Salaries and employee benefits at T&T's eight commercial banks more than doubled in the ten years between 2004 and 2013–a period in which two traditional measures of bank profitability have more than halved, according to Business Guardian analysis of the Central Bank document titled "Operating Results of the Financial System" for the years 2013 and 2009.
The latest report, published last week as an annex to the August Economic Bulletin, contains statistics on the performance of the financial system of T&T for the years 2009 to 2013.That report studied eight commercial banks that had 134 branches among them and employed 7,658 people in 2013. The 2009 report, for the period 2004 to 2008, analysed the performance of six banks with 120 branches and 7,142 employees.
The reports indicate that while the number of bank employees increased by 7.22 per cent between 2004 and 2013, salaries and employee benefits jumped from $778 million in 2004 to $1.901 billion in 2013, an increase of 144 per cent.
At $1.901 billion, salaries and employee benefits took up 40 per cent of the eight banks' total operating expenses of $4.759 billion in 2013, which was a sharp increase from the 27 per cent of total operating expenses for the six banks in 2004, when total operating expenses amounted to $2.87 billion.According to the 2009 report, salaries and employee benefits accounted for 18.2 per cent of operating income in 2004, but this jumped to 28.5 per cent of operating income in 2013.
In 2004, interest expenses accounted for 25.2 per cent of the operating income of the six banks, while salaries and employee benefits accounted for 18.2 per cent. In 2013, interest expenses accounted for 9.9 per cent of operating income, while salaries and employee benefits took 28.5 per cent.
The report of the 2013 operational results stated that 12.4 per cent of the banks' employees in 2013 were defined as managerial, which included branch managers, 54 per cent were viewed as clerical/secretarial/manipulative, 29 per cent as administrative or supervisory, while 4.4 per cent were in data processing.
Speaking on Friday night, a bank executive, who had not seen the report, said employee compensation costs had increased in the ten-year period between 2004 and 2013 because most of the country's commercial banks had granted their employees double-digit salary increases in at least two of the three, three-year wage negotiation periods.
Added to the higher base wages paid to employees, the executive said, would be the fact that higher salaries mean ever-higher pension contributions for the commercial banks.
As well, local commercial banks' have been required to bear some of the expense of the lower rates of return on pension plans as a result of interest rates that have been declining for the last five years or more. In terms of profitability, the eight banks declared after-tax profit of $2.048 billion in 2013, which was 20 per cent higher than the $1.706 billion the six banks reported in 2004.
In 2004, the six banks generated $2.739 billion in interest income, most of which commercial banks get from the money they charge customers for lending them funds. Ten years later, the eight commercial banks generated $4.563 billion in interest income. Interest income for the commercial banks increased by 66 per cent between 2004 and 2013, although interest rates on loans declined during the period as the Central Bank slashed the repo rate from 8 per cent to 2.75 per cent and also due to a softening in the T&T appetite for loans.
Interest income contributed 68 per cent of the banks total operating income of $6.669 billion in 2013, while $1.079 billion in fee income constituted 16 per cent of total operating income.While commercial banks' interest income increased over the ten-year period, their interest expenses–which they pay on deposit accounts–declined by 38 per cent from $1.071 billion in 2004 to $658 million in 2013.
As a result of the slowdown in the T&T economy after the onset of the global financial crisis in 2008, banks' profitability ratios have slipped between 2004 and 2013. In 2004, the six commercial bank had a return on average assets (ROA) of 3.7 per cent and a return on average equity (ROE) of 27.6 per cent.In 2013, the eight banks together reported an ROA of 1.7 per cent and an ROE of 11.9 per cent
ROA, which is a company's net income after taxes, divided by total average assets, displays how efficiently a company is utilizing its assets and is also useful to aide comparison among peers in the same industry.ROE, a company after-tax profit divided by its shareholder's equity, is the amount of net income returned as a percentage of shareholders equity.
Return on equity measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested.