Three of the country’s five largest banks have been quietly cutting staff, particularly in retail units, to drive down stubbornly high cost-to-income ratios. In the past year Absa, Nedbank and Standard Bank have cut over 2 200 staff in their South African operations – across retail, corporate and investment banking (CIB) and wealth units.
By contrast, FirstRand and Capitec are adding staff. FirstRand says group headcount increased by 5% to over 47 000, although this number now includes the UK’s Aldermore, acquired last year.
In 2018, Absa reduced headcount by 830 (net) to 30 819, Nedbank by 726 (net) to 28 260 and Standard Bank by 680 (net) to 31 662 in South Africa. The 2 236 decline equates to 2.4% of the total staff complement in the country across the three banks. These reductions are not surprising as efforts to reduce the number of branches (and total physical space occupied) ramp up, and digitisation becomes entrenched.
In its retail and business banking unit, Nedbank reduced headcount by 698 last year, “largely through natural attrition”. At the end of December, this unit had 19 545 employees.
Overall, the bank says “over the past 24 months we reduced total headcount by 1 469 (mainly through natural attrition) and optimised our staffed points of presence by closing 18 branches (while maintaining our coverage of the bankable population at 84%)”.
As part of an ambitious plan to reduce its efficiency (cost-to-income) ratio, it is implementing a “target operating model” that will achieve R1 billion in cumulative savings this year. It has already achieved savings of R680 million. The cuts aren’t only coming in the area of frontline staff, or even in the retail bank, but point to “ongoing headcount reduction” in “back- and middle-office optimisation”.
The bank previously said that software robots could replace up to 3 000 jobs, through natural attrition. CIO Fred Swanepoel told City Press a year ago that “With about 32 000 staff, our natural attrition rate is about 3 000 per year. When we look at a three-year period, we don’t think that robotics will take up more than one year of that natural attrition.”
Absa says that while staff costs grew 4% on the back of a 7% increase in salaries, group “headcount decreased 2% to 40 856, largely due to reductions in South Africa and a disposal” in its wealth, insurance and investment management unit. It says the increase in salary costs “reflected investment hiring relating to the build-out of new capabilities post separation from Barclays plc”.
In line with its ambition to regain the leadership position in retail banking, it aims to grow ahead of the market from next year. Doing this will help drive its cost-to-income ratio down to the “low 50s” by 2021 from the current level of 58.7.
As part of its restructuring of this unit, discussions between the bank, employees and union Sasbo this month have revealed that 827 jobs are “potentially at risk”. Up to 340 people might reportedly be employed through the process.
In comments to Bloomberg, Absa said: “It is only once the realignment is complete that the total number of people who have either been appointed to new roles or have left the organisation will be known with certainty.” It added that the changes will result in “both new opportunities and redundancies across the business” and described the moves as not a “retrenchment exercise, but a realignment effort aimed at enabling our new strategy”.
Standard Bank says net headcount for the group declined by approximately 900 people “on the back of a combination of natural attrition, digital efficiencies and management actions”. In Standard Bank South Africa, headcount reduced by 680 (net) to 31 662. It says the increase in staff costs of 4% in 2018 was “attributable to annual salary increases and separation costs in the information technology business”. In November, it said it would cut 526 jobs in the IT division as part of its restructure.
The banks do not disclose the exact same metrics, making direct comparisons difficult. One way to measure efficiency is the headline earnings generated per employee. At all three banks, however, there are distortions from insurance and ‘wealth’-type activities (Standard Bank, via Liberty). The group figures below include Liberty’s earnings contribution without accounting for staff.
Headline earnings per employee
In the South African context, one can see how far ahead of its peers Standard Bank is. It reports on the headline earnings per employee for banking activities only, a number that increased to R545 000 in 2018.
The strategy to grow earnings while reducing headcount (actively or passively) is firmly embedded among most players in the local banking environment. The trend, based on the above table, is positive over the past year. Digging into specific units where splits are disclosed, such as Nedbank’s retail unit, will paint an even better picture.
On Thursday, Standard Bank said it would cut around 1 200 jobs and close 91 branches as “part of efforts to digitise its retail and business bank”.
On Thursday, Standard Bank said it would cut around 1 200 jobs and close 91 branches as “part of efforts to digitise its retail and business bank”. Read more here.
* Hilton Tarrant works at YFM. He can still be contacted at firstname.lastname@example.org