Macro Economic Challenges Thrust 12 Banks’ Operating Expenses to N5.18tn

Kayode Tokede

Following macro economic challenges in Nigeria and across the globe, which impacted on companies’ performance, a total of 12 banks quoted on the Nigerian Exchange Limited (NGX) reported N5.18 trillion total operating expenses in nine months of 2024.

This is about 101.9 per cent increase over N2.56 trillion reported in nine months of 2023.

The banks’ OPEX was influenced by personnel expenses, depreciation and amortisation and other operating expenses.

Others are: deposit insurance premium, Asset Management Corporation of Nigeria (AMCON) expenses, unstable naira at the foreign exchange market, security challenges, among other factors.

With the increasing inflation rate, specifically in Nigeria, banks were forced to hike personal expenses and it contributed significantly to operating expenses in the period under review.

Nigeria’s inflation rose to 32.70 per cent in September 2024, snapping consecutive declines in July 2024 (33.40per cent) and August 2024 (32.15 per cent), according to report by the National Bureau of Statistics (NBS).

Currently at 34.60 per cent as of November 2024, President Bola Tinubu while presenting the 2025 budget hinted that the government hopes to reduce Nigeria’s inflation rate to 15 per cent.

Analysis of the banks results showed that Ecobank Transnational Incorporated Plc (ETI) declared the highest operating expenses in nine months of 2024, followed by United Bank for Africa (UBA), and Access Holdings Plc.

Ecobank declared N1.17 trillion ($809.64billion) total operating expenses in nine months of 2024, about 146 per cent increase over N475.35billion ($815.92 billion) reported in nine months of 2023. 

The Pan-African financial institution in a note to investors sad, “The Group’s operating expenses for the first nine months of 2024 totalled $810 million. This represents a decrease of per cent; however, when adjusted for constant currency, there was an increase of 18per cent.

“This change reflects inflation-driven costs and investments in revenue-generating areas, including staff expenses and costs related to the Growth and Transformation agenda. As a result, the cost-to-income ratio—a measure of efficiency—slightly declined to 54.5per cent from 53.7per cent in the same period of the previous year.”

While UBA, another Pan-African financial institution declared N812.2 billion operating expenses in nine months of 2024, about 119 per cent increase over N370.91billion in nine months of 2023, Access Holdings announced N755.08 billion total operating expenses in nine months of 2024, representing an increase of 103.42 per cent from N371.2billion in nine months off 2023.

Experts believe the hike in inflation rate is affecting not only banks profit generation, but dividend payout to shareholders and lending to real sector.

The CEO, Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf stated that inflationary pressures remain a key concern in the Nigerian economy, both for businesses and the citizens.

He highlighted that implications of high inflation rate include escalation of production and operating costs for businesses, leading to erosion of profit margins, drop in sales, decline in turnover and weak manufacturing capacity utilization, high food prices which impacts adversely on citizens welfare and aggravates poverty.

He further stated that weak purchasing power, which poses significant risk to business sustainability and price volatility, which undermines investors’ confidence are major implications of high inflation pressure.

He explained that the major drivers of inflation and cost in the economy include exchange rate depreciation, which has a significant impact on headline inflation, “especially the core sub index and liquidity challenges in the foreign exchange market impacting adversely on manufacturing output.”

He added, “High transportation costs affecting distribution costs across the country. This is also reflected in the huge differential between farm gate prices and market prices; monetization of fiscal deficit (CBN financing of deficit) is highly inflationary because of the liquidity injection effects on the economy. This becomes worrisome when statutory thresholds are exceeded and high transaction costs at the nation’s ports increases production and operating costs of businesses.”

Meanwhile, the World Bank in a report had 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 said, “The war in Ukraine is exacerbating already high inflation and weighing on economic activity by depressing both business investments and household consumption.”

Speaking, the Vice President, Highcap securities Limited, Mr. David Adnori  said the hike in banks operating expenses is a reflection of global economic unrest, 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 listed companies would definitely have an impact on profit and dividend payout to shareholders.

He said, “The world is currently facing a 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, among other nations.”

“Reacting to the surging inflation rate, regulators of several countries where Nigerian companies operate have also raised their interest rates to curb the rising cost of goods and services. However, this is yet to yield any significant positive as the inflation rate above 30 per cent.

“With cost impacted, Nigerian companies may suffer slow profitability this year and it might impact on dividend payout,” he added.