Top banks face increased pressure

By FELIX OLOYEDE

Following a run of unimpressive performances in the 2015 financial year and first quarter of 2016, several banks have concluded arrangements to close down some of their unprofitable branches across the country, BH can authoritatively confirm.

A number of banks that recently acquired other commercial lenders are increasingly exploring the option of slashing the number of branches they manage across the country; the main drive is to bring about a drop in their cost to income ratio, which is a measure of financial lenders operating efficiency.

With inflation rising to 13.8% in the first quarter of 2016 and BH Economic Intelligence Unit predicting a rise of between 15.1% and 17.5% by the end of the third quarter banks are in a punishing race to bring down operational expenses.

This has equally been reflected in the fact that since the beginning of the global fall in the international price of commodities in the middle of 2014 Nigerian banks have consistently reduced the size of their workforce with a number of banks cutting down by between 5% and 10% of their previous staff strengths.

First Bank of Nigeria (FBN) and First City Monument Bank (FCMB) is already in the advance stage of reducing their staff strength as they deliberately attempt to become leaner but more nimble.

A staff of FBN who would not want to be named because he was not authorised to speak on behalf of the bank on employment matters, notes that, ‘industry-wide there is a conscious realization that to keep operating margins up and ensure that lenders can withstand present economic headwinds, labour has to be more intelligently optimized, this could mean reassignments, reclassification of designation or simply mutually beneficial layoffs’.

Speculation exists that First Bank, over the next few months, could give exit handshakes to as many 1,000 of its current staff.

With over 800 branches nationwide, the bank is already completing arrangements to shut down or convert a larger number of unprofitable branches into cash centres or e-centres depending on their locations and strategic importance.

The former Group Managing Director of the bank, Mr Bisi Onasanya had a year ago disclosed that FBN would be closing unprofitable branches and slowing down on branch expansion.

“We are considering processes across the Group to reduce transaction costs and processing cycles.

“Realigning and rationalizing the workforce in order to enhance overall manpower efficiency and productivity is currently the target of the Group,” he stated at the time.

Mr Babatunde Lasaki, FBN’s Head, Media and External Relations, Marketing & Corporate Communications told BH exclusively that the bank is presently sorting regulatory requirements on the branches that would change designation.

He added that none of the affected branches would be closed out rightly as they would only be converted to cash centres and e-banking centres.

He claimed this is part of the bank’s efforts to reduce its huge operating and personnel costs, which have had adverse effects on its bottom-line, regardless of the fact that the bank has the largest gross revenue in the industry.

FBN’s profit after tax (PAT) has been on the decline in recent years due to escalating operating expenses and worsening loan impairment charges.

The recently released 2016 Q1 financial result of FBN shows that that the commercial lenders profit after tax (PAT) fell by 8.3 per cent to N20.7 billion in Q1 2016 from N22.6 billion in the corresponding period of 2015.

And its impairment charge for credit shot up by a whopping 212.5 per cent to N12.8 billion in Q1 2016 against N4.1 billion in the corresponding period of the previous year.

In view of these tough statistics the bank has taken on the challenge by cutting back on operating costs and realigning its business model to drive higher profitability on lower exposure to certain sectors of the economy such as oil & gas that has been the brunt of weaker earnings and higher asset impairments.

Equally noteworthy a rival bank ,FCMB, with over 315 branches would also be shutting about 10 per cent of its branches nationwide, as its profit continues to slide on the back of a stiff operating environment that has savaged underlying net interest income and asset quality.

Mr Diran Olojo, Group Head, Corporate Affairs, FCMB told BH exclusively that the bank has strategically decide to shut  any branch where it has two very close to each other, in the face of rising operational costs.

“We are closing less than 10 per cent of branches.

Meanwhile, we are opening branches in other places where we have low visibility.

We are opening a new branch in Gbagada, Oniru, Oyinbo and in Kano. All these branches would be opened over the next five months. Where we have poor visibility we will open a new branch, but if we have two branches side by side we will close one,” he explained.

He denied reports that FCMB earlier sacked 700 of its workers, saying there was no way the bank could retrench such number when it is rationalizing less than 10 per cent of its branches.

FCMB’s  Profit After Tax (PAT) dipped by 69 per cent to N1.6 billion in Q1 2016 from N5.3 billion in the corresponding period in 2015.

The bank whose impairments provision increased by 41.3 per cent year-on-year to N15 billion for the full year 2015, from N10.6 billion for the same period prior year, saw its Profit Before Tax (PBT) plunge by 68 per cent to N7.8 billion from N23.9 billion in the corresponding period in 2014.

The bank’s Q1 2016 results released showed that its gross earnings fell to N22.3 billion during the period under review from N24.4 billion in Q1 2015.

A breakdown of the earnings indicates that FCMB’s interest income went down by 13.2 per cent to N28.5 billion between January and March 2016 from N32.3 billion during the same period last year and it succeeded in cutting its interest expense by 20.2 per cent to N11.3 billion from N14.2 billion.

Access Bank recently shut 130 of its branches and even Standard Chartered Bank, which has only 42 branches in Nigeria, has also concluded plans to embark on rationalization of its branches.

Even the continental behemoth Ecobank Plc has finalized arrangements to scale down its branch network, at least in Nigeria.

Analysts believe that the branch rationalization plans of several local Deposit Money Banks (DMB’s) could pose serious threats to the Central Bank of Nigeria’s (CBN) target of achieving a benchmark 80 per cent financial inclusion in the country by 2020.

According to one unhappy observer, ‘if banks continue to close down branches in areas they consider unprofitable, several communities would have to go back to the dark days of the local money lenders.

This might appear an unsolicited boon to these grubby shylocks, but it certainly won’t expand the CBN’s vision of a modern rural financial service sector’.