Despite carrying out tough cost cutting measures, including massive lay-offs in recent years, deposit money banks in the country still contended with rising personnel costs in the first half of this year, findings by New Telegraph show.
The H1 2019 results of eight lenders- Zenith Bank, UBA, Access Bank, Guaranty Trust Bank, Fidelity Bank, Stanbic IBTC, FCMB and Wema Bank- for instance, had showed that they accumulated a total of N178.70billion in personnel costs in the first six months of this year compared with the N165.77bilion, which they reported for the same period of 2018.
This means that the banks spent a total of N12.94billion more on staff costs in H1’19 compared with what they expended in the corresponding period of last year.
A breakdown of the results indicates that of the eight banks, Zenith Bank spent the most on personnel expenses in the review period.
The Tier 1 lender reported personnel expenses of N38.73billion in H1’19 as against the N34.81 billion it declared for the same period of last year.
The United Bank for Africa (UBA) followed with personnel expenses of N37.18billion in H1’19, which was an increase of 5.58 per cent, over the N35.21billion the Pan-African lender reported for the corresponding period of the previous year.
Also, Access Bank’s personnel and rent expenses increased by 13.27 per cent to N32.07billion in the first half of last year from the N28.31billion it reported for the same period in 2018.
The analysis further shows that Guaranty Trust Bank’s personnel costs marginally increased by 0.01 per cent to N18.58billion in H1 2019 from the N18.58billion the Tier 1 lender reported for the corresponding period of the previous year.
FCMB’s staff costs went up by 16.15 per cent to N13.96billion in the first six months of this year from N12.02billion in the same period of 2018.
Similarly, Fidelity Bank’s personnel costs increased by 11.20 per cent to N11.68billion in the first half of this year from N10.50billion in the first six months of last year.
Wema Bank also reported staff costs of N6.63billion in the first half of this year as against the N5billion the Tier 2 lender reported for the similar period of 2018.
However, of the eight banks’ results reviewed by New Telegraph, only Stanbic IBTC reported a decline in its personnel expenses in H1’19.
According to the Tier 2 lender, staff costs fell by 6.9 per cent to N19.89billion in the first six months of this year compared with N21.33billion it declared for the corresponding period of 2018.
Financial analysts attribute the rising staff costs of banks to the country’s inflationary environment as well as the industry’s unsustainable cost structure.
For instance, commenting on bank’s full year 2018 results, the Chief Executive Officer, Financial Derivatives Company (FDC) Limited, Mr. Bismarck Rewane, stated that while most of the lenders reported increase in profit after tax (PAT) and earnings “cost structure (is) a major threat to earnings sustainability.”
The financial expert also noted that “Tier 2 banks have higher cost-to-income ratio.”
Industry analysts point out that in the aftermath of the slump in oil prices in 2015 when the Nigerian economy slipped into recession in 2016, the banks had to embark on tough cost cutting measures including laying off redundant staff and shutting unprofitable branches as part of their strategy to cope with the harsh times and remain profitable.
Indeed, data obtained from the National Bureau of Statistics (NBS) indicates that 8,663 workers lost their jobs in the first half of 2017.
Specifically, the data showed that banks sacked an average of 360 workers every week from January to June 2017.
The NBS also stated that in recent years, banks had been employing more contract staff in their bid to cut costs.
Analysts also note that in addition to laying off redundant staff and shutting unprofitable branches, most lenders have also tried to improve cost-effectiveness by optimising their various banking channels and reducing IT expenses.
However, in a recent report entitled, “The Productivity Agenda – Moving beyond Cost Reduction in Financial Services,” PricewaterhouseCoopers (PwC) urged banks to look beyond cost reduction and restructuring measures for profitability and long-term survival.
The multinational professional services network contended in the report that traditional cost cutting strategies come with inherent limitations, which it said, affected the overall impact of the strategies on corporate performance and long-term sustainability.
It stated: “With banks struggling to improve their return on capital, many institutions are being forced to restructure and cut costs. Even in the asset management industry, where return on equity is higher than the financial services industry as a whole, there is downward pressure on margins and profitability.
“Cost cutting will only deliver so much. If financial institutions are to improve profitability in the long-term, they need to fundamentally improve the productivity of the enterprise.”
Commenting on the report, Financial Services Leader for PwC Nigeria, Sam Abu, said: “The cost cutting agenda adopted by many institutions since the financial crisis has, in essence, de-globalised the industry to make it more local or national, shrunk global footprints, divested businesses and shed clients.
“However, this process has run its course. If profitability is to get anywhere near the highs of 15 years ago, what is needed now is a fundamental focus on building a sustainable productive business model that can compete with both incumbent institutions and digital-only competitors.”