Banks’ staff spend rises 11% to N159 billion in Q1

Spending on staff by Nigeria’s largest banks in the first three months of 2017 hit N158.9 billion, up 10.83 percent when compared to the same period of last year. The 14 banks had total staff strength of 48,250 as at December 2016, resulting in an average cost per staff of N3.3 million.

This is based on summation of operating expenses of Nigeria’s 14 largest listed banks that released their results on the Nigerian Stock Exchange (NSE) for the first quarter ended March 2017.

The rise in staff expense helped push operating costs up by 18.43 per cent on the back of a weaker naira, regulatory induced costs and high-energy costs.

Rise in staff costs helped push total operating expenses (Opex) up by 18 percent to N416.80 billion in March 2017 from N351.93 billion the previous year.

Staff expenses of N158.50 billion, representing a 10.14 percent increase, when compared to the similar period cost for 2016, made up the biggest single chunk of operating expenses for the period.

Other drivers of banks operating expenses are the mandatory Asset Management Corporation of Nigeria charge (AMCON), other insurance premium charge and depreciation and occupancy costs and exchange rate costs coming from translation differences.

There were also increases in electricity tariff and on the back of the aggressive drive for revenue by State and Local Governments on water rates, tenement rates, and land use charge.

Tier 1 lenders recorded the highest increases in operating costs as GTBank Plc, Zenith Bank Plc, Access Bank Plc and United Bank for Africa (UBA) Plc, recorded a 23.95 percent, 24.180 percent, 30.36 per cent, and 40.45 per cent increase in operating and other expenses respectively.

The cost of diesel has doubled in the last one year, therefore running costs have doubled in their books, according to Ayodeji Ebo – Managing Director, Afrinvest Securities Limited.

“Also, the payments of software they use are in dollars and the foreign exchange devaluation impacted negatively on these costs,” Ebo said.

Johnson Chukwu, managing director and chief executive officer of Cowry Assets Management Limited, says banks may not have room for additional costs cut because so many of them have done rationalisation last year.

A number of Deposit Money Banks (DMB) in the country had to downsize and cut down on the number of branches, in order to attain cost optimisation in the face of an economic downturn.

Inflation in Nigeria, whose economy slipped into a recession for the first time in 25 years slowed to 16.25 per cent in May, from 17.20 percent, according to figures from the National Bureau of Statistics. Inflation remains at the upper limit of the Central Bank’s 6 to 9 per cent.

The naira lost 40 per cent of its value against the U.S currency in June last year, when the Central Bank adopted a flexible exchange rate after 15 months of pegging the currency at N197-N199.

In order to boost investor confidence and woo portfolio investors to naira assets, the Central Bank introduced a new exchange rate window known as Investors’ and Exporters FX Window.

The naira now trades at N362.16 to the dollar, near par with the parallel market rate.

There seems to be stability in the FX market, as bank stocks have rallied since the introduction of the new window.

The International Monetary Fund forecast Nigeria’s economy will expand by 0.8 percent this year, compared with a 1.6 percent contraction in 2016 on the back of a rebound in oil output.

While operating expenses of the 14 lenders rose in the first quarter, from a year earlier, due to a tough operating environment, revenue and profit held firm.

Banks have largely been able to absorb the higher costs through improved earnings. Combined interest income, a measure of earnings from lending activities, climbed 35.56 per cent to N801.91 billion in March 2017 while non-interest income rose by 19.47 per cent to N242.37 billion. Net income for the 14 banks in the first quarter increased by 28.18 per cent to N196.12 billion.

 

BALA AUGIE