More pressure on banks to reduce cost oil fall

Following a run of unimpressive performances declared by most of the Deposit Money Banks (DMBs) operating in the country in their financial year ended 31^st December, 2015 and in the First Quarter (Q1) of 2016, fresh facts have emerged that several banks have concluded plans to shut down some of their unprofitable branches and reduce staff strength across the country.

Investigation revealed that 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, so as to bring down their cost to income ratio, which is a measure of financial lenders operating efficiency.

A finance industry insider who is close to the banking sector due to the nature of his job, but who does not want to be named in the print, said that the continuous rising in inflation, currently standing at 13.8 percent and a likely rise between 15.1 percent and 17.5 percent by the end of the third quarter (Q3) was part of the reason cited for the imminent cost cutting measures in the nation’s banking system.

The source disclosed that banks are in a punishing race to bring down operational expenses, he said, “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 percent and 10 percent of their previous staff strengths.”

He noted that one tier1 banks and a tier11 lender are already in the advance stage of reducing their staff strength, as they deliberately attempt to become leaner but more effective.

The source said, “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.”

However, indications exist that Heritage Bank being one of the commercial banks that recently took over another bank, with acquisition of Enterprise Bank Limited in 2015, may be one o those banks that may reduce its branch network.

But in a text message response to an enquiry posted by our correspondent to the bank, the Brand Management officer, Cynthia Amadi, said: “I will get back to you as soon as possible, because we have not been informed officially.”

It would recall that in October 2014, Heritage Banking Company Ltd successfully met the requirements of the Asset Management Corporation of Nigeria (AMCON) and the Central Bank of Nigeria (CBN) toward owning 100percent shares in Enterprise Bank Ltd.

On 27th of January 2015, AMCON officially transfered ownership of Enterprise Bank Ltd to Heritage Bank, and today they have been fully integrated to become a single bigger and better financial institution: Heritage Bank Limited.

However, 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 percent 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’.