HSBC's plan to freeze staff pay and hiring around the world this year has come at a bad time for a UAE banking industry already reeling from a spate of job cuts.
The announcement by HSBC, reported by Reuters on Sunday, comes as Europe’s biggest bank accelerates efforts to save US$5 billion by 2017 as part of cost-cutting measures announced last June to boost profitability.
It also comes as the bank plans a move to a new $250 million building in Downtown Dubai that will serve as its regional headquarters.
A HSBC spokesman said he could not elaborate on how the freezes would affect the UAE and the Middle East specifically, but said that they would not curb bank plans to move its Middle East business from the Channel Island of Jersey to the emirate this year. The bank has about 4,000 staff in the UAE and a total of 8,000 across the Middle East and North Africa.
“As flagged in our investor update we have targeted significant cost reductions by the end of 2017,” he said.
The salary and hiring freezes will only compound the woes of HSBC employees in the Middle East. In November, HSBC let 150 people go in the UAE across its business as part of a cost-cutting effort. The bank said in the same month that its profit before tax in the Middle East dropped 26 per cent to $359 million in the third quarter from $487m in the same period the previous year.
Employees of HSBC are not, however, alone when it comes to cost-cutting measures. The bank is joined by its main international competitor in the UAE, Standard Chartered, and other local lenders in feeling the heat from falling oil prices more intensely. A StanChart spokesman said it will reduce its global workforce by 15,000 by 2018 as previously stated but he would not provide a regional or country breakdown.
The cuts reflect increasing signs that the oil price rout is starting to have an effect on the profitability of lenders as deposits dwindle and some customers, mostly small and medium-sized enterprises, face difficulty in paying back debts.
Cuts were also announced last month at RAKBank, a lender heavily exposed to small businesses and individuals.
As a result of an expected slowdown in government spending, many bank chiefs expect loan growth to cool this year as economic growth begins to slow and banks become more risk-averse when choosing who to give loans to.
HSBC and StanChart, among the biggest of the international banks operating in the UAE, are also facing troubles elsewhere.
HSBC said in June that it would cut 50,000 jobs globally as part of its cost-cutting drive. It also said it was selling its banking operations in Brazil and Turkey to focus on emerging markets in Asia.
The bank said at the time, before the drop in oil began to accelerate, that its UAE business featured prominently in its growth plans.
Meanwhile, StanChart said in July it had appointed a new chief executive to take the reins in the Middle East and Africa as it undertook a global overhaul to help it become profitable again.
The jobs market in the Arabian Gulf is showing signs of fewer firms hiring and wage pressure is easing, according a survey from Hays last month.
The survey found that 61 per cent of employers expected salaries to rise by up to 10 per cent, down from 88 per cent.
mkassem@thenational.ae
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