Amid Hike in Inflation, Regulating Charges, Tier-2 Banks’ OPEX Hits N553.44bn

Kayode Tokede

Following a double-digit inflation rate and regulatory charges, seven Tier-2 Nigerian banks reported N553.44billion total operating expenses in 2022, representing an increase of 25.433 per cent from N441.24 billion reported in the corresponding period of 2021.

The six banks are: FCMB Group Plc, Fidelity Bank Plc, Wema Bank Plc, Unity Bank Plc, Stanbic IBTC Holdings Plc, Sterling Bank Plc, and Jaiz bank Plc.

Analysis of the banks’ results has revealed that the likes of Fidelity bank, Wema bank, and Jaiz had their operating expenses above the 21.334 per cent inflation rate in the year under review.

The inflation rate in Nigeria, according to the National Bureau of Statistics (NBS), increased to 21.34 per cent in December 2022 from 15.6 per cent reported in January.

Aside hike in inflation rate, the 0.5 per cent Asset Management Corporation of Nigeria (AMCON) charges on banks’ total assets on and off-balance sheet items and Nigeria Deposit Insurance Corporation (NDIC) levy mounted pressure on banks expenses in the period under review.

Also, the dwindling fortune of the naira, among others as factor, contributed to the rise in banks operating expenses within the review period.

THISDAY can report that the prevailing of inflation rate across Africa countries impacted on pan-African banks operating in the continent.

Further analysis revealed that Stanbic IBTC Holdings reported N129.47 billion total operating expenses in 2022, an increase of 21.4 per cent from N106.65billion reported in 2021.

The group thus grew its profit before tax to N100.35billion in 2022, an increase of 52 per cent from N66billion reported in 2021.

The Chief Executive Stanbic IBTC, Dr Demola Sogunle in a statement admitted that 2022 was a peculiar year for Group as a financial services provider within the Nigerian operating environment.

He added that, “Despite the volatile macro-economic indicators, coupled with varying regulatory burdens, we made substantial progress towards achieving our set financial goals based on our guidance for the year.”

Fidelity Bank ended the year with 46 per cent growth in total operating expenses to N122.17billion in 2022 from N83.46billion in 2021, Wema Bank recorded 34.5per cent in operating expenses to N59.5billion in 2022 from N44.23billion in 2021. Both banks ended the year under review with operating expenses above inflation rate.

In addition, Jaiz Bank also closed the year with 34.5 per cent total operating expenses, moving from N12.81billion in 2021 to N15.97billion in 2022.

As Sterling Bank’s total operating expenses stood at N87.25billion in 2022, representing a decline of 20 per cent from N72.83billion in 2021, FCMB Group on its part announced N112.099 billion total operating expenses in 2022, an increase of 17 per cent from N96.19 billion in 2021.

In addition, Unity Bank reported N27billion total operating expenses in 2022 from N25.08billion in 2021, an increase of eight per cent.             

Capital market analysts have expressed that the hike in inflation ratee may slow companies’ performance in the year under review and slow down dividend pay out to investors.

Commenting, the Vice President, Highcap securities Limited, Mr. David Adnori said the hike in pan-African bank operating expenses is a reflection global economy unrest following the crisis between Russia and Ukraine, stressing that commercial banks operating in Nigeria and in Africa do not operate in isolation.

He expressed that the growth in operating expenses reported by banks would defiantly have impact on profit and dividend payout to shareholders of these banks.

“The world is currently facing high inflation rate and Nigeria, Africa at large are not exempted from this experience, with countries on the continent witnessing record high inflation rate. The surge in inflation rate is following the rally in crude oil prices, amidst the face-off between Russia/Ukraine.

“Reacting to the surging inflation rate, regulators of several countries where Nigerian banks operate have also raised their interest rates to curb the rising cost of goods and services. However, this is yet to yield any positives as inflation rate continues to remain high. With cost impacted, Nigerian banks might suffer slow profitability this year and it might impact on dividend payout, ”he explained.

Recently, the World Bank in a report stated that global headwinds are slowing Africa’s economic growth as countries continue to contend with rising inflation, hindering progress on poverty reduction.

According to the world bank report, the risk of stagflation comes at a time when high interest rates and debt are forcing African governments to make difficult choices as they try to protect people’s jobs, purchasing power and development gains.

“The war in Ukraine is exacerbating already high inflation and weighing on economic activity by depressing both business investments and household consumption. As of July 2022, 29 of 33 countries in SSA with available information had inflation rates over five per cent while 17 countries had double-digit inflation, ”the report explained.