of last year we heard more banks were planning layoffs and in the last four or five weeks, four or five banks are laying off people but in a very quiet way," Khalil Zainal, head of the Bahrain Bankers' Union told Gulf Daily News.

Recruiters tell us that they're receiving CVs from people made redundant within numerous functions, including HR and finance, as well as more business facing areas. However, some banks are taking the opportunity to hire.

"Banks have been undergoing restructuring, which to some extent is the legacy of over-hiring during the boom times, but this has also created opportunities," adds Greaves. "For instance, good corporate bankers who can bring in clients are very much in demand."