Economy in Crisis? Banks Lay Off Workers In Nigeria

 

It’s not official yet, but Nigeria is in a recession. Call it a mild one or a temporary one, but it is clear that the economy is in something of a free fall. If the financial sector gives an index of the health of any economy, the banks are the gauge through which it is measured.

Since the turn of the year, Nigerian commercial banks seem to have squared off — one against the other — in a race to lay off as many workers as possible. First Bank PLC got the ball rolling early in the year when it laid off a number of staff that cut across top management to office rank and file.

Eco Bank has also sent home 1,000 of its workers, and it is not to be outdone by Diamond Bank that also sent home 200 of its workers. Finally, Zenith Bank equally did away with the services of another 1,200 former members of staff.

The new government of President Muhammadu Buhari — who came into power last year with the promise to clean out the proverbial Augean stable and rid the country of corruption — in its first few months in office issued a directive known as the Treasury Single Account (TSA) that ordered the close of all federal government accounts in commercial or deposit money banks, thereafter domiciling all of its monies in a single account with the Central Bank of Nigeria.

This move has mopped up a lot of the easy liquidity available to the banks and squeezed hard on their operations.

As 2015 came to a close, it was obvious that many Nigerian banks were riding in to a storm in the coming year. International oil prices had crashed to below $40, less than a third of its price at the boom period. During the oil boom, the banks practically fell over themselves to package juicy loans to oil servicing and prospecting firms.

Loans to the oil companies were supposed to be the safest of loans, free from defaults. As a matter fact, loans to the upstream oil and gas services industry makes up an estimated 28 percent of the Nigerian banking sectors loan books.

Many of these loans have now gone toxic and the banks now stand to be seriously exposed to that trouble in the oil sector.

If that is not bad enough, the Nigerian oil industry faces its own peculiar challenges: oil bunkering continues around the country and newly formed armed militia groups have returned to the creeks in Nigeria’s oil rich Niger-Delta region.

The armed groups call for a secession from the Nigerian state and have repeatedly bombed important oil installations around the region, crippling oil production and crashing Nigeria’s oil output to a 20 year low.

All of this has effectively put pressure on the banks, many of which have already announced forecasts of a fall in profits and have urged shareholders to fasten their seat belts.

The banks have apparently responded to the changing business environment by “restructuring” or “right sizing,” which are just fancy words for mass layoffs.

Some industry watchers say it’s yet too early to link the action of the banks to possible trouble brewing in the banking sector, arguing that some banks have a long standing “tradition” of mass layoffs to avoid incurring heavy costs in pension and gratuity entitlements for long-term staff.

But in the end, time will tell.