Nairametrics|As part of efforts to streamline costs, Pan African bank, Ecobank, has decided to merge 74 of its branches. Perhaps to avoid friction with labour unions and negative publicity, the bank has refrained from using the words rationalization or cost cutting.
2016 was a tough year for many companies in Nigeria. A drop in oil prices and the country entering into a recession, has led to a fall in consumer purchasing power. Banks were also affected as impairment provisions for bad loans went up massively. Although, Ecobank saw an increase in revenue from N416 billion in 2015 to N506 billion in 2016, the bank made a loss of N21 billion in 2016, compared to a profit of N52 billion in 2015. Thus, it had to make measures to return to profitable ways.
Shutting down the branches means the bank will save money running into billions and make it more efficient. The bank had a cost to income ratio of 62.7% as at December 2016 which is much higher than several tier-one banks. Zenith Bank had a cost to income ratio of 52.7% for the same period while GT Bank reported 40.7%. The cost to income ratio is the ratio of a company’s cost to its income. The lower it is, the more efficient the bank is and the more profitable.
In addition to shutting down unprofitable branches, Ecobank has also created a bad bank to resolve legacy loans inherited from its acquisition of Oceanic bank. Though the bank has stated that affected staff will not be sacked but redeployed, same may not apply to casual and ancillary staff. Outsourcing firms which usually handle them may be forced to lay them off. Year to date, the bank’s shares have declined 25% on the Nigerian Stock Exchange (NSE), much worse than the all share index which is down 4.15%.