Investors are attracted to banks that trim costs while growing profit because such strategy is tantamount to magnifying their earnings amid a tough and unpredictable macroeconomic environment.
A first glimpse of the financial statements of four largest banks shows Guaranty Trust Bank (GTBank) is the most efficient lender in the banking industry.
For instance, GTBank has a cost to income ratio of 36.30 percent as at December 2018, this compares with Zenith Bank’s ratio of 49.30 percent, Access Bank, (62.20 percent); and United Bank for Africa (UBA), 64.0 percent.
Lenders in Nigeria have been struggling with regulatory induced costs like Asset Management Corporation of Nigeria Charge (AMCON) charge while overhead costs continue to spiral.
Analysts are of the view that since earnings has been growing at slow pace due to a low yield environment, banks will have to be more efficient in the area of cost controls so that they bolster bottom line (profit).
GTBank has an excellent automated system that ensures operations are carried out an expeditious and efficient manner; even though it has fewer branches than peers.
However, some lender recorded an improvement in efficiency levels as evidenced in reduction in cost to income ratio.
For instance, Zenith Bank’s cost to income ratio fell to 49.30 percent in December 2018 as against 52.70 percent the previous year. The lender’s total operating expenses were up 0.90 percent to N222.50 billion as at December 2018, below the 11.38 percent inflation figure.
GTBank’s cost to income ratio fell to 36.30 percent in December 2018 as against 38.10 percent as at December 2017 while total operating expenses were up 0.10 percent to N127.10 percent in the period under review as against N125.80 billion the previous year.
However, some lenders saw their cost to income ratio increase.
Access Bank’s cost to income ratio increased to 62.20 percent in the period under review as against 62.10 percent as at December 2017 while total operating expenses were up 0.60 percent to N194.0 billion in the period under review as against N182.28 billion the previous year.
UBA’s cost to income ratio moved to 64 percent in December 2018 as against 57.80 percent as at December 2017 while total operating expenses increased by 4 percent to N189.65 billion in December 2018 from N197.74 billion as at December 2017.
The analysis of banks financial statement showed expenses grew at a single digit and below inflation figure compared to the recession period.
The major driver of cost was Asset Management Corporation charge (AMCON) while staff costs and miscellaneous expenses have been curtailed.
The regulator charge has made banks sweat some assets, but the growths in levies have been growing in tandem with total assets.
BALA AUGIE
