Banks jack up operating costs to N1.4trn amid soaring inflation

Nine listed Nigerian banks saw their combined operating costs more than double in the first three months of 2024, data compiled by BusinessDay shows.

The lenders are Zenith Bank Plc, United Bank for Africa (UBA) Plc, Access Holdings Plc, FCMB Group Plc, Stanbic IBTC Holdings Plc, Guaranty Trust Holding Company (GTCO) Plc, Fidelity Bank, Wema Bank Plc and Ecobank Transnational Incorporated.

According to their latest financial statements, their combined operating expenses jumped to N1.4 trillion in Q1 from N672.7 billion in the same period of 2023.

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Gloria Fadipe, a research analyst at CSL Stockbrokers, said Nigerian banks’ operating expenses have been significantly impacted by inflation, leading to higher prices for goods and services. Additionally, personnel expenses have risen due to cost-of-living salary adjustments, the removal of fuel subsidies, and the devaluation of the Naira affecting foreign exchange-related costs.

“Regulatory costs, such as those imposed by the Asset Management Corporation of Nigeria (AMCON), have also increased. The devaluation has led to a growth in balance sheet size, and AMCON fees are calculated as a percentage of total assets,” she added.

A breakdown of the financial statements revealed that Ecobank reported the highest operating expenses of N357.9 billion, followed by Access Holdings with N279.3 billion and UBA with N218.9 billion.

In terms of growth rate, Ecobank experienced the highest increase of 180.7 percent followed by UBA with 104 percent, and Zenith Bank at 103.4 percent.

In May 2023, President Bola Tinubu scrapped a costly but popular petrol subsidy and lifted currency controls in June, which he said was to save the country from going under.

But his actions have worsened inflation currently in double-digits and at the highest level on record. The rising inflationary pressures have weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.

The removal of the petrol subsidy tripled the petrol price to above N600, causing public transportation providers such as buses, tricycles, and motorcycles to raise transportation fares.

The naira suffered a near 30 percent devaluation this year following a 40 percent devaluation last June.

According to the National Bureau of Statistics, the headline inflation quickened for the 16th straight time to 33.69 percent in April, up from 33.20 percent in March.

Food inflation, which constitutes more than 50 percent of headline inflation also increased to 40.53 percent from 40.01 percent.

A recent KPMG Nigeria report noted that employees of banks enjoyed a pay rise, ranging from nine to 52 percent in the wake of the removal of fuel subsidy by the Federal Government.

The report titled ‘2023 Survey on Employers’ Response to Fuel Subsidy Removal in Nigeria’ observed that employers had implemented pay increases of between 19 percent and 40 percent in 2023 in response to the fuel subsidy removal.

As a result Nigerian banks reevaluated their employee benefits by increasing salaries and wages, a development aimed at prioritising the well-being of the workforce during times of economic uncertainty.

The financial statement of the surveyed banks reported a 123.7 percent increase in their personnel expenses, rising to N426.3 billion in the first quarter of 2024 from N190.5 billion in the same period of 2023.

Analysis of individual firms

Access Holdings

Access Holdings reported a 66.5 percent increase in its operating expenses in the first quarter of 2024.

The holding company’s operating expenses rose to N279.3 billion from N149.7 billion in the corresponding period of 2023. This was driven by personnel expenses which rose to N79.8 billion from N33.5 billion.

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Depreciation and amortization increased to N16.2 billion and N6.5 billion, respectively while other expenses during the period rose to N176 billion from N104 billion.

UBA

UBA’s operating expenses rose by 104 percent to N218.9 billion in the first quarter of 2024 from N107.3 billion in the corresponding period of 2023.

This was driven by employee benefit expenses which rose to N66,3 billion from N31.2 billion, depreciation and amortisation costs increased to N10 billion from N6 billion while other expenses during the period rose to N142.5 billion from N69.3 billion.

Zenith Bank

Zenith Bank reported a 103.4 percent increase in its operating expenses in the first quarter of 2024. The bank’s operating expenses rose to N201.8 billion from N99.2 billion in the corresponding period of 2023.

This was driven by personnel expenses which rose to N42.8 billion from N23.1 billion. Depreciation and amortisation of intangible assets amounted to N8.7 billion and N1 billion, respectively while other expenses during the period rose to N149.1 billion from N68.1 billion.

GTCO

GTCO’s operating expenses rose by 76.7 percent to N99.3 billion in the first quarter of 2024 from N127.5 billion in the corresponding period of 2023.

This was driven by personal expenses which rose to N22.2 billion from N10.3 billion, depreciation and amortisation costs increased to N13.8 billion from N9.8 billion while other expenses during the period rose to N63 billion from N36 billion.

Fidelity Bank

Fidelity Bank in the first quarter of 2024 reported a 62.1 percent increase in its operating expenses to N69.7 billion from N43 billion in the corresponding period of 2023.

The bank disclosed that the rise in its operating expenses was at the back of a 78 percent rise to N13.9 billion from N7.8 billion in its personnel expenses, depreciation, and amortisation rose to N2.2 billion from N1.5 billion while other operating expenses incurred by the bank rose to N51 billion from N29 billion during the period.

Stanbic IBTC Holdings

Stanbic IBTC in the first quarter of 2024 reported a 65.2 percent increase in its operating expenses to N68.4 billion from N41.4 billion in the corresponding period of 2023.

The holding company disclosed that the rise in its operating expenses was at the back of a 52.5 percent rise to N21.2 billion from N13.9 billion in its staff cost, and other operating expenses incurred rose to N47 billion from N27.4 billion during the period.

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FCMB Group

FCMB’s operating expenses rose by 42 percent to N49 billion in the first quarter of 2024 from N34.6 billion in the corresponding period of 2023.

This was driven by personnel expenses which rose to N16.8 billion, up 61.5 percent from N10.4 billion, depreciation and amortisation costs increased to N.2 billion from N2.6 billion, and general and administrative expenses rose to N16.9 billion from N12.6 billion while other expenses during the period rose to N11.9 billion.

Wema Bank

Wema Bank’s operating expenses rose by 86.2 percent to N25.7 billion in the first quarter of 2024 from N13.8 billion in the corresponding period of 2023.

This was driven by personnel expenses which rose to N9.9 billion, up 80 percent from N5.5 billion, and depreciation and amortisation costs increased to N1.8 billion from N1.2 billion while other expenses during the period rose by 192 percent to N13 billion.

Ecobank

Ecobank’s operating expenses rose by 180.7 percent to N357.9 billion in the first quarter of 2024 from N127.5 billion in the corresponding period of 2023.

This was driven by staff expenses which rose to N152.8 billion, up 178 percent from N54.8 billion, depreciation and amortisation costs increased to N24.8 billion from N10 billion while other expenses during the period rose by 192 percent to N180 billion.