PageOne Editorial: Bank Workers Take The Fall For Their Company’s Impairment Woes, But Problem Will Persist

Konga

This is one of the most saddest week for bankers in Nigeria. For all the impairment suffered by banks on bad loans, their staff are the ones paying the ultimate price- layoffs.

First it was Diamond Bank sacks 400 workers. Currently trending is Ecobank. The bank has just laid off another 1,040 staff from its system. Its impairment woes saw its net revenue plugging by NGN 40 billion.

In a statement by Diamond Bank, the bank denied laying off staff citing its annual appraisal as a pretext for the job cuts, the bank said:

“Diamond Bank recently rightsized its workforce. The rightsizing was a core strategic exercise in line with the bank’s growth objective and the will to continue the drive to optimise cost and enhance value for the shareholders at the end of the business year.

“In the bank’s last appraisal, only 200 staff whose performance scorecards were adjudged to be lower than the minimum required to drive its strategic growth plan for the business year were relieved, with the opportunity to seek employment in other organisations where their respective skills set and individual performances could be enhanced and optimised.

“The yearly appraisal is a general industry standard and enables banks to prune their workforce and prudently allocate resources for optimum result. Diamond Bank is not an exception in the industry and therefore, had carried out its annual appraisal and found the performance of members of staff that were relieved to be below the required minimum performance level that would sustain them in the system. With its trim-and-fit workforce, the bank is sure to meet its target for the current business year.”

Ecobank in its own defense claimed that:

“The bank, in its renewed drive for optimal performance, has in addition realigned certain roles bank wide to ensure improved efficiency. This necessitates the exits of some staff who were adequately compensated.

“This is in furtherance of a market repositioning exercise designed to strengthen the bank’s business across all markets where it operates. Our focus is to improve the quality of service to our customers as well as our operational efficiency.”

“We understand that people are our key assets; so, we have emphasised the need to reward our best performers, continue to re-invigorate our people, while also opening up new opportunities for talented and committed people to join us as permanent employees. At the same time, based on our repositioning plan, we had to disengage some staff, while ensuring that, in line with industry standards, they are treated fairly.”

The decision of these two banks are not tightly connected to their dwindling fortunes. The crash in oil price has grinded Nigeria’s economy to a halt. The levels of non-performing loans, NPLs has gone up through the roofs. Over 18 banks have exceeded their authorised ratio of NPLs required by the Central Bank of Nigeria, CBN. As at 2015 full year, NPLs have increased by 78.8% to NGN 0.64 trillion.

If the prudential limits is 10% for total NPLs, the fact that 18 banks have exceeded the limit is a systemic risk.

By defaults, financial services companies are know to downsize as a first measure to cut opex, however, the huge portfolio of bad loans in their books and the absence of reprieve from the current economic slowdown, might result in a total meltdown in the fortunes of these banks.

There is no need for an over bloated workforce is a gloomy time, but the solution is far from the reaction. Banks have to reconsider their lending matrix. Oil and commodities are very lucrative but volatile, but the lack of foresight to connect the dots and weight leverage exposures is a time bomb.

Banks have to start lending and adding value to more sustainable sectors of the economy such as agriculture, transportation (rail and water), technological innovation with potential for scale, critical infrastructure and human resources. The argument that these sectors do take a longer time to germinate is a fallacy because the destruction of a bank’s balance sheet by crash in oil price as fast as the speed of light.

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