It is a season of branch rationalisation among Nigerian banks. But industry watchers caution that in an industry noted for its bandwagon effect, a greater percentage of Nigerians could be cut off from banking services in the misconceived notion by banks that the deployment of e-payment channels may mark the end of investment in bricks and mortar branches, reports Festus Akanbi
Concerns were raised last week that the ongoing branch rationalisation by some Nigerian banks may seriously derail efforts by the Central Bank of Nigeria to take banking to all the nooks and crannies of the country. A number of bank branches have been shut down in recent times, a development which industry watchers said was inevitable in view of the several phases which the Nigerian banking industry has passed especially since 2009 when the current leadership of the CBN began its reform of the banking system.
One category of banks which have had to close some of its branches includes some of the new emerging banks which recapitalised and acquired five of the banks that failed the 2009 audit jointly conducted by the CBN and the Nigeria Deposit Insurance Corporation (NDIC). Another group is made up of some of the top players in the industry which have decided to prune their branches in view of the deployment of e-payment channels in the Nigerian banking industry.
The third category, however, is made up of some of the old generation banks which have had branches in several rural communities in the country for decades but are now being forced to rationalise some of these branches that are either not viable or too costly to run.
Efforts to speak with the CBN deputy governor, Financial System Stability, Dr. Kingsley Moghalu, did not yield results as he was not reachable on the phone last week while texts and emails sent to him were also un-replied. However, his counterpart in charge of the Operations Directorate, Mr. Tunde Lemo explained that it is not a crime for banks to close their unviable branches since commercial banks are business enterprises which have to yield returns to shareholders.
He explained that failure to respond to the reality may make the banks incur losses. He said that was the reason why the apex bank has decided to provide alternative means of payment in the system. “For example in a community where there are branches of eight different banks, it will be wise for any of them to close shop there and concentrate in other viable locations with the presence of a fewer number of bank branches,” he said.
To cater to the banking public, the CBN, according to him, has encouraged the development of other payment channels such as agent banking, including post offices. He disclosed that the Central Bank has also licensed 15 mobile operators to key into the e-payment platform.
Cost Cutting Measures
As the banking reform rolls into the final stage, with the effective conclusion of the acquisition of the former rescued banks, feelers from the industry showed that some of the acquired banks did not only lose their corporate identities, but some of their branches have since been put under lock and key by new owners. Investigations showed that some of the affected branches became unnecessary in view of the corresponding rationalisation of the workforce of the affected banks.
For instance, about 103 branches of the former Intercontinental Bank Plc were shut down while over 1,500 staff comprising former employees of Intercontinental Bank and those of Access Bank Plc were sacked after the conclusion of the merger between the two banks.
Also, First City Monument Bank Plc, which acquired Finbank Plc, effected the sack of 550 staff of the Finbank, which translated to 30 percent of the staff strength. The process also led to the closure of 43 branches of Finbank two weeks ago. When the exercise is done, FCMB, which initially had 139 branches, will have 278 and a staff strength of 3,000.
Similar cost-cutting measures were adopted by the management of Ecobank Nigeria Plc after it took custody of staff and branches of the defunct Oceanic Bank International Plc in the course of the acquisition of the latter last year. After some of the old staff of Oceanic Bank were shown the way out, some of the branches found to be unviable were also shut down.
It is a known fact that the various business combinations have also created duplication of branches in similar locations in some cases. Corroborating this position, CEO, Access Bank Plc, Mr. Aigboje Aig-Imoukhuede explained that in a situation where Access Bank and the defunct Intercontinental Bank had branches on the same street, it did not make business sense to keep the two branches. Therefore, the management of the bank decided that one had to go.
He stressed that what the management of Access Bank did was to determine which of the two branches was more profitable of the two. The next thing, according to him, was to close the less profitable one while its customers were accommodated in the one retained.
Besides, the closure of such branches may not be unconnected to the fact that most of them had become unprofitable, as their opening may have been informed less by business considerations that the need to create the false impression of being among the banks with a larger number of branches, and hence among the leading players in the industry.
Wema Bank Plc is another bank which had to shut down some of its branches last year. The bank, having secured a regional banking licence, according to its chief executive, Mr. Segun Oloketuyi, had to discontinue the operations of the bank in some parts of the country. He said for the bank to operate as a regional bank, the 13 branches established in the north and four branches in the south-east would be shut down.
He said that the closure of those branches was necessary as the greater proportion of the bank’s infrastructure was in the south-south and south-west, by virtue of its origin, stressing that the bank has a greater concentration of its branches in Lagos and the south-west. He disclosed that the bank’s branches within the region accounted for 98.8 per cent of the total loan portfolio and 96.9 per cent of deposits of the bank as at October, 2010. He further pointed out that out of 154 branches operating across the country, 137 are located in the region where the bank has chosen to operate.
The second category of banks planning to prune the number of their branches is made up of some of the old generation banks which can no longer carry the burden of some of its unviable branches in rural areas. In this categories are banks like First Bank of Nigeria Plc, Union Bank of Nigeria Plc and Mainstreet Bank Limited (formerly Afribank Plc).
THISDAY learnt that some of the affected banks have applied to the CBN for permission to shut down some of the branches regarded as drain pipes on their balance sheets. An industry source further explained that some of those branches penciled down for closure were those sited in remote villages and communities several decades ago when the banks were owned by the federal government.
“You should understand that the practice in the past, when some of the affected branches were established, was for these few banks to maintain a balanced geographical spread. In the spirit of nationalisation, some of them bowed to pressure to set up branches in many parts of the country, whether or not it made business sense to do so at the time.
“In view of the current situation of things in the banking industry, it is obvious that carrying the unnecessary burden like unviable branches will hurt the balance sheets of these banks. This, I believe, informed the decision of the management of these banks to apply to the Central Bank for approval to close some of the branches,” the source said.
Proliferation of e-payment Channels
However, for some of the new generation banks, the transition to e-payment channels in banking has made it unnecessary to retain branches that cannot improve the bottomline of those banks. Justifying the bank’s decision not to invest in new branches, the chief executive, Guaranty Trust Bank Plc, Mr. Segun Agbaje, said the cashless policy of the CBN was already gaining grounds and that it may not make good business sense to continue to rely on bricks and mortars in banking.
His bank, according to him, has continued to enjoy good patronage as far as its mobile banking is concerned, explaining that GTBank’s ATMs pay over N60 billion on a monthly basis. He said the rising cost of infrastructure, which the banks have to provide in view of the present situation of things, is another disincentive to investment in new branches.
Agbaje, who said additional branches will impact on the bank’s bottomline, explained that when 80 per cent of transactions in a bank branch are less than N100,000,000 a month then that kind of branch was not viable in view of the cost of running a branch of a bank in Nigeria. GTBank, he said, began the closure of unviable branches, especially in Lagos, in 2010.
Agbaje’s position was corroborated by Aig-Imoukhuede, who explained that Access Bank was poised to ensure it operates with a trimmed workforce and branches. Speaking at a recent media parley, the Access Bank boss said GTBank, which has one of the smallest number of branches, is today one of the industry leaders in terms of performance and returns to shareholders at the end of the year.
“Why do you all bank with GTBank in spite of whatever complaints you have; what will stand banks out is service delivery and the optimum use of technology. That is what we plan to do in Access Bank,” he said.
In this respect, industry sources added that some banks would also have to shut down their branches to cut costs as it becomes clearer that their real balance sheets can no longer accommodate huge and unnecessary overheads. A manager in one of the banks, who craved anonymity, said plans were on the way to trim the number of branches his bank has across the country. He added that the new banking era does not allow for waste since every activity must be captured, good or bad.
He said, “The conclusion is that there must be a minimum business activity every branch must meet to survive. If a branch is found to be a ‘leakage route’, some of its staff will be absorbed by active ones while some will definitely lose their jobs. There are no sentiments about this.”
The More, the Merrier
But some banks appear to have resolved to leverage on the high number of the unbanked by embarking on branch expansion in spite of the growing popularity of e-payment platforms. Industry analysts argued it is for this reason banks like Stanbic/IBTC Bank, UBA Plc and few others have continued to invest in branch expansion project across the country.
For instance, the management of Stanbic IBTC confirmed that it is targeting additional new branches in the country. The bank explained that the branch expansion project was necessitated by the need to enter various communities to offer universal banking and ancillary services to the public.
Also, the management of UBA Plc recently engaged Spatial Technologies Ltd (STL), a local mapping and GIS solution provider, to implement a map-based solution to support the multibillion naira branch expansion and optimisation project of the bank. UBA is the largest financial services institution in West Africa with more than seven million customers.
Irrespective of UBA’s branch expansion strategy, industry analysts have warned that banking on the proliferation of e-payment channels as excuse to unduly prune down the number of bank branches in the country could backfire. They warned that unless the apex bank steps in, banking services will not be accessible by many Nigerians especially those at the grassroots level.
A report by a non-profit organisation, Enhancing Financial Innovation & Access, in June 2011, found that over 100 million Nigerians or 67 per cent of the population had no form of bank accounts. This rises to 78 per cent in the rural areas that account for 65 per cent of the population. Moreover, with the number of bank branches having fallen slightly from 5,565 operated by 24 banks in December 2009 to a little over 5,000, the ratio of bank locations to potential customers is put at 1:20,000 by the NDIC.
A Lagos-based financial expert also told THISDAY that it appears some Nigerian banks are working on a wrong premise that the adoption of e-payment channels will capture the entire banking populace. According to her, the absence of broadband in several parts of the country, coupled with the fact that all the telecom network operators in the country still operate on the 2G platform outside the big cities, was an indication that e-payment channels cannot take the place of a branch network in the nation’s banking industry for now.
She explained that some of the phone networks are still limited to using voice and SMS for communication in certain parts of the country, saying, “Where you do not have broadband or bandwidth for data transmission, you cannot have effective e-payment services, so you still need bank branches.”
Analysts added that ICT infrastructure was inadequate despite the massive roll-out and use of mobile telephones - at least 95 million lines are currently active, according to the Nigerian Communications Commission. Also, the Association of Telecommunications Companies of Nigeria, an industry association, reckoned that additional investments of $100 billion will be required over the next five years to support seamless e-transactions.
The body explained that even if all the necessary ICT systems were to be in place, the problem of power, for now, remains a major challenge. This, according to ATCON, was because unreliable power supply and shortages force telecom service providers and phone networks to invest heavily in standby generators, which not only add to their cost, but also leads to frequent problems in terms of connectivity. Relay stations and other equipment require 24-hour power, but the complete reliance on generators means frequent breakdowns, which, in turn, leads to dropped calls, temporary disconnections from satellite systems and VSat, which is the e-channel of choice for banks.