Banks Advised against High Cost-to-Income Ratios
Nigerian banks have been advised to always guard against high cost-to-income ratios. The Partner, Management Consulting, KPMG, United Kingdom, Mr. Adrian Harkin, gave the advice in an interview with journalists on the sidelines of a seminar on cost optimisation that was recently organised by the professional services firm in Lagos,
“I would encourage all banks, particular the ones with cost-to-income ratio above the industry average to get it back in line,” Harkin said.
He pointed out that the opportunities for banks in emerging markets and Nigerian are huge, saying that there are huge global banks in emerging markets that are strong financial institutions. He however stated that the characteristics of banking industry in emerging markets are different. “I think that by comparing cost productivity to the rest of the Nigerian markets, with emerging markets and global banks, you will know if you are more or less productive and from there you can form your strategy. But I think banking is all about how productive every unit of cost you spend. Cost level per say are not bad, but where it is bad is if they are not driving commensurate amount of revenue,” Harkin added.
The KPMG partner pointed out that just as Nigerian banks don’t have same return-on-equity, they don’t have same customer satisfaction and different footprint. On her part, KPMG Nigeria’s Partner and Head, Management Consultant and Advisory Services, Bisi Lamikanra, noted that “when you talk about cost, everybody pays lip service to it.”
“Everybody says there is need to do something about cost, everybody looks at their cost-to-income ratio and say there is need to bring it down over time. But how do you actually take out those costs in a structure and disciplined way?”