By JULIUS ALAGBE
Although average increase in general prices of goods and services, inflation rate, has started nosediving, operating expenses incurred by deposits money banks has been on the uptick on the back of increasing maintenance cost, personnel welfare and other regulatory demands. BusinessHallmark analyses of the industry data showed that in the financial year 2018, banks recorded N1.8 trillion as combined operating cost.
All the banks reported increased operating expenses in 2018 except Unity Bank Plc. Also, analysis of the results showed that all banks booked lower impairment charge except Wema Bank that recorded an uptick. Analysts and other market observers view that rising operating expenses recorded by banks dragged operators profit performance. On the back of a tense business environment, 13 listed deposit money banks recorded a 6 per cent increase in operating expenses in 2018, analysis of the industry results has revealed.
Analysis of the sector shows that aggregate pretax profit of the operators fell short of total amount the expended on operations in 2018, BusinessHallmark analysts have revealed. The business environment has been adjudged to be one of the toughest to do business. The assertion which is often cited on the back of unstable energy cost.
While total pretax profit for 13 banks closed the year at N1.02 trillion, the industry operating expenses almost hit N1.8 trillion mark. “The larger the bank, the larger the size of its maintenance expenses, personnel cost and other related periodical expenses”, Jide Famodun said in a forum.
Growing balance sheet size is not an advantage at all time, analysts said. Increasing average size of a bank comes with increase maintenance fees.
Jide Famodun, a financial consultant said that; “there is disincentive to grow balance sheet with 5% ssets Management Company, AMCON, sunk cost by banks. As this is part of operating cost, every bank that grow its size are not expected to do anything less than bloated operating expenses. Also, factor energy cost into this, it would automatically be difficult to reduce certain cost with having direct, albeit negative impacts on operational performance”.
It was noted that personnel cost account for significant chuck of the operators’ expenses but energy cost made the case worsen. Many operators run on diesel for significant numbers of days each month, burning diesel to ensure activities in the banking halls is not distorted.
It cost Herbert Wigwe, the Group Managing Director/Chief Executive Officer Access Bank Plc N194 billion to maintain banking halls activities in 2018. This was against N182.8 billion expenses incurred in 2017.Access Bank increased profit before tax N103.2 billion compare with N78.2 billion recorded in 2017. Though the bank operating expenses jerked, the bank overall cost to income ratio declined by 6.63%.
Peter Amangbo, GMD/CEO Zenith Bank Plc recorded a marginal increase in operating expenses in 2018. The bank closed the year with N231.7 billion pretax profit on the back of 11.88% uptick recorded in the period as against N199.3 billion in 2017. While operating expenses grew marginally, cost to income closed the year at 5.35%.
Under UK Eke, GMD/CEO FBNH Plc in 2018, the group recorded more than 9% increase in operating expenses, from N240.3 billion in 2017 to N263.7 billion in 2017. FBNH Plc grew pretax profit by 19.75% to close at N65.3 billion as against N54.5 billion in 2017.
The past year also proved to be a tough one for Abubakar Suleiman, the Managing Director/Chief Executive Officer Sterling Bank Plc, as efforts to reduce operational cost proved abortive. Sterling Bank Plc operating expenses expanded more and faster in 2018. The bank’s operating overhead jerked up 26.42% to N67 billion from N53 billion in 2017. Though pretax profit also increased by 17.28% to N9.5 billion, cost to income ratio ballooned.
Emeka Emuwa, MD/CEO, Union Bank Plc struggled to keep the operation of the bank going for 2018 with operational expenses soared at a rate faster than average inflation rate. Union bank Plc operating expenses expanded 12.44% to close at N75 billion as against N66.7 billion in 2017.
Tomi Somefun MD/CEO Unity Bank Plc on the other successfully reduce operational expenses by 17.35% to N20.217 billion compare with N24.46 billion in 2017. Same feat was achieved in it’s the amount booked as impairment while Unity Bank Plc returned to profitability.
Among the top size banks that have comparative advantage base on size of the balance sheet showed mixed performance in terms of efficiency at use of their banks resources in 2018. While some leverage on economic of scale, other laid behind the wall with uptick in overheads.
As an example, Zenith Bank Plc operational expenses rose marginally. Peter Amangbo GMD/CEO at the bank expended N225.5 billion on maintaining operational activities for 2018 compare with N223.4 billion used in 2017.
Similar thing happened under Segun Agbaje, MD/CEO Guaranty Trust Bank Plc with 1.03% increase in operational expenses, from N125.8 billion to N127.1 billion.
FCMB reported that it cost N79.2 billion to open its banking halls for business in the whole of 2018 as against N69.5 billion expended in the comparable period in 2017. Analysts said that the key hurdle for Adam Nuru, the new bank chief is to stem the ugly head of rising operating expenses.
It has been estimated that the banking sector operating expenses may increase to N2 trillion at the end of financial year 2019.