National Bank pays Sh1bn to retrenched staff

National Bank has spent Sh1 billion in paying off 200 employees who exited the company between March and May, CEO Munir Ahmed has said.

The mid-tier lender’s early retirement scheme has reduced its staff to 1,600.

National Bank’s net profit for first three months of the year rose 10.8 per cent to Sh410 million, but is likely see its half-year results impacted by this one-off payout.

Before implementing the staff redundancy, the lender had about 1,800 employees who last year increased the bank’s wage bill by 14 per cent to Sh3.7 billion.

“The money we have spent is about Sh1 billion. This includes direct costs such as the cash we gave the employees as well as loan rebates,” said Mr Ahmed in an interview.

Employees were paid on the basis of years worked for the lender.

“There are people who have worked here for quite a bit of time,” said Mr Ahmed.

National Bank has over the past two years initiated several interventions that have been aimed at jump-starting the institution that reached near collapse in the 1990s, weighed down by a mountain of bad debts.

READ: NBK sends home 190 employees to tame wage bill

The bank’s management has focused on cost-cutting in its human resource department to catch up with peer lenders, that have also slashed their cost-to-income ratio in recent years.

Last year, the lender implemented an employment freeze to tame a wage bill that has more than doubled since 2008 when Sh1.69 billion was paid out as salaries and wages.

Through this hiring suspension, the bank was hoping to reduce its staff count by “natural attrition.”

National Bank has also announced that it is mulling shutting down its non-performing branches, some of which are still under their productivity level six years after opening.

Mr Ahmed in March this year invited employees to sign up for voluntary early retirement promising attractive packages to those who took the offer. One of the bank’s main concerns is that 65 per cent of its employees are members of trade unions.

This has seen their salaries grow steadily over the years irrespective of the bank’s performance, industry or the individuals’ productivity that year.

“The overall objective of the voluntary early retirement was bringing down staff numbers to what the business requires,” said Mr Ahmed.

Barclays Kenya staff numbers have gone down by 1,500 in the past five years, Standard Chartered let go of 53 employees last year while KCB concluded its staff restructuring last year that saw hundreds leave the bank.

National Bank, whose principal owner is NSSF with 48 per cent shareholding and the Treasury with a 22 per cent stake, is currently seeking regulatory approval to raise funds through a Sh10 billion right issue.

The bank says it needs this money to fund an ambitious expansion and restructuring plan, which Mr Ahmed has been spearheading since taking over in 2012.

Part of the money raised from the cash call will be used to pay off Sh5.7 billion the bank owes its two principal shareholders in form of preference shares, an obligation that has over the years weighed heavily on the company.

In the first quarter of this year, National Bank’s net interest income increased 20 per cent to Sh1.55 billion compared to ShSh1.29 billion in the first quarter of 2013.

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