CBN’s directive can’t stop the ‘inevitable downsizing’ in the banking sector – Experts
Some financial experts have said the directive issued by the Central Bank of Nigeria (CBN) to banks in the country not to retrench or layoff any cadre of worker due to the effect of the COVID-19 pandemic will make little or no impact in the ‘inevitable downsizing’ in the banking sector.
While some believe the directive is within the purview of the apex bank, a Risk Management Officer with an old generation bank in Lagos believes the CBN has no merit to tell banks not to sack its workers.
The COVID-19 pandemic, the lockdown imposed in states across the nation to curb its spread and the falling oil price have had a significant effect on global economy. Economists and analysts have also projected that the global economy will go into recession in 2020, which will result in massive job loss across the globe.
The job loss is already becoming a reality and this is why the CBN issued the directive following the sack of workers by Access Bank Plc. The bank’s Managing Director and CEO, Herbert Wigwe, in a virtual meeting with staff last week had announced that the layoff of 75 per cent of workers and 40 per cent pay cut which he said will start from him.
Wigwe had said: “If there is one thing that has come out of this while lockdown period is the fact that digital is the way forward. We do not need the same complementary staff to take to where we are going.
“It also shown that job essential services particularly outsourced staff will not necessarily be at the levels that would be required. We probably don’t need as many security men as required, even to the fact that we are not going to have all our branches open between now and December. We don’t need all the tea girls. We don’t need all the cleaners. We don’t need all the tellers etcetera, etcetera.”
In March, the bank had reported a Profit After Tax (PAT) of N97.5 billion in 2019 financial year, representing a 2.7% increase over the N94.98 billion posted in the preceding year 2018. The bank also made a donation of N1 billion to the Coalition Against COVID-19 (CACOVID) to support the Federal Government’s fight against COVID-19.
In February 2020, CBN had warned banks not to sack more than five workers without its approval. “Banks should note and be guided by the CBN circular in respect of laying off staff that is more than five. This requires apex bank’s notification and approval going forward,” a circular signed by Angela Sere-Ejembi, the Director, Financial Markets Department of CBN in February read.
CBN in a statement by its Director of Corporate Communication, Isaac Okoroafor, on Sunday, said at a special meeting of the Bankers’ Committee convened on Saturday May 2, 2020, the committee reviewed the implications of the COVID-19 pandemic on the Nigerian banking industry and also deliberated on the issue of the operating costs of banks in view of the disruptions emanating from the global economic difficulties.
“In order to help minimize and mitigate the negative impact of the COVID-19 pandemic on families and livelihoods, no bank in Nigeria shall retrench or lay-off any staff of any cadre (including full-time and part-time),” CBN’s statement read.
“To give effect to the above measure, the express approval of the Central Bank of Nigeria shall be required in the event that it becomes absolutely necessary to lay-off any such staff.”
What experts say:
Andrew Alli, CEO of Africa Finance Corporation in his reaction to the CBN’s circular wrote on his Twitter page: “Generally I wouldn’t agree that regulators should interfere in laying off workers. However banks are slightly different as there is an implied (and sometimes explicit) CBN guarantee provided to banks. This is mainly extended to bank depositors, but it is of value to shareholders too.”
He added that Nigeria”Banks are about to undergo incredible strain and will need a lot of CBN support to get to the other side. The implicit trade off here is that the banks need to support CBN’s social objectives in order to get this support. This is possibly why it is a recommendation from the Bankers’ Committee, which represents the banks as much as it does CBN (in theory at least).”
“Sometimes one wonder if the CBN forgets this is a democracy We all understand the rationale behind this directive, its Covid. However the CBN should remember these are privately owned institutions. If the CBN does not want retrenchment then reduce the regulatory cost on banks,” the CEO of AfriSwiss Capital Assets Management Limited, Kalu Aja, also wrote on his Twitter page.
A Chartered Accountant with one of the leading insurance company in Nigeria who craved anonymity told Neusroom that the CBN being the regulator of the banking industry can advise the banks on issues relating to their operations and its impact on the society.
On the implication of the directive, the accountant said “it will serve as a deterrent to banks from throwing caution to the wind by just hitting the exit button at will. This does not mean that the banks cannot sack or layoff staff only that the CBN approval need to be obtained to do such.”
The analyst said the banks may decide whether or not to comply with the directive because they are adjusting to the new way of working virtually which he said will make some workers become redundant.
“Some banks are curtailing their operations already by suspending activities in some of their branches, this will automatically make some employees redundant. Such cases will be tendered to the regulator to obtain approval to exit some personal and possibly recall them back when full activities resume,” he said.
Is the layoff justified?
The Accountant believes layoffs/downsizing/right sizing is inevitable in all sectors of the economy (Public sector inclusive).
“What is important is that Business Managers must ensure transparency and objectivity is upheld when making this tough business decision,” he said.
A Risk Management Officer with one of the old generation banks, however, said the CBN cannot stop banks from sacking workers. He said the circular released on Sunday has only made it mandatory for financial institutions to seek the approval of the apex bank as the regulatory body when such action is about to be taken.
“What CBN regulates is the hiring and sacking of senior managers of the bank and the composition of the board of directors,” he said. “If the banks decide it is best for them to reduce operational costs, they will downsize and CBN cannot stop them.”
“The implication of the mass sack is that it is not healthy for the economy, it is a red flag for regulators to look into the bank’s books and it will cause panic among customers who may start moving their funds from the affected banks.
“The CBN’s directive won’t stop those who have taken the action before it was issued because they have not committed any regulatory breech. They can only recall the affected workers if they feel like.”
The Risk Management Officer said so many other banks will still downsize if the pandemic doesn’t end soon because they are not making profit and the partial relaxation of lockdown will still affected operations. He, however, advised that should have been done to protect the economy is to cut salary and not layoff workers.
