Fitch Rating has warned that Nigerian banks are heading into financial and operational storms in view of what it called the increasingly difficult conditions under which they are operating. It made it clear that the difficult times are likely to result in a sharp deterioration in profitability, asset quality, and liquidity and capital ratios. In its latest report released by the Director, Financial Institutions, Mahin Dissanayake, Fitch Ratings insisted that Nigerian banks are highly exposed to the domestic market and that the economic slowdown would affect their performance.

Nigerian banks have had to contend in recent months with the increased vulnerability of the oil and gas sector, pressure on the naira, the slower economy and tightening bank liquidity. These are all credit negative for the sector. Since the beginning of August, public sector deposits, which represent around eight per cent of total system deposits, have exited the commercial banks and must be held at a single treasury account at the central bank. This adds pressure to liquidity. No significant changes in economic policy have materialized following the change of government at end-March 2015.

This is a perilous era: Dwindling revenue and very lean marginal growth in net income. Banks just like any organization operating in Nigeria need to take drastic steps in ensuring its total cost of doing business does not outweigh gross income at any given time.


Crude oil Revenue is the main source of income for Nigerian Government, unfortunately in the past 10 months Nigerian Government has witness sharp decline in revenue due to the fall in global oil prices. The ripple effect has been significantly felt in all sphere of the economy, from the commercial to the small, medium and micro level businesses. Monthly Income salary earners are also not left out.

Disposable income has decreased, expenditure has remain constant or in some cases risen, hence leaving little or nothing to save. Banks on the other hand primarily depend on savings (liability) to grow business (Asset) and make profit.

In every bank’s balance Sheet, the Salary cost Line happens to be one of highest, management of banks do not hesitate to begin cost cutting measure by laying off staff. In 2008 financial sector crisis, Staff loss was immensely high as banks had to lay off significant percentage of its work force. The staff that were still in the system witness pay cuts and some core staff were relegated to contract hire, as their job description was deemed “non- essential”.

Seven years down the line it’s Déjàvu.

Should bank Management still repeat the cost cutting measure by sacking its Staff that have contributed to its profitability in almost a decade? The Answer is NO. Then what must they do to remain afloat these financial turbulent seas?


The banking sector in Nigeria is Highly Competitive, Banks engage everyday to outwit each other with New Products, Commercials, Promotions, Image (Branding) even if it means running at a lost. A very unhealthily Rivalry I must say. Operational Cost in banks is astronomical, 80% of Bank branches in Nigeria run on Generator throughout the Business Hours which means extra cost of Power (Diesel) and generator Maintenance, this cost line eats deeply into the banks’ income.

SOLUTIONS
1. Tone down on New Products, Commercials, Promotions, Image (Branding)
Daily Newspapers are filled with Bank adverts , you will need to flip 10 or more pages before you can begin to read the news, you go to the Blogs and Website they are there, the Radios and TVs are not left out. You tune in to Cable channels and the way Nigerian Banks commercial come up you begin to wonder if CNN is now a Nigerian Station. Ohh, I forget – YOUTUBE has also caught the Nigeria bank bug too.
All these would have been ok, but unfortunately you walk into a banking hall of a Nigerian bank as an existing customer, the services you are rendered are below par; so why do they spend so much money to acquire new customers when the existing customers are not satisfied.
A 75% cut on these activities will go a long way in augmenting the banks bottom line.

2. Reduction in Customers' Operation Hour:
15 years ago where e-Channels did not exist, banks opened to customers for 8 hours. With the advent of Ebanking, POS, ATM, Mobile Banking, SMS Banking, Bank branches still operate to customers from 8am – 4am, in some branches working hours has been increased to 5pm.


Generators are switched on around 6 am to prep for operations and switched off about 8pm for conclusion of banking activities. An average of 15 liters of diesel is burnt hourly for the 14 hours the generators work, that’s a total of about 195 liters per day/per generator during operating hours.

Reducing Customer banking operations hours from 9am to 3pm will reduce total operation hours from 14 hours to a maximum of 9 hours, saving 75 liters of diesel daily per branch. At an average of N150/liter of diesel. Each branch will be saving N11,250 daily and about N225,000 Monthly (20working days) and N2.7m Annually

Looking at the bigger picture, for banks that have up to 350 branches significantly running on generators, that is a whopping N945m.

A critical analyses of customers that flock into the banking hall from 8am to 9am and from 3pm to 4pm are businesses with large cash deposit which increases operation cost for banks as cash processing in banks cost a lot of money, which includes but not limited to: wear and tear on machines, higher Insurance cost on vault (when Limits are exceeded).

These group of customers have e-solutions to their businesses , but yet they do not adopt them, reduction in customer banking hours will not only make these set of customer to adopt alternative channels , but will also make the banks to cut cost and make more profit.


Cut in the diesel usage by reducing customer operation hours from 9am to 3pm has ripple effect benefits.
- Increase in E-channel usage ( Higher Income)
- Increase in demand for Point of Sale terminal –POS ( Higher Income)
- Increase in Usage ATM deposit machines
- Save cost in Generator or Maintenance
- Save in wear and tear on counting machine


Impact Assessment: Reducing Customer Banking Hours from 9am to 3pm.
BANKS
1. Reduction in Operation cost
2. Reduction in Diesel Usage
3. Increase in patronage on E-channels which will lead to higher income

ENVIROMENT
1. Lower Emission of CO2 gas in the atmosphere by reducing usage of generators.

STAFF
1. Stress reduction
2. Increase in productivity


“Loan growth contracted in 1H15, which is likely to translate to weaker bank financial metrics for the year. We believe sector non-performing loans will rise above the central bank informal cap of five per cent but below 10 per cent of total sector loans by end-2015. Regulatory capital adequacy ratios are likely to fall further due to lower earnings, weaker asset quality and a limited ability to raise capital.
Tier 1 capital ratios could fall below 15 per cent for many banks, which is low by historical standards for Nigeria.
“In our opinion, key financial metrics reported by Nigeria’s banks are likely to continue to decline in the closing months of 2015. A prolonged economic downturn would likely put pressure on bank ratings.” Fitch Concluded.

My humble contribution

A.J.Victor
ajvictor360@gmail.com
@ajvictor360
09094902711



Downloadable link with Charts and Graphical analysis - https://drive.google.com/file/d/0B0Sq6xKEVU5Ha2ROb2VIU1B4cGc/view?usp=sharing

lalasticlala

There needs to be further banking consolidation in the sector. Unfortunately, the economy cannot support the numerous banks we have so bank mergers, which will mean heavy loss of jobs, are required.

What is the effect of this on micro finance banks?

ThundrCork:
What is the effect of this on micro finance banks?

This analysis is targeted at Commercial Banks

Cc:CBN governor

Nice Analysis - if only bankers can read and add their Voices. Management of these Banks will see reasons why they should consider other cost cutting options

If only Bank Management can read such articles

NICE Piece

ThundrCork:
What is the effect of this on micro finance banks?

you can come up with your own article on microfinance banks

Keneking:
lalasticlala

are you booking space

4Play:
There needs to be further banking consolidation in the sector. Unfortunately, the economy cannot support the numerous banks we have so bank mergers, which will mean heavy loss of jobs, are required.

hmm

You said banks should close by 3 pm to save cost?

warrior01:
You said banks should close by 3 pm to save cost?

Yes, its detailed in the Analysis

warrior01:
You said banks should close by 3 pm to save cost?

Just my personal Opinion Though

This is getting Serious

HoseaAudu:
Nice Analysis - if only bankers can read and add their Voices. Management of these Banks will see reasons why they should consider other cost cutting options

The Bankers are busy chasing targets, no time to read.

ogasir2011:

The Bankers are busy chasing targets, no time to read.

As funny as it seems, its a fact

ogasir2011:
This is getting Serious

Banks are approaching the critical last lap of the financial year, so its really serious

AnneMomoh:


you can come up with your own article on microfinance banks

madam read my question and comprehend it as should a learned person. I am not asking for anyone's permission to come up with an article on micro finance banks

ThundrCork:


Oh Nigeria, madam read my question and comprehend it as should a learned person. I am not asking for anyone's permission to come up with an article on micro finance banks

Read my qoute and comprehend, if you were educated enough , you would understand it was a complement to the Author.