Impact of Power Outage on Banks Operation Cost

With the nationwide deficiency in electricity supply, Nume Ekeghe writes on the impending rise in cost of operation across financial institutions nationwide, having to run their operations on diesel, which has witnessed spike in prices.

Considering the epileptic power supply in the country, companies in Nigeria have been running their businesses with diesel-powered generators as a supplement to the unstable power supply.

However the recent crisis driven by  fuel scarcity has left many companies in a fix as they try to reduce cost of operation. The price of diesel, which was within the range of N280 per litre as at the beginning of the year, has since soared to over N750 per litre as at last week. The development is compounded by the recent national grid collapse that has left the country in darkness.

Commercial banks are not immune to this as most branches are run mostly on diesel-powered generators; with some have two generators to ensure steady power supply. With the cost of diesel up by more than 150 per cent, most commercial banks in the country are looking at cutting back of rising energy cost. 

Cost Cutting Measures

Finding show that many are reducing work hours as a way of cutting down on spending on diesel costs. Service time for customers as well as working hours for customers are also being reduced. At the weekend, Guaranty Trust Bank had sent a notice of reduction in opening hours to their customers.

The bank, which is one of the very few banks operating an 8: 00 am to 5: 00 pm banking hours, had in the mail stated that effective from Monday, March 21, 2022 its branches will close by 4: 00 pm. The bank, which had spent the most on fuel and energy costs in 2017 has been able to bring down its annual spending on fuel.

As against N9.54 billion which it spent in 2017, it was able to cut down fuel and energy spending down to N8.32 billion and N6.89 billion in 2018 and 2019 but the costs rose in 2020 to N7.68 before dropping to N5.01 billion in 2021.

GTB in the mail sent to customers said, “We would like to inform you that our branches will now open from 8am to 4pm, Monday to Friday, effective Monday, 21 March 2022. Our secure and convenient digital banking channels are always available to you.” 

Aside GTB, some other banks had also sent mails to their staff across branches informing them that work ends by 4pm prompt and staff would have to vacate the office as the generators would be switched off at 4pm.

Last week, the Chairman of United Bank of Nigeria (UBA) Tony Elumelu who also heads Transcorp and Heirs Holdings had lamented the impact of poor power supply and fuel scarcity on the citizens and businesses, urging Nigerians to hold their leaders accountable.

Analysts Take

Speaking on the development, the Managing Director, Afrinvest Research and Consulting, Abiodun Keripe noted that the cost implication of the expensive diesel.

He said:  “It is going to have around three to five per cent additional pressure on banks in the context that we have not had stable power for three months and even for the period there is electricity, power service had gone up. So that would have also impacted cost of services branches.

“Also, business pay a relatively higher tariffs, so there is clearly additional pressure in terms of operational cost. We do not have clarity yet on what the rest of the year would look like, hoping the energy pressure might moderate later in the year.

“We don’t know what the rest of the year will look like. I wouldn’t want to project the experience of the first three months into the rest of the year where we don’t know if the oil prices would improve; although there is no sign or indication yet that prices are likely to improve.”

On his part, Head, Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi explained, “All the strategy they are doing now by reducing work hours is to see how the impact can actually be minimal. Remember that they have servers, data storage that needs to actually be kept cool 24 hours. So, what they are trying to do is to reduce the impact.

“The branches need to be open from 8: 00 am to 4: 00 pm to serve the customers but what we’ve seen in recent times, I think over the last two, three years, is that most banks are trying to actually go to more renewables by having solar panels to alternate with diesel. In the long run, it would mean reduced energy cost for banks. So definitely is going to impact the operating costs and operating expenses.”