Banks To Cut Jobs,Operating Costs

Less than 24 hours after the Monetary Policy Committee of the Central Bank of Nigeria announced the increase in the Cash Reserve Requirement (CRR) on all public sector deposits to 75 per cent, indications have emerged that Deposit Money Banks are already considering job cuts and massive reduction in other operating costs.

Investigations by our correspondent revealed that this was to stave off the likely negative effects of the decision on their profitability.

The CRR is the volume of cash in their possession that the banks have to keep with the central bank and is used to drain out excessive money from the system.

If the central bank decides to increase the CRR, the available amount with the banks reduces.

The MPC on Tuesday rose from a two-day meeting and announced the increase in the CRR on public sector deposits being held by banks to 75 per cent from February 4, up from 50 per cent it raised it to last July.

The move, according to the committee, is to strengthen the naira and reaffirm the CBN’s commitment to price and exchange rate stability.

Reliable sources said bank executives were tinkering with cost-cutting measures to enable them to mitigate the effect of the latest increase in the CRR on their future profits.

It was gathered that the new CRR regime would not affect the fourth quarter results of the banks as their financial statements had already been prepared and waiting to pass through various approval stages, including those of auditors and the regulatory authorities.

However, sources familiar with the situation said some hard-line measures, especially as regards job cuts, were being looked at because the increase in the CRR to 75 per cent would definitely hit the first quarter 2014 profits of the banks.

According to the sources, the latest monetary measure by the CBN is coming at a time the banks are still reeling from the effects of the increase in the CRR on public sector funds to 50 per cent last July.

“Apart from job cuts, other operating costs will also be affected if the effect of the latest increase in the CRR will have to be minimised on the first quarter profit; costs relating to advertising, sponsorships, branding and other related expenses will be drastically slashed to minimise the effects of this policy on profits,” one of the sources explained.

The CBN had last July expressed concern over the excess liquidity in the balance sheets of the DMBs, and subsequently imposed 50 per cent CRR on all government deposits with the banks.

The decision, which came as a major shock to the banks, made some of the lenders to record marginal drop in their third quarter profits.

For examples, United Bank for Africa Plc, Access Bank Plc, Fidelity Bank Plc, Skye Bank Plc, Union Bank Plc and Unity Bank Plc recorded lower nine-month profits after tax, compared to the third quarter of the previous year.

Analysts and some banks executives noted that the 50 per cent CRR would also negatively affect the fourth quarter results of some of the banks due to be released next month.

While the increase in the CRR to 50 per cent led to the sterilisation of over N1tn in public sector deposits, analysts have said the latest increase is likely to lead to the sterilisation of additional N600bn to N800bn.

According to them, it may also lead to marginal decline in the banks’ earnings and the anticipation of an average increase in the cost of funds as competition among them for funds intensifies, beginning from this quarter.

Oyetunji Abioye