Sending home workers fails to fix banks’ rising wage bill costs

National Bank Harambee Avenue: Photo: Wilberforce Okwiri

Kenya’s banking sector spent Sh97 billion to pay staff salaries in 2016 despite job cuts, an increase of 10.4 per cent from previous year’s Sh87.8 billion, even as move to trim workforce gains momentum.

Financial statements of the 40 banks that publicly declared their performance for the year ended December 31, 2016 show that staff costs combined with provisions for non-performing loans to push operating costs up by more than a third.

“Just six banks- United Bank of Africa, Spire Bank, Jamii Bora Bank, Housing Finance, First Community Bank (FCB) and Bank of Africa (BOA) - managed to reduce staff costs,” noted the filings.

For BOA, the reduction came even as it announced in January that it was shutting down 12 branches and trimming workforce to concentrate on digital products. In the first quarter ending March 2017, the bank has cut staff cost by Sh17.6 million or 5.7 per cent.

With three banks under receivership and unable to declare public their performance, data from the 40 banks show that operating costs rose by 37.6 per cent to Sh257.8 billion. Of the 40 banks, 16 of them had expenditure on staff accounting for between 43 per cent and 71 per cent of the total operating costs.

Kenya Commercial Bank (KCB), which has already offered its employees a voluntary early retirement  that is believed to target over 500 workers spent Sh17.7 billion on staff costs last year. This was 15.7 per cent higher than in 2015.

In an earlier interview with The Standard, the group’s Chief Finance Officer Lawrence Kiambi said that unionised workers bargained for salary increment leading to a rise in costs. This added to a hike in provision for bad loans saw operating costs rise by 44 per cent to Sh40.4 billion.

The net impact was that the group recorded the slowest growth in profits in seven years. Its latest filing for three months to March 2017 show that staff costs rose again by Sh340.6 million or 8.3 per cent to Sh4.42 billion.

The bank, the largest in East Africa, says that cutting workforce will help it save Sh2 billion annually. The bank is not new to cutting jobs having done so before in a wave that also roped in Barclays Bank of Kenya (BBK), Cooperative bank and National Bank of Kenya (NBK).

More than 1,000 jobs were lost. Sidian bank’s staff costs rose by close to half (49.9 per cent) making it the fastest rise in the sector. While in 2015 it had spent Sh598.7 million to pay employees, the cost jumped to Sh897.5 million last year.

The bank, which reported a 27.5 per cent drop in net profit for the year ended 2016, has embarked on a Sh70 million voluntary early retirement plan that will see at least 108 employees leave.

Staff costs currently make up more than a third (36.9 per cent) of total operating costs. Ecobank Kenya saw its staff costs rise by 27.8 per cent to Sh1.43 billion even as it sank into a Sh2 billion loss in December 2016. Its total operating costs rose by more than a third to Sh4.2 billion. To trim this cost, the bank is shutting nine branches- five in Nairobi and four others in Busia, Meru, Kitale and Malindi.

The bank’s head of commercial banking in East Africa, Humphrey Muturi said even though affected staff would be redeployed to other units, those who miss out will have to “transition to the next phase of their careers.”

Guarantee Trust Bank Kenya also saw its staff costs rise by 29.7 per cent while Citibank Kenya’s expenditure on staff went up by 33.1 per cent. Out of Citibank’s Sh2.95 billion spend on operating costs, staff costs account for close to three quarters (71.5 per cent).

Credit Bank, a lower tier lender, saw the costs rise by 22.8 per cent to account for 40 per cent of total operating costs.

In December, First Community Bank Chief Executive Fazal Saib sent home a third (106) of the bank’s workforce. Its expenditure on staff has reduced by Sh9.3 or 1.73 per cent to Sh528 million. Staff costs now account for 35.4 per cent of total operating costs.

Highest spender

Kenya’s fourth largest bank by assets, Standard Chartered Bank saw a 15.3 per cent rise in staff costs to Sh7.03 billion making it fifth highest spender. This is after KCB, Equity Bank, BBK and Cooperative Bank of Kenya. Staff costs now make up 47.8 per cent of Stanchart’s total operating costs.

The bank, which recently launched video banking is expected to render about 300 staff redundant once it outsources its non-core functions to India.

In first quarter results covering three months to end of March 2017, the bank’s staff costs rose by Sh132 million even as operating costs went up by 5.8 per cent. Equity Bank is the second highest spender on staff at Sh11.6 billion after the cost rose by 1.33 billion or 13 per cent.

Of the Sh39.1 billion operating costs, expenditure on employees takes a third. In nine months to September last year, the bank parted ways with 400 employees in what the Chief Executive James Mwangi said was not layoffs but “natural attrition.”

For mid-tier lender Family Bank that saw full year earnings drop by 82 per cent, staff costs rose by 11.2 per cent to Sh2.94 billion. Of total operating costs, staff costs account for 37.4 per cent.

An unspecified number of staff are leaving the bank through voluntary early retirement scheme announced by the bank last year.

NBK which is also trimming its workforce spent Sh3.64 billion in 12 months to December 2016 to pay staff.

That was a marginal rise of 0.6 per cent. However, this is 33.6 per cent of total operating costs.

Cooperative Bank saw staff costs rise by 5.3 per cent to Sh9.4 billion. This makes staff costs 38.2 per cent of total operational costs.

In its latest financial statements for the first three months of 2017, staff costs have risen by 6.97 per cent to Sh2.32 billion when compared to a similar first quarter last year.

NIC bank saw its staff costs surge by 14.4 per cent to Sh3.2 billion. The trend has persisted in the first quarter of 2017. In three months to March, the bank spent Sh717.2 billion on employees being 12.4 per cent higher than similar time last year.

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