Retrenchments, cost cutting and defending profits are the buzz words echoing down the chain of command nowadays at most banking giants globally. Gone are the days of revenue-driven expansionary policies for lenders like HSBC and Standard Chartered.

Even markets such as the UAE with Dubai, the Middle East’s commercial and trading hub, as its centre-piece, are not favoured any more. HSBC laid off about 150 employees in mid-November from its retail and commercial banking operations in the UAE, while sources said the number could be double the acknowledged figure. Standard Chartered, on the other hand, has reduced the headcount by close to 100 in the last three months. This probably is the first wave of the retrenchments and more jobs will be slashed in the months to come.

While both Standard Chartered and HSBC are exercising drastic down-sizing policies to cut costs, one could argue that the jobs losses here were inevitable, and hence, not a true reflection of the general health of the banking industry.

Although, there have not been any reported job cuts in the local banks, the indications are that the UAE financial sector will face some headwinds.

Real estate prices in Dubai could drop as much as 20 per cent in 2015 and the trend may continue next year, Standard & Poor’s said earlier in November. Most banks are heavily exposed to the real estate sector through property investments and their mortgage books, especially, after prices had soared about 70 per cent between mid-2011 and mid-2014, according to real estate consultancy Phidar Advisory.

The phenomenon of “skips’’, a hallmark of the 2009 financial crisis when thousands abandoned the UAE without paying debts to avoid tough penalties including the jail time for bad cheques, is back. It hasn’t come to the retail clients yet, however, a rising number of people who owned smaller and medium-sized (SME) companies have defaulted on debts and skipped town. Bad loans left behind could be in the range of AED5bn  ($1.36bn) this year, according to Abdul Aziz Al Ghurair, the chief executive officer of Mashreqbank who is also chairman of the UAE Banks Federation.

Liquidity conditions at are expected to get tighter for the banks over the next few months, according to media reports citing a quarterly credit sentiment survey from the country’s central bank. 

The price of crude, – sale of which is the main source of income for the oil-exporting UAE, especially, Abu Dhabi – have dropped more than 50 per cent since August last year. The government, in order to meet the shortfalls, has been withdrawn funds from the local banks, amplifying the liquidity crunch further. Government deposits at National Bank of Abu Dhabi (NBAD) dropped by $13bn as the third-quarter profit fell by 3 per cent at the biggest bank in the UAE by assets.
The bank’s chief executive Alex Thursby in October said that the UAE banking system as a whole lost about $15bn in government deposits from September 2014 to September 2015.

Distressed commodities universe is also affecting the economic growth in the UAE. Monica Malik, the chief economist at the Abu Dhabi Commercial Bank (ADCB) expects the headline real GDP growth moderating to 3.7 per cent in 2015 from 4.6 per cent in 2014 and real non-oil GDP growth decelerating to 3.9 per cent from 4.8 per cent.

While the banking system is not in as bas a shape as it was in 2009-10, one things is certain that the tail winds, which propelled growth over the past few years, have subsided.