Despite the bountiful profits reported by deposit money banks in the country in their Q2 reports, it has emerged that double-digit inflation rate, among other factors, drove a total of 10 banks Operating Expenses (OPEX) by seven per cent to N932.26billion in half year of 2021 (H1) as against N871.67 billion in the comparable period of 2020.
Analysis of the banks’ results submitted to the Nigerian Exchange Limited (NGX) showed that regulatory costs such as the Asset Management Corporation of Nigeria (AMCON) charge of 0.5 per cent on total assets and the Nigeria Deposit Insurance Corporation (NDIC), fall in local currency, were other factors that contributed to increasing OPEX of these 10 banks in the period under review.
Recently, the National Bureau of Statistics (NBS) announced that Nigeria’s inflation rate closed June 2021 at 17.75 per cent from 17.93 per cent and 18.12 recorded in May and April, respectively.
The inflation rate in January was 16.47per cent but increased to 17.33 per cent in February. The bureau reported an 18.17 per cent inflation rate in March of 2021.
Industry analysts believe the hike in banks operating expenses was majorly driven by regulatory costs According to the Vice President, Highcap securities limited, Mr. David Adnori banks managers were prudent in managing costs in a move to report impressive earnings in the period under review.
Further analysis of the results showed that banks operating in the country reported OPEX below the inflation rate in the period, attributable to a cut in personnel expenses.
For instance, Access Bank Plc reported about a 9 per cent increase in operating expenses to N189.8billion in H1 2021 from N174.3billion in H1 2020, while Zenith Bank Plc operating expenses rose by 10.3 per cent to N149.85billion in H1 2021 from N135.85billion in H1 2020.
Access bank hinted that growth in OPEX by nine per cent was driven by the enlarged franchise following the acquisition in Kenya, Mozambique, South Africa and Zambia.
“OPEX at Bank level was flat despite the increase in regulatory costs (17 per cent), depreciation and amortization (16 per cent). We continue to optimize our costs despite the inflationary environment,” the bank explained.
Guaranty Trust Holdings Plc (Guaranty Trust Bank) reported N89.34billion OPEX in H1 2021, a 7.2 per cent increase from N83.31billion as Fidelity Bank Plc’s OPEX dropped by 10 per cent to N42.25 billion in H1 2021 from N46.84billion in H1 2020.
GTCO in a presentation to investors and analysts attributed the increase in OPEX to headline inflation rate and marginal Naira/US dollar rate movement in the official market that resulted in the increase in general prices of goods and services.
According to the bank, “Operating cost was largely impacted by 27.3 per cent growth in AMCON expenses and 9.3 per cent increase in depreciation expenses.”
Also, United Bank for Africa Plc reported a 0.5 per cent increase in OPEX to N132.8billion in H1 2021 from N132.13billion in H1 2020, while that of FBN Holdings Plc increased by 10 per cent to N152.57billion in H1 2021 from N139.17billion in H1 2020.
FBN Holdings explained that a 35.4 per cent increase in regulatory cost was responsible for the hike in OPEX, stressing that the management maintained focus on cost control as a key priority.
In the same vein, Standard IBTC Holdings with 14 per cent to N55.37billion in H1 2021 from N48.54billion in H1 2020 recorded the highest OPEX in the period, while Sterling bank’s OPEX rose by 11 per cent to N35.5billion in H1 2021 from N32.1billion in H1 2020.
In addition, FCMB Group Plc reported N47.95billion OPEX, an increase of nine per cent from N44.05billion in H1 2020, while Union Bank of Nigeria grew its OPEX by about four per cent to N36.8billion in H1 2021 from N35.4billion in H1 2020.
Commenting, the Head, Financial institutions, Agusto & Co, Mr. Ayokunle Olubunmi, noted an attributed hike in banks operating expenses to increasing cost of the operating environment, and regulatory costs.
According to him, “Hike in operating expenses differs from banks to banks. AMCON levy and NDIC premium also contribute to OPEX of banks. Don’t forget that the double-digit inflation rate and fall in the Naira this year impacted banks expenses. Since banks are not operating in isolation, of course, it is expected to affect their OPEX in the period.”
On his part, the CEO, Enterprise Stockbrokers, Mr Rotimi Fakeyejo told THISDAY that severe business operating environment impacted banks OPEX.
He noted that banks were prudential in managing costs by cutting personal expenses, among others based on the need to stay profitable.
