The aim and objective of rational board of directors is to minimize costs and maximise profit, and the end product of such a strategy is to increase the earning of shareholders.
Investing in software to expedite transactions is a global phenomenon as lenders have come to the realization that minimum generation are so tech savvy that they want to carry out transactions wherever they are.
Experts say in the near-future banks will have to invest in latest technology to remain efficient rather than spend on buildings and other structures.
Nigerian banks are tenaciously pursing the above finance principles as they are increasingly spending on the acquisition of latest technology with a view to curbing future costs and increasing shareholders’ returns.
For the year ended December 2017, information technology expenses of 9 big lenders increased by 35.15 percent to N54.19 billion from N40.11 billion the previous year.
The banks are Zenith Bank Plc, Access Bank Plc, Fidelity Bank Plc, First City Monument Bank (FCMB) Plc, Stanbic IBTC Holdings Plc, First Bank Nigeria Holdings Plc, Sterling Bank plc, Wema Bank Plc, and United Bank for Africa (UBA) Plc.
This means they are asking investors to pay today to benefit from greater cost savings tomorrow.
Investors pay a high premium for banks that are efficient because there is a correlation between the cost to income ratio (a measure of efficiency), profitability and stock performance.
Drilling down the financial statement of these companies shows Zenith’s info tech expenses surged by 116.62 percent to N12.68 billion in December 2017 from N5.85 billion the previous year.
The lender’s cost to income ratio (CIR) of 52.50 percent as at December 2017 beats industry average, based on data gathered by BusinessDay. Total operating expenses were up 30.25 percent to N212.83 billion as at December 2017.
UBA’s spent N5.35 billion in December 2017; this represents a 12.44 percent from last year’s figure.
The Pan African bank’s CIR of 58.60 percent in the period under review is above the industry average, while total operating expenses were up 24.84 percent to N178.51 billion in the period under review.
Stanbic IBTC is one of the most efficient lenders in the country as its CIR 49.80 percent is among the lowest in the industry. The lender’s total operating expenses increased by 25.23 percent to N86.56 billion as at December 2017.
Access Bank’s information technology expenses were up 14.97 percent to N16.0 billion in December 2017 from N13.98 billion the previous year. its CIR of 62.1o percent lags industry average.
“I think with the advent of tech, any bank that doesn’t invest in it may not be relevant the future.If you are talking about financial inclusion, you need a solid system,” said Ayodeji Ebo, managing director and CEO of Afrivest Securities.
“GTBank’s CIR is low as a result of technology as most of their transactions are done on line. The bank has less branches tan most of banks. People are happy with the charges they are paying because they are enjoying the service,” said Ebo.
Ebo added that lenders will have to invest in tech to lower costs because in this age it is not about building or structures but they should taking advantage of mobile technology.
“You need a robust system to drive your business” said Ebo summed.
GTBank is the most efficient bank in Africa’s largest economy as its CIR of 38.10 percent is the lowest in the industry, a position it has maintained since 2013, based on data gathered by BusinessDay.
The lender said it was able to maintain cost efficiency and curtailment without undermining continuous investments in its people, technology , infrastructure and digital transformation.
Oluseun Olukanmi a trading equity research analyst Vetiva Capital Management is of the view that the main objective of investing in technology is to be able to deliver superior services to customers.
“The trend is moving at a fast pace to digital. It is just that companies have identified that there is a shift to that space. It is not necessary about cutting costs,” said
Value of electronic payments in Nigeria rose by 10 percent to N32.5 trillion in the first quarter of 2018 (Q1’18) from N29.4 trillion in fourth quarter 2017(Q4’17), according to a recent data from the National Bureau of Statistics (NBS).
Investors have been rewarding banks that are able to curtail costs, satisfy customers while bolstering profit.
Stanbic’s stock has gained 52.73 percent in the past year, while GTBank, Zenith, UBA and Access gained 20.47 percent, 29.64 percent, 31.44 percent and 11.44 percent, respectively.
