Home News The economics behind current downsizing in Nigerian banks

The economics behind current downsizing in Nigerian banks


By Alex Chiejina

LAGOS (Sundiata Post) – There is no gainsaying that the current downturn being recorded in the nation’s economy has witnessed 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 first quarter of this year, dropping off the radar from the 2.11% recorded in the last quarter of 2015.

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 crisis plaguing the Nigerian banking sector 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. These include the following:

• 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 organisational productivity relative to declining income streams. This has had severe impacts on all.

Some of the latest of such banks to announce staff reductions include Ecobank Nigeria which announced the sacking of about 1,040 employees. This is coming on the back of recent disengagements of about 600 staff of Diamond Bank. First Bank (1000), Zenith Bank (not certain), UBA (no exact figure) and two others have responded similarly over the last two years with varying numbers and for varying impact.

First Quarter 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 workers 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% 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 Profit After Tax figures. First Bank Holdings recorded the highest drop of about 82% and closely followed by First City Monument Bank and Diamond Bank with 78.5% and 77.8% decline respectively.

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