Banks’ Operating Expenses Rise By 19.2% On High Inflation, Regulatory Charges

Following a high inflation rate and regulatory charges, a total of 14 Nigerian banks reported N2.03 trillion total operating expenses in nine months of 2022, representing an increase of 19.2 per cent from N1.7 trillion reported in the corresponding nine months of 2021, analysis of the banks’ results has revealed.

The banks are: Ecobank Transnational Inculpated (ETI), FBN Holdings Plc, Guaranty Trust Holdings Plc (GTCO), Access Holdings Plc, United Bank for Africa Plc (UBA) and Zenith Bank Plc.

Others include: Union Bank of Nigeria Plc, FCMB Group Plc, Fidelity Bank Plc, Wema Bank Plc, Unity Bank Plc, Stanbic IBTC Holdings Plc, Sterling Bank Plc and Jaiz bank Plc.

Nigeria’s inflation rate according to the National Bureau of Statistics (NBS), moved to 20.77 per cent in September 2022 from 15.6 per cent reported in January.

Apart from the inflation rate, the 0.5 per cent Asset Management Corporation of Nigeria (AMCON) charges On banks’ total assets on and off-balance sheet items and Nigeria Deposit Insurance Corporation (NDIC) levy mounted pressure on banks expenses in the period under review.

Also, the dwindling fortune of the naira, among others as factor, contributed to the rise in banks operating expenses within the review period.

Further analysis of the reports shows that in nine months of 2022, the profit before tax of the 14 banks stood at N1.08trillion, indicating an increase of 22 per cent from N889.6billion reported in nine months of 2021.

Economic Confidential report that the extension of inflation rate across Africa countries impacted on pan-African banks operating in the continent.

The World in a report stated that global headwinds are slowing Africa’s economic growth as countries continue to contend with rising inflation, hindering progress on poverty reduction.

According to the world bank report, the risk of stagflation comes at a time when high interest rates and debt are forcing African governments to make difficult choices as they try to protect people’s jobs, purchasing power and development gains.

“The war in Ukraine is exacerbating already high inflation and weighing on economic activity by depressing both business investments and household consumption. As of July 2022, 29 of 33 countries in SSA with available information had inflation rates over five per cent while 17 countries had double-digit inflation,” the report explained.

Take for instance, Access Holdings, a pan-African bank reported N376.9billion total operating expenses in nine months of 2022, an increase of 30 per cent from N290.9billion reported in nine months of 2021.

The group, thus grew its profit before tax to N147.3billion in nine months of 2022, an increase of nine months from N135.2billion reported in nine months of 2021.

For UBA, another pan-African bank, its operating expenses grew by 27.5 per cent to N262.63billion in nine months of 2022 from N206,01billion in nine months of 2021.

UBA’s Group Managing Director/ Chief Executive Officer, Mr. Oliver Alawuba, had stated that, “The global economy continues to grapple with the effect of macroeconomic headwinds: rising rates, inflation, and heightened risk of recession.

“Furthermore, the continuing geopolitical conflict has also contributed to what has been till date, a challenging year, weighing heavily on the performance of asset classes in the third quarter. Emerging markets faced similar challenges with several sovereign and corporate debt asset classes ending in negative valuation territory, as most local currencies suffer remarkable devaluation. We remain very cautious in risk asset creation as we defensively position our asset portfolios to minimize the impact of the heightened credit risk.”

However, ETI, another pan-African bank quoted on the Nigerian Exchange Limited (NGX) reported N320.6billion operating expenses in nine months of 2022, an increase of seven per cent from N300.72billion reported in nine months of 2021.

Other notable banks with branches network across Africa and Europe, GTCO reported 13 per cent increase in operating expenses to N139.4billion in nine months of 2022, while FBN Holdings stood at N264.3billion in nine months of 2022, an increase of 15.2 per cent from N229.5billion reported in nine months of 2021.

Zenith bank with branches across Africa also reported N255.23billion total operating expenses in nine months of 2022, representing an increase of 17 per cent from N218.91billion reported in nine months of 2021.

Commenting, the vice president, Highcap securities Limited, Mr. David Adnori said the hike in pan-African bank operating expenses is a reflection global economy unrest following the crisis between Russia and Ukraine, stressing that commercial banks operating in Nigeria and in Africa do not operate in isolation.

He expressed that the growth in operating expenses reported by banks would defiantly have impact on profit and dividend payout to shareholders of these banks.

“The world is currently facing high inflation rate and Nigeria, Africa at large are not exempted from this experience, with countries on the continent witnessing record high inflation rate. The surge in inflation rate is following the rally in crude oil prices, amidst the face-off between Russia/Ukraine.

“Reacting to the surging inflation rate, regulators of several countries where Nigerian banks operate have also raised their interest rates to curb the rising cost of goods and services. However, this is yet to yield any positives as inflation rate continues to remain high. With cost impacted, Nigerian banks might suffer slow profitability this year and it might impact on dividend payout,” he explained.

Fidelity Bank saw its total operating expenses increasing to N91.66billion in nine months of 2022, a growth of 52 per cent from N60.33billion reported in nine months of 2021.

According to the bank, “Regulatory charges (AMCON/ NDIC) and staff cost represent 50.8per cent of our total operating expenses and were responsible for at least 38per cent of the growth in nine months of 2022. We have absorbed the full – year AMCON charge of N18.3billion and expect a further moderation in operating expenses in Q4.”