Inflation, Regulatory Charges Jerked 10 Banks’ OPEX by 26% to N1.19tn in H1

Kayode Tokede

Galloping inflation rate backed by regulatory charges, amongst others, pushed 10 banks’ total operating expenses by 26 per cent to N1.19 trillion in half year (H1) ended June 30, 2023, from N943.23 billion in the half year ended June 30, 2022, THISDAY analysis of the banks’ results has revealed.

The 10 banks are: Ecobank Transnational Incorporated, FBN Holdings Plc, Zenith Bank Plc, and Guaranty Trust Holding Company Plc (GTCO).

Others include: Stanbic IBTC Holdings Plc, FCMB Group Plc, Unity Bank Plc, Wema Bank Plc, Sterling Financial Holdings Company and Fidelity Bank Plc. 

Salary reviews of both core and non-core employees, Asset Management Corporation of Nigeria (AMCON) and Nigeria Deposit Insurance Corporation (NDIC) charges contributed heavily to the banks’ OPEX in the period under review.

Nigeria’s inflation rate according to National Bureau of Statistics (NBS), increased to   22.79 per cent Year-on-Year (YoY) in June 2023 from 18.6 per cent Junne 2022, driven by money supply, exchange rate, net exports, interest rates, fiscal factors, agro-climatic factor and real output.

Aside Unity Bank Plc with N38.71 billion loss before tax in H1 2023 from N1.85 billion profit before tax  in H1 2022,  the investigated 10 banks generated N1.2 trillion profit before tax in H1 2023, an increase of 138 per cent from N505.57 trillion reported in H1 2022.

According to THISDAY investigations, ETI reported the highest value of OPEX in H1 2023, followed by FBN Holdings Plc and Zenith bank.  Fidelity Bank Plc recorded the highest proportion of OPEX, an increase of 36.3 per cent to N84.55 billion in H1 2023 from N62.03 billion in H1 2022, driven by AMCON, NDIC charges, staff cost, communication, and technology costs.

In H1 2023, ETI declared N274.88billion OPEX, an increase of 29.5 per cent from N212.32billion reported in H1 2022, while FBN Holdings declared N231.56billion OPEX in H1 2023, an increase of 24.5 per cent from N185.95billion reported in H1 2022.

As Zenith Bank announced N219.27billion OPEX in H1 2023, representing an increase of 22.77 per cent from N178.6billion in H1 2022, GTCO declared N125.58billion OPEX in H1 2023, an increase of 26.26 per cent from N99.5billion in H1 2022.

GTCO in a presentation to analysts said, “OPEX growth of 26.2 per cent was in tandem with headline inflation in Nigeria which closed at 22.8 per cent as at June 2023. Operating cost was driven by increase in personnel cost and outsourced services expenses on the back of salary reviews of both core and non-core employees, increased technology cost, and regulatory costs- Deposit Insurance Premium and AMCON expenses.

“The 84 per cent growth in interest expense was driven by an increase in Cost of Funds from 0.99 per cent in H1 2022 to 1.43 per cent in H1 2023 on account of customer’s demand for higher interest payment to cushion the effects of inflation. The Group continued to leverage its FCY liquidity to fully repay all of its FCY obligations and fund all foreign currency denominated transactions thus saving on interest expense it would have had to pay on FCY obligations.

“Overall, the Group was able to keep its Cost to Income Ratio (CIR) at 27.7 per cent, 49 per cent if adjusted for impact of revaluation gains on the earnings, therefore coming in higher than the guidance of 40 per cent on the back of general increase in price levels driven by the twin impact of devaluation of the Naira and fuel subsidy removal which resulted in higher energy cost and increase in associated expenses. The Group remains committed to effectively managing its cost despite inflationary and revenue pressures.”

For Stanbic IBTC, it announced N82.34 billion OPEX in H1 2023, an increase of 21.3 per cent from N67.87billion in H1 2022.

The Chief Executive, Stanbic IBTC Holdings, Dr Demola Sogunle in a statement said, “Our operating expenses on the other hand, increased by 21 per cent YoY, in light of the persistent increase in inflation and growth in staff costs following an upward review of employee incentives within the period. Despite this, we saw an improvement in our cost-to income ratio from 59.9 per cent in the prior year to 48.1 per cent.”

He added, “The H1 2023 was an eventful one for us as an organisation within the Nigerian operating environment. Events such as the general elections and cash scarcity led to relatively slower business activities at the beginning of the year, causing the Stanbic IBTC Bank Purchasing Manager Index (PMI) to print below 50 index points. Business activities however picked up in the second quarter, with the PMI moving back above 50 points in April 2023 and closing at 53.2 in June 2023, following the improvement in access to cash, increase in customer demand and business expansion.”

Meanwhile, finance experts in a chat with THISDAY, stated that the hike in inflation rate is affecting profit generation and dividend pay out to investors.

The Vice President, Highcap Securities Limited, Mr. David Adnori said the hike in banks operating expenses is a reflection global economy unrest following the crisis between Russia and Ukraine, stressing that financial institutions 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 pay out to shareholders.

According to him, “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 pay out, ”he explained.

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.

It stated, “The war in Ukraine is exacerbating already high inflation and weighing on economic activity by depressing both business investments and household consumption.”