Some of Nigeria’s biggest banks recorded a decline in their cost-to-income ratio in the first quarter of 2024, a situation that shows how efficient they were in managing their cost amid rising inflationary pressures.
Data compiled by BusinessDay from five tier-one banks’ latest financial statements shows that United Bank for Africa (UBA) Plc led with 57.8 percent in cost-to-income ratio (CIR) in the first quarter of 2024, down from 61.1 percent in the same period of last year.
Zenith Bank Plc’s CIR dropped to 34.9 percent from 51.3 percent and that of Access Holdings Plc fell to 55.3 percent from 59.9 percent. The CIR of FBN Holdings Plc declined to 47.1 percent from 66.5 percent, and Guaranty Trust Holding Company (GTCO) Plc fell to 16 percent from 42 percent.
CIR is the ratio between the cost of running a business and the income the company produces. It is calculated by dividing the operating expenses by the operating income generated i.e. net interest income plus the other income.
The ratio is important for determining the profitability of a bank and it gives a clear view of how efficiently the bank is being run i.e., the lower the ratio, the more profitable the bank.
Analysts say a double-digit inflation rate often plays a critical role in increasing the CIR, which ultimately affects companies’ earnings.
Further analysis shows that in Q1, UBA declared N218.9 billion, a 104 percent increase from N107.3 billion in the corresponding period of 2023 in its operating expenses while its operating income stood at N378 billion, up from N175 billion.
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Analysts at CSL Stockbrokers said, “The hike in the CIR of 57.8 percent growth in operating expenses to N219.0 billion is due to cost of living adjustments, inflationary pressures, and increased regulatory costs due to a significantly larger balance sheet pressured other operating expenses.”
Notably, GTCO has the lowest ratio in the first quarter. With a 76.7 percent increase in operating expenses, GTCO’s ratio was set at 16 percent in Q1 from 42 percent recorded in the same period of 2023. This was attributable to an increase in regulatory cost as the group continued to remain cost-efficient without hurting its business and future performance.
Operating expenses for the reviewed period grew by 76.7 percent to N99.3 billion in the first quarter from N127.5 billion in the corresponding period of 2023 compared with a 365.5 percent growth in total operating income which led to a sharp drop in the bank’s ratio.
However, Zenith Bank reported 34.9 percent in CIR for Q1 from 51.3 percent in the same period of 2023. The bank’s operating income rose by 103.4 percent to N201.8 billion from N99.2 billion
Meanwhile, Access Bank reported a drop in CIR to 55.3 percent in Q1 from 59.9 percent reported in the same period of 2023, and the holding company’s operating expenses rose by 66.5 percent to N279.3 billion from N149.7 billion while FBN Holdings also reported a 47.1 percent drop in CIR from 66.5 percent.
Gloria Fadipe, a bank analyst at CSL said a low CIR is more profitable for banks now and that it means cost is much lower compared to revenue.
Aminu Dalhat, a financial analyst said on his social media platform X, that the ratio measures the efficiency of a bank in managing its expenses relative to its income. “It shows how much money the bank spends to generate a naira of income, for example, GTCO – the bank burns just N0.16 to generate N1 Income.”
Amid reporting a low CIR across the tier-1, GTCO led other banks as the most profitable bank in Q1 with N457.1 billion from N58.1 billion in its after-tax profit, followed by Zenith Bank with N258.3 billion from N66 billion.
FBN Holdings had N208.1 billion from N50 billion, Access Holdings with N159.2 billion from N71.8 billion and UBA from N142.5 billion from N53.5 billion.
