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Why Nigerian banks have lowest staff costs per revenue

Nigerian banks are said to have the lowest staff costs per revenue, compare to other countries. This is attributed to their corporate-focused business models, which are more “staff-lite”.

Another reason according to EFG Hermes was the significant growth in dollar denominated balance sheets for these banks.

EFG Hermes Holding, an Egyptian financial services company present in the Middle East, North Africa, Sub-saharan Africa, and South Asia regions, did a CPS (costs, productivity, sustainability) analysis for key franchise banks in the frontier universe.

The summary of its findings show that the average cost per staff across banks in the firms universe in was USD21,435 and has been relatively steady over the past five years (0.5% CAGR for 2016-20).

The average pay scale was much higher for SubSaharan Africa (SSA) banks (particularly Ghana) – a reflection of the operating environment and workforce dynamics there.

Relative to revenue, analysts at EFG Hermes estimate staff costs fell from 22.4 percent in full year 2016 (FY16) to 21.3 percent in FY20, which was due to stronger revenue growth for banks with USD denominated balance sheets (like Georgia and Nigeria); and improving efficiency due to increasing digitisation.

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From a productivity perspective, the average revenue per staff improved at 2.3 percent Compound annual growth rate (CAGR) over

FY16-FY20. Unsurprisingly, Vietnamese banks reported the strongest growth in USD revenue per staff, due to 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 was largely due to the persistent weakening of their respective exchange rates. Despite modest growth, Ssa[1]based banks continue to report the highest USD revenue per staff in absolute terms, which was due to a higher asset base per staff; and comparatively higher Net Interest Margin (NIM).

In terms of sustainability, the report benchmarks the banks’ staff costs relative to Gdp/capita. The report noted that this is important, as it highlights salary levels across banks relative to average salaries in economies that they operate in; and thinks the metric provides an (simplistic) ESG snapshot on banks’ staff costs. “In this regard, we 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”.

“Also, we note that SSA banks, pay much higher salary levels relative to GDP, which we 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,” the analysts said.

From an individual country perspective, the report noted that banks in SSA generally pay much higher staff salaries than their counterparts in Asia. In particular, it noted that both the average cost per staff at both the larger Ghanaian banks is significantly higher than average for banks analysed in the report.

“We think the higher salary levels are generally a reflection of the operating environment for these banks (a function of a bank’s revenue base, lower availability of educated workforce, etc.), rather than due to higher per capital income levels in these countries (see section on sustainability).

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