Banks in UAE close 11 branches due to cost-reduction strategies

Hazem Helmy, Staff Reporter

A report by the Central Bank indicates that the number of bank branches operating in the UAE decreased from 493 at the end of the first half of 2023 to 482 by the end of the first half of 2024. A total of 11 branches were closed in various emirates over the course of the year, with experts anticipating an increase in this figure in the coming years. This is largely attributed to the adoption of cost-reduction strategies and the digitisation of banking services by numerous financial institutions.

The rationale behind the decision of numerous banking institutions to diminish the number of their branches can be attributed to two key factors: the current absence of a pressing necessity for such a vast network and the objective of curbing operational expenses.

Banks have confirmed that a significant proportion of their customers are utilising the bank's mobile application to complete a range of services without the necessity of visiting the branch and waiting in a lengthy queue to enquire about new services or obtain information.

Two banking experts posit that digitisation is a significant factor influencing the closure of bank branches. The advent of digital banking applications on smartphones has effectively supplanted the need for physical branches, particularly given the convenience and accessibility these apps offer. Conversely, some banking institutions have initiated the use of external agencies to appoint personnel on their behalf, as opposed to hiring directly, with the objective of curbing operational expenses. The utilisation of these external entities is a strategy employed by banking institutions to mitigate the financial burden associated with personnel costs.

As indicated by the two experts, the number of employees engaged in the banking sector from outside the UAE, who are employed by outsource companies contracted by the bank, has reached more than 20,000, with an anticipated increase in this number.

Banks typically reduce the number of their physical locations in order to reduce costs, and utilise the proceeds to prioritise the provision of digital banking services to their customers, according to Hassan Al Rayes, a banking expert.

Picture used for illustrative purposes only.

He added the reduction of the number of branches and other traditional service channels, such as tellers and employees, and their replacement with automated and digital banking services, can result in increased efficiency and profitability for banks

Al Rayes, who has been working for over two decades in the sector, indicated that the primary concern for banking institutions in the context of digital transformation is the lack of familiarity and comfort among customers with the intricacies of this process. Additionally, the necessity for robust information technology security is paramount, as digital transformation has become a critical factor in both business operations and competitive landscape.

He also posited that digital services would contribute significantly to a reduction in the number of bank branches over the next few years, with the number of remaining branches expected to fall below 90. This is particularly the case given that a considerable proportion of the basic services previously provided by banks have been transferred to outsourcing companies. This shift also has the effect of reducing the overhead expenses of the banks in question.

It is estimated that there are more than 20,000 employees working in the banking sector outside the country. This figure includes the majority of banks that provide call centre services, some of which are based outside the country, while others employ individuals working inside or outside the country. It is notable that this number is increasing. As indicated in the Central Bank report, published midway through the year, the number of employees engaged in the banking sector within the country exceeds 38,000.

Amjad Nasr, a financial expert and Islamic finance consultant, pointed out that banks are closing some of their branches for three reasons: an increase in the number of customers, particularly the younger generation who prefer digital services to traditional ones; their need to reduce operating expenses; and the facilitation of convenient and accessible service access.

“The banking sector in the UAE is a pioneer in technological progress in the region and the world. This is evidenced by the digitisation of banking services, including the opening of accounts, obtaining financing, making payments and other services, which can be conducted remotely, obviating the need for customers to visit a physical branch. This is a significant factor influencing the decision of banks to close some of their branches,” Nasr added.

Furthermore, he stated that banks are continuously striving to enhance their digital services in order to align with customer preferences, which increasingly favour remote transactions and inquiries.