Bank mergers signal sharper job cuts

Increased bank consolidation has heightened employment crisis in a sector that is already grappling with new regulations and investment in digital products.

The Thursday announcement by Kenya’s largest bank by assets — KCB Group — that it will fully acquire capital-starved National Bank of Kenya (NBK) #ticker:NBK is only the latest in a series of consolidations to come.

“The proposed transaction to acquire NBK will further consolidate the banking sector in Kenya and will create stronger institutions enabling KCB to play a bigger role in the financial inclusion agenda,” KCB chief executive Joshua Oigara said of the deal.

This will add into the acquisition of 30 per cent assets of under-receivership Imperial Bank’s, setting it for even stronger foothold.

But while strong institutions will be created, jobs in the banking sector, which has for long been among the highest employers in the country, will put at risk existing opportunities and dampen new prospects.

The collapse of Chase Bank, Imperial Bank and Dubai Bank in quick succession had already dealt a blow to employees, forcing a majority of them to leave and cast their nets elsewhere.

Chase Bank staff remained in the dark up to the time SBM Bank of Mauritius curved out certain assets and liabilities and retained a section of the branches.

However, many employees had to look for jobs elsewhere as uncertainty intensified. In the end, 10 branches were shut.

Trimming workforce

Central Bank of Kenya (CBK) data shows that apart from losing jobs through failures, employee numbers in the remaining financiers have also been trimming their workforce to rein in high costs of operation.

This is in response to the interest rate cap and digitisation.

Collectively, banks’ staff size has shrunk by 6,020 employees in the last three years to December 2017 with more cuts expected to be announced in CBK’s supervision report for 2018.

For instance, KCB Group cut its payroll costs by Sh2.14 billion in the year ended December 2018 as staff size dropped for the third year in a row to 6,220 employees from 6,483 — the lowest in six years.

The reduced staff size reflects growing importance of non-branch activities as more customers embrace digital tools.

For KCB, there was 14 per cent overall decrease in average transactions handled by each teller from 81.9 to 71.5 per day. Number of branch transactions reduced by 15 per cent to 16.2 from 18.6 in previous year.

Away from digitisation, job losses in the sector are now being accelerated. At least six mergers have been completed or proposed in the last 36 months as non-attractive lenders seek repositioning.

Prior to KCB-NBK announcement, Commercial Bank of Africa and NIC Bank had made similar move.

Shareholder blessings

The CBA deal received blessings of shareholders last week with NIC chairman James Ndegwa saying the merged entity will deliver more value to shareholders.

Areas of overlap including branch networks, technology, management and support functions are expected to be reviewed with a view to cut costs and improve efficiencies.

However, this may be at the expense of employees of the two firms, especially on reduced branch numbers.

South Africa rating agency Global Credit Ratings (GCR) expects the merger to drag earnings for up to three years as the two entities merge.

Other deals have been acquisition of Habib Bank by Diamond Trust Bank and I & M Holding buying Giro Bank. In 2013, Guarantee Trust Bank acquired 70 per cent stake in Fina Bank.

All these consolidations led to reduced staff sizes as the merging entities focused on benefiting from increased efficiency.

Last month, Sidian Bank chief executive Chege Thumbi said the lower-tier lender was open for merger talks, joining the list of lenders mulling similar deals.

Informal discussions

Mr Thumbi said the bank has been having informal discussions with other lenders even though he declined to reveal the names.

“As and when discussions progress to a level where we are confident to announce anything, we will come back to you. A lot of conversations do happen once in a while and until it matures, we can’t give details,” he said.

“We are very open for merger with other banks and also opportunities of acquisition of other banks --- I am sure everyone in the market is looking at how to get bigger, better more efficient and create stronger banks.”

With over 40 banks in the market, many financial sector analysts have for several years now said the sector is overbanked and that consolidation was the way out especially for mid and lower tier lenders.

Even for banks that are not considering merging, cost saving programmes such as natural attrition and voluntary early retirement are becoming more common.

Digital channels

Equity Bank CEO James Mwangi said during the lender’s full-year performance briefing that the banked had achieved a Sh20 million cut in the wage bill to Sh11.46 billion by pushing customers to digital channels.

“While last year we had a 15 per cent average increase in monthly salaries, the effect (on the total wage bill) was muted by the fact that there is no replacement of exiting staff since customers are opting to serve themselves using our alternative digital channels,” he said.

Many other banks are still under pressure to cut expenditure with salaries and wages having risen by Sh15 billion in the three years to December 2017.