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At N10.39mn Per Head, Costs of Non-Automation are Rising for Banks

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Nigerian biggest banks paid their employees on average N10.39 million a year in 2020 as they seek to retain and motivate existing staff amid a high inflationary environment, according to data gathered by MoneyCentral.

Among the nation’s household names, Stanbic IBTC Holdings spent more on personnel than any other lender as its average cost per employee stood at N14.18 million.

Union Bank was second with N12.10 million; FBN Holdings, N12.01 million; Guaranty Trust Bank, N11.31 million; Access Bank, N10.79 million, and Zenith Bank, N10.50 million.

Others are: Fidelity, N8.58 million; First City Monument Bank, N8.17 million; United Bank for Africa, N8.07 billion; and Sterling Bank, N6.64 million.

It is surprising that Union Bank with a headcount of 2,342 spends copiously on employees, and perhaps more worrisome is that the small and mid-sized lender is spending so much on a workforce that is not generating higher profit.

While banks in the United States, Europe, and Asia were frugal with employees during the coronavirus pandemic, Nigerian lenders were generous.

It is of paramount importance that companies maximize the welfare of their workers, and many motivation theorists have said that monetary inducements bring out the best in someone.

Organizations that pay attention to workers’ welfare are likely to be more profitable and deliver higher returns to shareholders in the form of bumper dividends and share appreciation.

Many people, especially job seekers perceive a company that pays well as being responsible.

However, there are concerns that Nigerian banks may not be able to sustain the current wages structure in the light of current regulatory and economic realities.

For instance, total cumulative personnel expenses for the banks made up 49.10 percent of combined total operating expenses (staff plus other costs) as at December 2020.

Interestingly, Union Bank’s personnel cost is 71 percent of total operating expenses.

The cumulative total operating expenses for the largest banks stood at N1.15 trillion as at December 2020, that is 13.83 percent higher than 2019’s N1.017 trillion.

Access Bank recorded the fastest expansion in expenses. Its total operating expenses spiked by 41.12 percent to N253.33 billion in December 2020 from N180.25 billion as at December 2019.

Zenith Bank’s total operating expenses were up 14.81 percent to N176.77 billion in the period under review from N153.96 billion as at December 2019.

GTBank’s total operating expenses were up 17.23 percent to N109.83 billion in December 2020 from N93.68 billion as at December 2019.

United Bank for Africa’s total operating expenses were up 14.24 percent to N162.30 billion in the period under review from N142.06 billion the previous year.

Banks dealt with a lower yield environment last year elicited by the central bank’s dovish stance, as well as punitive regulations which undermined revenues.

What this means is that banks have to embark on cost cuts to propel profit.

In 2020, they cut over 3,000 jobs, one of the deepest job losses for the sector in the past 5-years as the coronavirus pandemic and a growing shift to digital channels, impacted the sector negatively.

Lenders from United Bank for Africa (UBA), to FBN Holdings and FCMB led the gross job losses in the sector to a combined 3,350, according to MoneyCentral’s analysis of the 2020 audited financial statements of 11 major banks that have available data on their personnel.

The 11 lenders – FBN Holdings, UBA, Access, GTBank, Zenith, FCMB, Stanbic, Fidelity, Jaiz, Union and Sterling Bank – ended 2019 with total staff strength of 55,023 people, which fell by 6 percent to 51,673 at the end of 2020, the data shows.

UBA laid off the most workers last year with its headcount down by 2,399 people at the end of December 2020.

FBN Holdings cut 674 jobs, while FCMB let go of 283 people to make up the top 3.

Surprisingly some banks are adding jobs despite the tough operating environment in Nigeria.

Fidelity Bank’s personnel count increased by 141 people in 2020, followed by Zenith Bank which added 139 people to its headcount last year, and Jaiz bank which added 47 staff.

The pandemic and subsequent lockdowns imposed by the Nigerian government led to a collapse in economic activity, and the ability of customers to physically visit a bank branch, helping to accelerate a shift into electronic banking that had already begun.

Nigeria’s economy contracted by 1.93 percent in 2020, according to National Bureau of Statistics (NBS) data.

Banks faced with a raft of regulatory actions over the past 2 years, including elevated cash reserve ratios and a curb in fees, that served to reduce profitability have been looking to cut costs as a way to remain profitable.

Despite this only 2 of the 5 major lenders maintained a cost-to-income ratio at 50 percent or below, suggesting more job cuts may be in store this year.

The ratio, which measures operating expense as a percentage of operating income, is used to gauge efficiency and productivity for banks. Lower ratios generally indicate higher efficiency.

GTBank had a cost-to-income ratio of 38.24 percent in Full Year (FY) 2020, followed by Zenith Bank with 50 percent, UBA at 61.2 percent, Access Bank at 63.40 percent, and FBN Holdings at 68.60 percent, according to MoneyCentral’s calculations.

Overall, despite the job culls, UBA still had the largest headcount for Nigerian banks at 10,838 at the end of December 2020.

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