Banks Halt Branch Expansion Plans over Tough Economy

Deposit Money Banks (DMBs) in the country are cutting down on plans to open more branches as part of cost cutting efforts to cope with the tough times, particularly in the industry and generally in the economy, according to New Telegraph.

According to sources in the industry, in a bid to drastically reduce costs, most lenders have decided to slow down on their branch expansion plans and, in some cases, have even completely frozen such plans.

A general manager with a tier one bank, who did not want to be named, confirmed this development.

He said: “I can tell you that the business environment is so tough now that unlike in the past when banks used to scramble to outdo each other in terms of who has the most number of branches, the focus today is all about reducing costs.

For instance, instead of the four new branches we planned to open in Lagos this year, we have reduced the number to two.

“It is quite expensive to open, equip, run and maintain a branch, so, banks are trying not to do that anymore unless they are very confident that such a branch will start to generate reasonable profit within a short period,” he stated.

Besides, he revealed the bank where he works was now concentrating on opening smaller, self service centres which, according to him, are far less expensive to set up than the conventional bank branches.

“That (self service centre) is the future of banking. I agree that given the level of development of our society, brick and mortar banking will remain prevalent for some time to come, but any bank that wants to survive the current hard times will have no choice but to cut down on its branch expansion,” he said.

It will be recalled that in addition to sacking over 3,000 staff since the beginning of the year, lenders such as First City Monument Bank Plc (FCMB) and Skye Bank Plc have also shut down unprofitable branches. Analysts attribute the development to the fact that both lenders did not grow organically but expanded via their respective mergers and acquisitions.

Significantly, the country’s biggest lender by assets, First Bank of Nigeria Limited, is also reported to be planning to shut down some of its over 800 branches nationwide as part of efforts to reduce cost.

Mr. Babatunde Lasaki, the lender’s head, Media and External Relations, Marketing & Corporate Communications, was reported a few weeks ago as saying that the bank was in the process of meeting regulatory requirements that would allow it to change the designation of some of the branches.

He disclosed that none of the affected branches would be totally shut down, as they would only be converted to cash centres and ebanking centres.

Similarly, FCMB announced last February that in a bid to cut costs, it had laid off staff, as well as shut down not less than 10 per cent of its branches nationwide.

According to Mr. Diran Olojo, the bank’s Group Head, Corporate Affairs, the lender has decided to shut any branch where it has two very close to each other, in the face of rising operational costs.

Even lenders like Standard Chartered Bank, which has only 42 branches in Nigeria, is also said to have concluded plans to embark on rationalisation of its branches.

Industry watchers point out that the branch rationalisation plans of the banks could pose a threat to the Central Bank of Nigeria (CBN)’s target of achieving 80 per cent financial inclusion in the country by 2020.

According to a report by Financial Research Institute, only 30 million Nigerians have bank accounts out of the 90 million sampled. This means that 60 million Nigerians don’t have bank accounts.