Reforms: Banks to sack more workers.

John Aboh, GMD, Oceanic Bank

Hopes that the waves of retrenchment rocking the banking industry might soon subside appear to be receding following indications that many banks could be planning further cuts to their work force.

Investigations by Business Hallmark have revealed that reasons for what could turn out to be another round of retrenchment in the industry, include the persisting difficult business environment that led to most banks reporting either huge losses or a decline in profits in 2009 and plans by the Central Bank of Nigeria(CBN) to categorize banks as well as its proposal to force down operations cost in the sector.  
  For the rescued banks like Intercontinental, Oceanic, Afribank, Union, FinBank and Bank PHB, that carried out more sustained retrenchment exercises not too long ago, there are speculations that these financial institutions would further prune their staff strengths in order to make them more attractive to foreign and local lenders that have obtained clearance from the CBN to perform due diligence on these banks preparatory to acquiring them . 
 Industry sources informed this newspaper that bank staff that barley survived being laid off at the height of the mass dismissals in the industry, late last year and early this year, have begun to worry again as the signs start to emerge that managements have started compiling names of workers that are to be asked to go.
A manager with a second tier bank, who spoke on condition of anonymity, told Business Hallmark that many banks' managements are still employing the same strategy that they have been using to get rid of staff that they consider surplus to requirements since the crisis in the sector began in late 2008. According to him, "Everyone knows that it is usually very difficult for bank staff to meet the unrealistic targets set for them by their employers. So, whenever management decides that a certain number of staff must be sacked in particular departments, it is always easy for the heads of such departments to find the number of workers who failed to meet their targets.” He disclosed that bank workers, these days, are filled with trepidation when they resume at their desks everyday as the rumour mills have gone into overdrive with tales of staff that have been laid off for failing to meet their targets. 
 In a chat with this paper, a bank executive with a first tier bank, who asked not to be identified, stated that given the tough times that the industry was still passing through, staff performance had been raised generally in the industry and it should not come as a surprise to anyone that many banks will consider further reduction of staff as one of the options that they would choose to enable them compete effectively. As he put it, “ Recent financial results declared by banks tell the whole story; the banks are still struggling. There is a credit crunch; people are no longer borrowing and banks have become even stricter in the kind of conditions they give to borrowers . With business opportunities declining rapidly for firms in the financial services sector, you cannot expect a bank that made a loss last year, for example, not to look for ways of cutting its cost of operations either by slashing salaries and allowances of staff across board or asking those that it feels it can do without, to take a walk.”
Business Hallmark's findings further showed that increasing uncertainty about the future of their jobs is forcing a growing number of bankers to begin to contemplate changing careers. For instance, a female staff of a second tier bank with head offices on Victoria Island, Lagos, told Business Hallmark that even though she initially considered herself extremely lucky to have obtained a job in the industry, she is now desperately trying to get out after having spent only two years in the profession. 
In an interview with this newspaper, a financial analyst, Mr. Mike Okolo, predicted that banks were going to lay off more workers in the coming months if the crisis in the sector continues to linger. According to him, “there is very little business out there for the banks to engage in. The stock market is still down and given the nasty experience that banks that were heavily exposed to the oil and gas industry went through during the CBN audit last year, many operators are avoiding it like a plague. Of course, everyone knows that for a long time now the real sector has been comatose and although efforts are being made to revive it, there is a long way to go before banks would regard it as a viable sector that they can do business with profitably.” 
Mr. Okolo faulted suggestions in some quarters that the profits declared by most of the banks, including the rescued ones, in their first quarter results for 2010, signalled that the banking crisis was coming to an end. He contended that the profits were due mainly to loan recoveries and did not reflect any underlying growth in banks' core business areas. “After the massive provisioning for bad loans that banks were forced by the CBN to make in their last year's results, any loan recovery this year automatically becomes a profit. But you will discover that lending, especially to the private sector, still remains at a very insignificant level”, he explained.  
The financial analyst further cited the recent statement issued by the leading ratings agency, Standard & Poors, which declared that Nigeria's banking system remained in the very high risk category and that there was still a long way to go before CBN's efforts to sanitize it would begin to bear fruits. 
 How Categorization would lead to job losses 
But as earlier stated, apart from the difficult business environment, another factor propelling banks to embark on job cuts are certain proposals that the CBN has put forward for reforming the sector. One of these new measures is the plan by the apex bank to fundamentally review the universal banking structure currently in place in the sector and to replace it with what it refers to as the categorization policy in which banks would be categorized according to the kind of capital that they have and the kind of business they want to engage in. Thus, International banks, for example, would be expected to have a minimum capital base of N100 billion and permitted to have presence off shore, while the capital base for National banks will stay at the present industry minimum level of N25billion. However, these institutions would be required to operate only within the country. Regional banks, on the other hand, would have a capital base of N15 billion and, as the name implies, have operations mainly in the region in which they are based, or as the CBN put it in the draft exposure, “ in a minimum of five or 10 contiguous states”. 
Industry analysts point out that operators that opt to be regional banks would have no choice but to close branches that are outside their zones of operations. Already, Wema Bank, the only financial institution, so far, to have declared that it is going to operate as a regional bank in the proposed banking structure, has announced that it would shut down 17 of its branches in the northern part of the country. Evidently, not every staff in the affected branches would be absorbed in the much reduced operational structure of the bank and may have to be let go.  
CBN's plan to reduce banks' operational cost 
 Another CBN proposal that is certain to result in more job losses in the industry focuses on what the industry regulator claims are efforts to reduce the ''operations high cost structure'' of banks. Though, details of this proposal have not been made public, in a recent interview, however, the CBN Governor, Mallam Lamido Sanusi, was reported as saying that one of the major reasons for high interest rate in the industry is its operations' high cost structure. According to Sanusi, “65 per cent of employees in the Nigerian banking industry are doing back office work while only 35 per cent are doing business. It is not like that in India for example. Now the cost of that 65 per cent adds to the 35 per cent that is doing business and this 35 per cent have to work to make money to pay themselves and the baggage that they are carrying. We have 11 banks that use Finacle, why can't you create one back office that use Finacle? Why does every bank have to create its own cash management centre? Why don't we have an industry approach to Automated Teller Machine(ATM) system? '' He went on to reveal that the regulatory body was setting up ''a shared services project'' that is intended ''to bring down industry cost by as much as 30 per cent in the next three years''. 
Though Business Hallmark learnt that this new plan was being stoutly resisted by the banks on the grounds that it was not the business of the regulator to dictate to individual banks on how to bring down operations' cost, industry analysts noted that if the CBN does eventually have its way, this new plan would definitely lead to a reduction in the number of employees that the industry currently employs.
 Leading employer of labour
Just before the collapse of the stock market in 2008, a report issued by JP Morgan showed that the top seven banks in the country, at that time, had between them a total of 35,734 staff. This was made up of the following:
Even though the crisis in the sector has clearly taken its toll on banks, available figures indicate that a leading player like First Bank increased its staff strength from 8, 203 in March 2009 to 8,221 in December 2009. 
Responding to criticisms not too long ago that the policies of the CBN under his leadership were responsible for the massive job lay-offs in the sector in recent times, Mallam Sanusi argued that the apex bank could not compel banks struggling to survive the financial crisis to retain staff. As he put it, “the CBN will not support a situation in which we direct an institution to continue to live on a cost profile that is not consistent with its revenue profile.” He said, “A bank like Oceanic Bank was spending about N4bn a month on salaries. Intercontinental was spending over N4bn a month on salaries. There are no performing loans earning money. The banks had paid huge interest on it, paid interest on depositors fund and they have cost on running their branches. They have to survive.”
According to Sanusi, ”If a bank is making losses and it continues running the overhead, it is taking depositors' funds to fund its operations and further eroding your money and placing it at greater risk.”
Revealing that banks' rapid expansion in the early post -consolidation period was due to the fact that they(banks) were engaged mainly in a risky activity like stock market speculation, the CBN Governor contended that in other climes where the real sector contributes significantly to Gross Domestic Product(GDP), the banking sector is never among the biggest employers of labour.