By Audrey Lotechukwu
THUR 06 MAY, 2021-theGBJournal- Nigerian banks have the lowest staff costs per revenue, which is attributable to their corporate-focused business models, which are more “staff-lite” and significant growth in USD denominated balance sheets for these banks, according to a report by investment banking services firm, EFG Hermes on Frontier Emerging Markets (FEM) Banks.
The report is a CPS (costs, productivity and sustainability) analysis for key franchise banks in the frontier universe.
From an individual bank’s perspective, the report notes that three Nigerian Banks, GTB, Access and Zenith have the lowest staff costs per revenue ratio indicating their ability to control staff costs despite significant devaluation of the Naira since 2016, revenue inflation as a significant proportion of their balance sheets are USD denominated, and generally strong costs control at these banks (especially GTB).
‘’At the other end of the scale, three of the top five spots are taken by SSA based banks, which we think is a reflection of relatively weak cost controls at these banks and relatively early stage of adoption of alternative banking channels like agency and mobile banking. We note that BRAC’S relatively high staff costs to revenue ratio is attributable to the revenue challenges the bank has been facing the last couple of years due to unfavorable regulations.’’
According to the report, the average cost per staff across banks is USD21,435 and has been relatively steady over the past five years (0.5% CAGR for 2016-20). The average pay scale is much higher for SSA banks (particularly Ghana) – a reflection of the operating environment and workforce dynamics there.
Relative to revenue, EFG Hermes estimates staff costs fell from 22.4% in FY16 to 21.3% in FY20, due to stronger revenue growth for banks with USD denominated balance sheets (like Georgia and Nigeria), and improving efficiency due to increasing digitisation.
EFG Hermes notes that the average staff expenses per employee in USD terms across Frontier universe has remained relatively steady between FY16-20, increasing at a CAGR of 0.5% to USD21,435 as of FY20,.
From a productivity perspective, the average revenue per staff improved at 2.3% CAGR over FY16-FY20. Unsurprisingly, Vietnamese banks reported the strongest growth in USD revenue per staff, due to a strong increase in asset penetration rates, and a relatively stable VND/USD rate.
‘’It was no surprise that Nigerian, Georgian and Pakistan banks saw the most significant drop in USD revenue/staff, which is largely due to the persistent weakening of their respective exchange rates. Despite modest growth, SSA- based banks continue to report the highest USD revenue per staff in absolute terms, which is due to a higher asset base per staff; and ii) comparatively higher NIMs.’’
On Sustainability, EFG Hermes benchmarked the banks’ staff costs relative to GDP/capita.
‘’We think this is important, as it highlights salary levels across banks relative to average salaries in economies that they operate in, and we think this metric provides an (simplistic) ESG snapshot on banks’ staff costs.’’
In this regard, they note that as of FY20, salary levels were on average 11.4x GDP/capita, which makes sense as the average bank employee is likely to be more skilled than the average worker.
EFG Hermes also notes that SSA banks, pay much higher salary levels relative to GDP, which they think is a function of the relatively higher revenue per staff in these economies and depressed per capita GDPs due to a large proportion of workers being employed in the agricultural sector.
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