The Central Bank of Nigeria (CBN) has read the riot act to the Bankers’ Committee; warning commercial banks not to sack their workers as a result of disruptions emanating from the Covid-19 pandemic. The apex bank, in a statement yesterday by its Director, Corporate Communications, Isaac Okorafor, said the decision was reached at the end of a special meeting of the Bankers’ Committee held at the weekend.
“The Committee particularly deliberated on the issue of the operating costs of banks in view of the disruptions emanating from the global economic difficulties and decided as follows: In order to help minimize and mitigate the negative impact of the COVID19 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).
“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. The Central Bank of Nigeria solicits the support of all in our collective effort to weather through the economic challenges occasioned by the COVID-19 pandemic,” the CBN statement read in part.
CBN sources told Huhuonline.com that the emergency meeting of the Bankers’ Committee was summoned after Access Bank Plc announced the closure of 60 branches, including their old headquarters, which was sold to private real estate developers. The deteriorating macroeconomic environment and falling crude oil prices have made Access bank to increase its provisions for loan losses in their first quarter (Q1) ended March 2020, Huhuonline.com investigation has revealed.
Poor risk management and recovery strategies adopted by Access bank have led to a significant increase in the provision for loan defaults and potential losses; underscoring the need to “down-size” and “right-size” its operations and labor force. To which end, Access bank has spiked its impairment charges, by a jaw-dropping 154% to N8.582 billion in Q1 of 2020, from N3.375 billion in the corresponding period of 2019. Analysts told Huhuonline.com that in a deteriorating macroeconomic environment, loan defaults typically increase as macroeconomic conditions weaken. But the booking of such high impairment charges by Access bank was a head-scratcher because none of the other Tier-1 banks recorded such astronomical anticipated losses.
According to filings from the Corporate Affairs Commission (CAC), UBA recorded impairment charges of N2.642 billion in 2020, up 54% from N1.714 billion in 2019, while GTBank that made a provision of N651 million in Q1 of 2019 had to increase it by 87% to N1.223 billion in 2020. Stanbic IBTC had witnessed a write-back of N1.391 billion in Q1 of 2019 but had to make a provision of N1.967 billion in Q1 of 2020.
ETI reported a 27% decline in impairment charges in 2020, which stood at N21.196 billion, down from N29.156 billion; FBN Holdings’ impairment charges declined by 30% from N13.847 billion to N9.7 billion.
Although the huge impairment charges do not mean outright losses, investment and financial research analysts told Huhuonline.com that Access bank’s raising the provisioning of its anticipated losses by over 154% was way beyond the dictates of the current challenging economic environment. But Access Bank Group Managing Director, Herbert Wigwe disagrees, taking strong exception to suggestions that Access bank was in dire financial straits. Mr. Wigwe told Huhuonline.com that Access bank was not retrenching workers, arguing that the closure of 60 branches was a temporary stop-gap measure that will be reviewed in December. He declined to comment whether the redundant staff from the 60 branches will retroactively be reinstated on the bank’s payroll after the CBN directive; insisting that Access bank remains committed to building a sustainable business, even in the midst of the challenges associated with the Coronavirus pandemic.
His words: “We are not sacking anybody. It is a shame that this is being misinterpreted. We did a merger (with Diamond Bank) and absorbed everyone. Did we sack anyone? We have closed 60 branches and sold our old head offices; should we bring all the security men, bank tellers, and other auxiliary staff just to enlarge the workforce? We must optimize; we are making necessary adjustments. We spend N90 billion quarterly on operating expenses, far larger than our competitors. Covid-19 will kill several SMEs and the banks must be ready to absorb all of this. You must prepare. We remain extremely strong but very conscious of tomorrow and the larger problems of the economy. We are the largest bank in the country! We have to be more careful than others.”
The Access bank GMD defended the decision to donate N1billion to the private sector initiative to combat the Covid-19 pandemic even as the bank lays-off workers saying: “in the scheme of things to save humanity, N1 billion is absolutely miniscule. But for the actions a few of us are taking, God knows what will happen to our country. The FG cannot handle even 5% of the issues,” Wigwe explained in his text messages response to Huhuonline.com.
Analysts also told Huhuonline.com that Access bank’s 154.3% spike in impairment losses is unsurprising because companies in the oil and gas sector with diverse portfolios in Access bank have had very tough times given the current state of the global oil market. A senior equity research analyst at Moody’s capital explained that Access bank will face huge cash flow problems given that its clients in the aviation, hospitality, transport and other sectors would be unable to fulfill their loan obligations to the bank.
“Accordingly, in line with the guideline prescribed by IFRS 9, which introduces a forward-looking “expected loss” impairment standard that requires banks to provide more timely recognition of expected credit losses (ECL), based on future expectations, in place of the “incurred loss” model. As such, what is happening is that banks are taking impairment losses as a reflection of a weaker macroeconomic realities in 2020 as we know it,” the expert noted.
The expert blamed the CBN’s policy of loan-to-deposit ratio (LDR) which forced many banks to increase their loans to customers, noting that as the economy witnesses challenges, there would be an increase in impairment charges. “There has been a strong loan growth by these banks as they strive to meet the CBN’s minimum loan-to-deposit ratio of 65 per cent. GTBank, Stanbic, Access, and UBA all expanded their loan books by between eight per cent and 15 per cent during the quarter. This compares with flat to low-single-digit loan growth in Q1 2019.”
Mr. Wigwe is under no illusions that the road ahead will be rough and bumpy for Access bank customers, staff and investors, telling a staff meeting which held virtually, that he himself will be taking at least 40% pay cut as part of efforts to strategize on new opportunity areas to cushion the impact of the Covid-19 pandemic and to sustain the growth trajectory of the bank.
According to him, Access bank’s greatest strength was its ability to adapt to change, and the bank will explore new prospects that are opening up , while continue to focus on customer-centricity, innovation and digitalization, as well as keep a handle on corporate governance, risk and liquidity.
