How 6 commercial banks record N992.4bn operating expenses in 2017

No fewer than six commercial banks operating in the country have recorded total sum of N992.4 billion in their Operating Expenses (Opex) in nine months of 2017, represented an increase of N143.5bn or 17per cent from N848.9bn reported in the corresponding period in 2016.

The Daily Times checks, however, showed that this was due to significant increase in cost of goods and services in the year under review, even though the nation’s recorded constant slow in it annual inflation rate.

According to National Bureau of Statistics (NBS) inflation rate in September 2017 was at 15.98 per cent from 18.72 per cent in January vis-à-vis 17.9 per cent reported in September 2016.

For instance, Ecobank Transnational Incorporated (Ecobank) reported the highest value of Opex, with Guaranty Trust Bank Plc (GTBank) reporting the lowest value of Opex in the period under review.

Mostly contributing to banks Opex are depreciation & amortisation expenses, staff salary and Assets Management Corporation of Nigeria (AMCON) expenses, among others.

Analysts have said increased Opex of recent is draining shareholders investment, stressing that few banks operating in the country are adopting cost effective management in reducing cost.

However, in foreign exchange (Dollar), Ecobank’s Opex dropped by 11 per cent while the Naira conversion, it gained 13.3 per cent year-on-year (y-o-y).

The lender’s Opex rose by 13.3 per cent to N255 billion ($833million) in nine months of 2017 from N225bn ($934.6m) in prior nine months of 2016.

Although, the Pan-African bank explained that: “Expenses of $834million, down 11 per cent YoY, or three per cent, in constant currency, despite one-off restructuring cost of $9.3million in Central, Eastern & Southern Africa (CESA).

“Expense improvements benefited from, ongoing group-wide cost reduction initiatives; right-sizing CESA to improve profitability – reducing headcount, closing branches, and other expense reduction exercises.”

Ecobank further said it expected annual savings of $17m from ongoing group-wide cost reduction initiatives.

GTBank’s reported N90.36 billion Opex in nine months, an increase of 9.2 per cent from N82.8 billion in nine months of 2016 while Zenith Bank’s Opex added 17.3 per cent to N171bn from N146.05bn in nine months of 2016.

GTBank in a presentation to investors & analysts explained “that Occupancy Cost and Repairs & Maintenance is the expense line that warehouses costs incurred on Fuel, Diesel, Electricity, Repairs and Maintenance.

“The reasons for the increase are: Fuel price hike from N86.5/l to N145/l, hike in diesel price from N120/l to N185/l, 45 per cent increase in electricity tariff. The impact of the increase was felt for only 2months in H1 2016 as opposed to 6monthsinH12017.

This expense line was also negatively impacted by aggressive drive for revenue by State and Local Governments on water rates, tenement rates, land use charge among others. Repairs and maintenance cost increase was a direct consequence of inflation.

“Depreciation expense increased as a result of impact of the exchange rate difference on depreciation and amortization expense at Subsidiary level and also additions to property and equipment and purchased software during the period in order to sustain and enhance the current level of productivity in2017 and beyond,” GTBank explained.

FBN Holdings stated that its Opex increased by 8.4 per cent y-o-y to N175.3bn as against N161.8bn reported in nine months of 2016, but remain below the headline inflation rate of 15.9 per cent.

The Holding financial institution attributed to growth in Opex to general inflationary environment and impact of currency devaluation.

FBN Holdings in a statement said, “the increase is as a result of the general inflationary environment and the impact of currency devaluation which were partly offset by a decline in personnel expenses, as we continue our efforts to improve productivity, optimise cost and increase operational efficiency.”

The other two banks, Access Bank and UBA reported an increase of 31 per cent and 26.4 per cent in Opex to N154.5 billion and N145bn in nine months of 2017, respectively.