Kenyan banks saw their half-year staff costs surge by Sh1.39 billion in the six months to June 2017 despite multiple rounds of job cuts by lenders as they shifted to technology to cut costs in the era of interest rate caps.
Banks spent Sh47.4 billion to remunerate their employees in the first half of this year compared to Sh46.01 billion in the six month period to June 2016, a growth of 3.04 per cent, according to industry data compiled by the Business Daily.
Analysts reckon that lenders’ staff expenses will continue to bulge despite the retrenchments as they compete to retain few highly qualified workers who generate greater returns per capita.
“Staff costs as a ratio of total income will be higher in 2017 because there will be a decline in earnings this year,” said Francis Mwangi, head of research at Standard Investment Bank.
“Even as you recuse staff, you retain high productive staff. There is higher competition for relationship managers for corporate and SME clients, and you have to reward them better to keep them,” Mr Mwangi told the Business Daily.
About a dozen banks have retrenched more than 1,000 employees since the advent of the interest rate capping law, which has narrowed lenders’ earnings from loans. Other lenders such as Equity have frozen hiring to allow a drop in staff numbers through natural attrition.
The banking industry’s total interest income dropped Sh26.3 billion in the half-year period to June 2017 to Sh140 billion from the Sh166.3 billion they earned in a similar period last year.
Payroll costs have accounted for half or 50.2 per cent of lenders’ total expenses in the past five years, according to SIB research, and will rise this year given the additional send-off costs associated with job cuts.
Staff costs in relation to total income have stagnated at 23.2 per cent in the last five years, SIB said, highlighting the impact of employee wages on lenders’ efficiency ratio.
StanChart Kenya last year spent Sh500 million on paying off 100 workers laid off at its Nairobi service centre, whose operations were moved to India.
The top tier lender is also closing down four branches. Sidian (108), NIC (32), First Community Bank (106), and Barclays’ also let go 130 employees, and the latter is also shutting four branches.
Bank of Africa has shut 12 branches and Ecobank is closing nine outlets.