Posted: Apr 30, 2015
The economic downturn in the country, coupled with the
difficult regulatory climate, seems to be taking its toll on
the financial sector as one of the top financial institutions,
Diamond Banks Plc has sacked over 1,000 workers.
P.M.NEWS Business findings revealed that the latest
disengagement by the bank had to do with the need to realign
its operations for a tougher 2015, especially as the monetary
policy environment continues to get tighter.
Some of the regulatory measures introduced by the Central Bank
of Nigeria aimed at protecting the economy, according to
findings, have started affecting the banks’ profitability.
It was learnt that apart from job cuts, the bank is also
planning to reduce the number of new branches to be opened this
year. A source within the bank told our correspondent that
major projects and sponsorship programmes for third-party
companies, which may not readily add to the bottom line, are
also due to be axed by the bank.
According to the source, the affected workers cut across
all branches of the bank.
The fortunes of Diamond Bank has recently not been on the
positive side as its 2015 first-quarter pre-tax profit fell 9.5
per cent to 8.36 billion naira ($42 million) from a year
earlier. The bank did not disclose why profit for the period
end-March fell but said in a statement that revenue climbed 5.8
per cent during the period to 40.48 billion naira. The banks
profit after tax also fell by 10.72 per cent to N25.48 billion
in 2014, compared with N28.54 billion in 2013 as regulatory
induced costs continue to suppress profit. Its operating
expenses also increased by 19.89 per cent to N92.86 billion in
2014 from N77.40 billion in 2013. Cost-to-income ratio, which
measures the ability of a bank in cutting costs while boosting
profit, reduced to 72.30 per cent in 2014 as against 66.57 per
cent in 2013.
The banks corporate communications unit could not immediately
be reached for comment on the development.
P.M.NEWS Business however learnt that more financial
institutions are planning to cut their staff strength in the
following months, while others are already outsourcing a number
of job functions, a development that has seen some of them
transfer a significant number of their employees to third-party
companies.
One of the banks, Skye Bank Plc, earlier in the year announced
that it had transferred its tellers, drivers, security
personnel and other support staff members to three outsourcing
firms, a move that will affect hundreds of the bank’s workers.
The decision, led to the disengagement of the affected
employees from the bank and their subsequent transfer to
third-party firms.
Skye Bank, however, said in a statement that the move was part
of the initiatives to strengthen all cadres of its workforce.
According to the statement, the outsourcing companies appointed
to take over the employees are Optimum Continental Services,
Strategic Outsourcing Limited and Integrated Corporate Services
Limited.
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The bank gave the assurance that the outsourcing firms would
engage the affected employees under the same terms and
conditions as they were employed by the financial institution.
Global rating agency, Fitch Ratings, and other international
and local research firms had late last year predicted that
Nigerian banks would witness a fall in profitability this year.
On November 25, 2014, the CBN’s Monetary Policy Committee
devalued the naira by eight per cent; raised Monetary Policy
Rate from 12 to 13 per cent; and also increased the private
sector Cash Reserve Requirement from 15 to 20 per cent.
The development, which led to the immediate withdrawal of about
N500bn from the banking system, was said to have affected the
banks adversely.
Also, in a bid to halt the sliding naira, the CBN had in
December stopped the banks from keeping any of their funds in
foreign currencies. It also said dollars bought from it must be
utilised within 48 hours, adding that the actions were aimed at
stopping the banks from speculating on the exchange rate.
Experts said the recent regulatory measures would have major
negative effects on the banks this year, adding that they were
already feeling the effects of previous actions by the CBN,
especially the increase in public sector CRR, the Asset
Management Corporation of Nigeria’s levy increase, and the
gradual removal of certain bank charges.
Fitch, in a report released on October 8, 2014, said actions
aimed at protecting the economy and the banking system by the
CBN would make the profits of the Deposit Money Banks for this
year drop.
While recalling that some of the previous regulatory headwinds
had led to weaker profitability and “stemmed credit growth” in
the first half of 2014, the rating agency said Nigerian banks’
assets growth and earnings would experience further fall over
the next 18 months.
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