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Tier 1 banks’ operating expenses hit N519.4bn

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Tier 1 banks’ operating expenses hit N519.4bn

 

Despite the intensive cost cutting measures implemented by the nation’s top tier banks in recent years in their quest to stay profitable, they continue to grapple with rising operating expenses, findings by New Telegraph has show.

 

An analysis of the lenders’ H1 2018 results, for instance, indicates that their total operating expenses increased by 2.8 per cent to N519.42 billion from N505.28 billion in the corresponding period of last year.

Nigeria’s Tier 1 banks are Zenith Bank Plc, Access Bank Plc, United Bank for Africa Plc, First Bank of Nigeria Limited and Guaranty Trust Bank Plc, (GTB). They are categorised by their balance sheet size.

 

Generally, operating expenses include such things as payroll, employee benefits and pension contributions, transportation and travel, amortisation and depreciation, sales commissions, rent and repairs.

 

Specifically, the H1 2018 results show that with the exception of Access Bank, which reported that its operating expenses fell from N105.05 billion in the first half of 2017 to N98.23 billion in the first six months of this year, all the other big banks recorded higher operating expenses in the period under review.

 

A breakdown of the results shows that Zenith Bank reported the highest figure of N130.42 billion operating expenses for H1 2018 as against N122.56 billion that it recorded in the corresponding period of last year.

It is followed by First Bank of Nigeria Limited with operating expenses of N117.50 billion for the first half of this year compared with N115.03 billion that the lender reported for H1 2017.

 

Similarly, the United Bank for Africa’s (UBA) operating expenses increased from N94.81 billion in the first six months of last year to N103.71 billion in H1 2018.

 

Guaranty Trust Bank, which reported the lowest figure among its peers, also recorded an increase in operating expenses from N67.83 billion in H1 2017 to N69.57 billion in the first six months of this year.

Significantly, a review of 15 publicly quoted banks’ annual reports from 2012 to 2014 by a Lagos-based financial firm, Fulfigate Associates, showed that they spent a total of N3.3 trillion on operating expenses during the period.

 

The report indicated that banks’ operating expenses rose year-on-year by N102 billion and N130 billion, representing 10 per cent and 12 per cent in 2013 and 2014 respectively.

 

As the firm put it: “Total industry operating expenses for three years-2012 to 2014 stand at N3.3 trillion, with 69 per cent of total operating income for the period going into financing this expense.”

 

Interestingly, it also revealed that the top five spenders on operating expense during the period were First Bank with N529 billion, representing 15.85 per cent of the industry total; followed by Zenith Bank with N402 billion, representing 12 per cent; and Access Bank with N291 billion, representing 8.72 per cent of industry total expenses.

 

Others were Ecobank, N279 billion, representing 8.34 per cent; and UBA, N253 billion, representing 7.59 per cent of industry expenditure bill..

 

“These five banks alone account for 52.56 per cent of the industry’s total operating expenses in the last three years. The least spender is Wema Bank with N60 billion, representing 1.79 per cent of the industry’s spending within the period,” the report stated.

 

Financial analysts attribute the steady increase in banks’ operating expenses in the last few years to the high cost of doing business in the country.

 

According to the Chief Executive Officer of Fairweather Associates Limited, Mr. Denis Okoro, because of the huge infrastructure challenge that businesses  have to grapple with in this country, banks spend a lot of their income trying to deliver quality service.

 

He said: “Despite having to provide their own infrastructure, banks are also slammed with all sorts of taxes and charges by the three tiers of government. It is a highly competitive industry so any bank that wants to remain in business has no choice but to ensure that it spends what is required to deliver quality service.”

 

Indeed, a member of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC), Mr. Adeola Adenikinju, commented on the issue in his personal statement at the MPC meeting in July.

 

He stated: “Domestic deposit banks continue to record improved performance. NPLs continue its downward trend. Deposit and asset values of the banks continue to grow. However, credit growth to the private sector was negative.

 

“This is unacceptable in the face of huge unemployment and relatively low capacity utilization in the industrial sector. Bank operational costs remain unacceptably high. This continues to keep lending rates unacceptably high, which may affect the efficacy of simple reduction in the MPR.”

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