IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 11 NO. 2 2025
DOI: 10.56201/ijefm.v10.no4.2025.pg80.95

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The Effect of Retrenchment of Staff in Deposit Money Banks on The Development of Nigeria’s Economy

Yakubu Adamu PhD, Alhaji Kawugana PhD

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Abstract

The retrenchment of staff in deposit money banks has become a growing concern in Nigeria, with significant implications for economic development. This study examines the causes, effects, and consequences of workforce downsizing in the banking sector, highlighting its impact on unemployment rates, financial inclusion, consumer spending, and overall economic stability. The research explores factors such as regulatory policies, economic downturns, technological advancements, and cost-cutting measures that contribute to job losses in the banking industry. Additionally, it assesses the ripple effects on household income, business activities, and government revenue generation. Using both qualitative and quantitative data, the study aims to provide insights into how staff retrenchment influences Nigeria’s economic trajectory and offers policy recommendations to mitigate negative consequences. The findings suggest that while retrenchment may improve bank profitability in the short term, it could lead to long-term economic instability if not properly managed.

keywords:

Retrenchment, Deposit Money Banks, Unemployment, Economic Development,

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References:

Changes in consumer behavior, especially with the rise of mobile banking and online financial
services, have also influenced the retrenchment of staff in the banking sector. As consumers
increasingly prefer digital channels for banking transactions, there is less need for physical
branches and in-person staff to manage routine banking functions. According to Bankole (2018),
the shift towards online banking has led to a reduction in the number of employees required to
provide face-to-face customer service, resulting in retrenchment.
Structural and Organizational Restructuring
Banks often undergo organizational restructuring to align with new strategic goals, improve
service delivery, or adapt to changing market conditions. Restructuring can involve streamlining
operations, eliminating redundant positions, or merging departments, all of which can lead to
workforce downsizing. Organizational restructuring is typically aimed at improving operational
efficiency and enhancing competitiveness, but it may also result in significant job losses, especially
in non-core departments (Oluwatoyin, 2021).
Outsourcing of Non-Core Functions
Another cause of retrenchment in the banking sector is the increasing reliance on outsourcing for
non-core functions such as customer service, IT support, and administrative tasks. Outsourcing
allows banks to reduce labor costs by hiring external service providers, which often results in the
retrenchment of employees performing these functions in-house. As banks focus more on core
activities like lending and investment services, they may reduce the size of their workforce by
outsourcing functions that were previously handled by full-time employees.
IMPACT OF RETRENCHMENT ON EMPLOYMENT AND UNEMPLOYMENT
The retrenchment of staff in the banking sector has significant consequences on both employment
and unemployment levels, with far-reaching implications for individuals, communities, and the
national economy. The following sections outline the key impacts of retrenchment on employment
and unemployment, focusing particularly on the Nigerian banking sector.
Increase in Unemployment Rates
The most direct impact of retrenchment is the increase in unemployment rates, particularly among
those directly affected by the layoffs. Retrenchment in the banking sector often results in job losses
for many employees, especially in roles such as clerical, customer service, and administrative
positions. In Nigeria, where the unemployment rate has consistently been high, retrenchment
exacerbates the problem, making it more difficult for individuals to find new employment
opportunities.
As noted by Olorunfemi (2020), retrenched workers face significant challenges in securing new
jobs, especially if they lack transferable skills or if there is a mismatch between the skills of the
workers and the demands of the labor market. The situation is worsened in sectors like banking,
where specialized training is required for most roles. In the Nigerian context, where the economy
struggles to generate enough jobs to absorb the growing youth population, retrenchment in the
banking sector contributes to higher unemployment rates, particularly in urban areas where many
bank branches are located.
Structural Unemployment
Retrenchment can also lead to structural unemployment, a type of unemployment that arises when
there is a mismatch between the skills of workers and the available jobs in the economy. When
banks retrench employees, especially due to technological advancements and automation, workers
may find it difficult to secure employment in other industries because their skills are no longer in
demand. For example, as banks increasingly automate their processes (e.g., using ATMs, mobile
banking, and AI-driven customer service), employees with skills in traditional banking operations
may find their skills redundant and difficult to transfer to other sectors (Bankole, 2018).
This type of unemployment is particularly problematic in Nigeria, where educational systems may
not provide the skills needed for new industries or technological advancements. As the banking
sector reduces its reliance on manual labor, workers who are retrenched may be left without viable
options, contributing to the rise of structural unemployment in the broader economy.
Discouraged Workers
Retrenchment often leads to a situation where previously employed individuals become
discouraged from seeking employment due to repeated failures to secure a new job. This is
especially true in economies like Nigeria’s, where the job market is highly competitive, and new
job openings may be limited. Repeated job losses in the banking sector, which historically offers
relatively stable and secure employment, may cause workers to become disheartened, eventually
withdrawing from the labor force altogether.
According to Ojo (2018), discouraged workers are less likely to actively seek employment, which
means they are no longer counted in official unemployment statistics. While this may reduce the
apparent unemployment rate, it masks the reality of economic distress, as a significant portion of
the workforce may have withdrawn from active job-seeking altogether.
Rising Youth Unemployment
Youth unemployment is a critical concern in Nigeria, where a large percentage of the population
is under the age of 30. Retrenchment in the banking sector disproportionately affects young
workers, many of whom are employed in entry-level positions or serve as trainees in the industry.
When banks retrench staff, it often leads to an increase in the number of unemployed youth, who
are already facing challenges in securing jobs due to a lack of experience and competitive job
markets.
Aderemi et al. (2019) assert that retrenchment in the banking sector further exacerbates the youth
unemployment crisis in Nigeria, as banks, which were once considered stable employers, no longer
provide a reliable source of employment for young people. This can create long-term challenges
for the country, as a significant portion of the workforce remains without stable income, reducing
both household income and economic growth.
Informal Sector Expansion
As formal job opportunities become scarcer due to retrenchment, many retrenched workers turn to
the informal sector for livelihood. In Nigeria, where the informal economy plays a significant role
in employment generation, workers who lose their jobs in formal sectors like banking may resort
to starting small businesses or engaging in various informal activities such as street vending,
transportation, or freelance services.
While the informal sector can provide a safety net for retrenched workers, it often does so with
lower wages, less job security, and fewer benefits. Moreover, workers in the informal sector
typically lack access to social protections, such as health insurance and retirement benefits, which
are available in the formal sector. As noted by Okonjo-Iweala (2017), the rapid expansion of the
informal sector can be seen as a coping mechanism for those who lose formal employment, but it
may not lead to significant economic growth or improved living standards for workers.
Reduced Productivity and Workforce Morale
Retrenchment, even when it does not directly result in immediate unemployment, can affect the
morale of the remaining workforce. Employees who remain in the bank after retrenchment may
experience decreased motivation, job insecurity, and anxiety, leading to reduced productivity. A
decrease in workforce morale can negatively affect customer service, operational efficiency, and
employee commitment. As explained by Olorunfemi (2020), the uncertainty about future layoffs
can lead to disengagement, which in turn affects the overall performance of the bank.
This decline in morale is often accompanied by a higher turnov

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