A second wave of job cuts could continue into next year as companies feel the pinch of the economic downturn, a senior banker has warned.
More job cuts feared
A second wave of job cuts could continue into next year as companies feel the pinch of the economic downturn, a senior banker has warned despite renewed confidence in a recovery. The global slump has seen thousands of jobs lost in the financial and property sectors in the UAE during the past 12 months as credit lines have dried up and commercial and residential property sales have stalled.
Concern about further redundancies could put even more strain on the consumer business of banks, which have already been forced to set aside billions of dirhams since the beginning of the year to cover potential defaults. "We are not out of the woods yet, by no stretch of imagination. We may see some corporate failures and stress in the corporate world," said Chris de Bruin, the country head of consumer banking at Standard Chartered. "Our biggest challenge [as consumer bankers] are people who have lost their jobs."
Suvo Sarkar, the head of consumer banking at Emirates NBD, echoed that view and said the economy could witness further distress during the next six months. "It is a difficult time for consumer banks right now," Mr Sarkar said. "The fourth quarter and first quarter of 2010 will be tough, but the second half should get better." The warnings came despite signs of renewed economic confidence emerging last week. Dr Omar bin Sulaiman, the vice chairman of the UAE Central Bank, said on Thursday he expected the economy to grow between 3.5 and 4.5 per cent next year, although an official forecast has not yet been published.
But even economists who have predicted a strong recovery fear that credit-starved small and medium-sized enterprises (SMEs) may feel more pain. Simon Williams, the chief regional economist at HSBC, expects the UAE's economy to grow by 4.5 per cent next year but said increased spending may come too late for some companies. "I think we will see a significant pick-up in economic activity next year, and credit growth will resume, but it will be a top down process, and it's going to take time to feed through to SMEs," Mr Williams said. "Some firms may find they can't hold on."
Squeezed by shrinking margins and rising costs, many small companies have found it hard to get credit after global investors pulled an estimated Dh180 billion (US$49bn) out of the economy in the aftermath of the collapse of Lehman Brothers last year. Last week, Deyaar, which is one of Dubai's largest developers, shed 20 per cent of its staff after reporting a 74 per cent drop in third-quarter profits from the same period last year. Dubai World has cut some 12,000 jobs, or 15 per cent of its staff, to rake in $800 million in savings in three years. Meanwhile, local lenders may have also lost about 1,000 jobs, Mr de Bruin said.
"Next year we will still see quite a lot of stress as people continue to lose their jobs. We are still on high alert," he said. A lack of reliable statistics makes it impossible to accurately assess the number of jobs lost across the Emirates this year. While most analysts agree that job cuts have slowed considerably this year, the fallout from the global financial crisis continues to work through the economy. "If a company stops a project with 1,000 workers, that has ripple effects and draws concentric circles," Mr de Bruin said.
Bobby Sarkar, an analyst at Al Mal Capital, said default rates had climbed during the past year. "We have seen a fair amount of turbulence, particularly in unsecured-lending products, personal loans and credit cards," he said. On average, bank customers across the Emirates are unable to pay back Dh2.50 for every Dh100 of lending. That rate could increase to as much as 10 per cent for personal loans and credit cards.
The lack of bankruptcy protection in the UAE makes consumer banks particularly susceptible to job losses. "People are unable to manage their creditors in a good way. This crisis is catching on where the legal framework is not strong," said Mr de Bruin. The UAE does not have a system that allows individuals or companies to ask courts for bankruptcy protection. @Email:email@example.com