The Economics Behind Staff Reductions in Banks

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Friday, June 03, 2016 01:37AM /Saheed Kiaribe

There is no gainsaying that the current downturn being recorded in the Nigerian Economy has continued to have adverse effects on both businesses and households.

Latest GDP Report from the National Bureau of Statistics (NBS) shows that the economy contracted by -0.36% in Q1’16, dropping off the radar from the 2.11% recorded in Q4’15.

Analysts have described this as the worst GDP figure in recent memory.

Banks in the Nigerian financial system have continued to announce staff reduction and job cuts citing the need to cut costs, shore up the financials, learn a new way to exist and compete and find their way through a new maze designed to reorder the banking system in the country (albeit in a recession bound economy).

That said, the issues plaguing the bank has its roots in something other than a roots and branch change in emphasis. No, this is driven by something outside the general economic malaise even if it serves to add fuel to it.

The reasons for the cuts are driven by the popular desire to correct the bank-economy nexus:

         Removal of public sector funds via the TSA that has impacted the deposit (liability) side of banks operations;

         Removal of COT which has always created low hanging fruits for operating income;

         The absence or curtailing of Forex transactions; and

         Declining income from loans/credits which is equally bedeviled by growing rates of defaults on interest income and indeed principals which have increased NPL provisioning.


Not a few banks are challenged with meeting overheads and have had to adjust by way of cost cutting, readjusting priorities and rightsizing organizational productivity relative to declining income streams. This has had severe impacts on all

Q1 2016 Unemployment Watch Report from the National Bureau of Statistics puts latest unemployment rate at 12.1% (31.2% using previous NBS methodology) from 10.4% in Q4 2015.

The sacking of about 5,195 staffs from the banking sector surely have compounded the ever increasing number of the unemployed in the country as Nigeria could not create the 1.5 million jobs required to keep the unemployment rate constant at 10.4% in recorded in Q4 within the Q1 2016 period.

Earlier before the release of their 2015 Audited results, a few of the banks issued profit warnings citing spike in impairments particularly in the energy sector, macroeconomic challenges faced by most economies and the effect of lower crude oil prices have negatively impacted expected revenue growth.


 

A look at the 2015 Audited financials of the banks shows that most of the banks that issued profit warning recorded decline in their PAT figures. FBNH recorded the highest drop of about 82% and closely followed by FCMB and DIAMONDBNK with 78.5% and 77.8% decline respectively.
 

Banks  Gross Earnings N’m PAT N’m
Audited 2015 Current N'm Previous N'm % Chg Current N'm Previous N'm % Chg
ACCESS 337,404 245,384 37.50% 65,869 30,869 113.38%
DIAMONDBNK 217,091 208,402 4.17% 5,657 25,485 -77.80%
ETI          542,706             489,253  10.93%            21,253               65,681  -67.64%
FBNH 505,200 481,800 4.86% 15,148 84,011 -81.97%
FCMB       152,508          148,637  2.60%           4,761            22,133  -78.49%
FIDELITYBK           1,645             5,278  -68.83%         13,904            13,796  0.78%
GUARANTY       301,851          278,521  8.38%         99,437  94434 5.30%
SKYEBANK NA NA 0.00% NA NA 0.00%
STANBIC NA NA 0.00% NA NA 0.00%
STERLNBANK             110,194                103,679  6.28%               10,293                     9,005  14.30%
UBA            314,830                286,624  9.84%               59,654                  47,907  24.52%
UBN          117,211             135,898  -13.75%            13,987               26,827  -47.86%
UNITYBNK         62,711            62,636  0.12%           4,689            10,692  -56.14%
WEMABANK 45,869 42,187 8.73% 2,327 2,372 -1.90%
ZENITHBANK            432,535                403,343  7.24%            105,663                   99,455  6.24%
Source: Proshare Markets, NSE

 

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