Inflation and regulatory charges have led to a 26% surge in total operating expenses for ten major Nigerian banks in the first half of 2023. These expenses rose to N1.19 trillion from N943.23 billion in the same period in 2022. The banks affected include Ecobank, FBN Holdings, Zenith Bank, and Guaranty Trust Holding Company, among others. Salary reviews, along with charges from the Asset Management Corporation of Nigeria (AMCON) and Nigeria Deposit Insurance Corporation (NDIC), contributed significantly to the increased operating costs.
Key Points:
- The rising inflation rate in Nigeria, which increased to 22.79% in June 2023, is attributed to factors like money supply, exchange rate, net exports, and interest rates.
- Among the ten banks analyzed, Unity Bank Plc was an exception, reporting a loss before tax in H1 2023, while the others collectively generated N1.2 trillion in profit before tax, marking a 138% increase from H1 2022.
- ETI reported the highest operational expenses (OPEX) in H1 2023, followed by FBN Holdings and Zenith Bank. Fidelity Bank recorded the highest proportional increase in OPEX.
- The surge in operating expenses is attributed to factors like salary reviews, AMCON and NDIC charges, staff costs, and technology costs.
- GTCO highlighted that its 26.2% OPEX growth was in line with headline inflation in Nigeria, which closed at 22.8% as of June 2023. They also emphasized increased regulatory costs.
- Stanbic IBTC reported N82.34 billion OPEX in H1 2023, a 21.3% increase from H1 2022. The bank noted that the persistent increase in inflation and staff costs contributed to the rise in expenses.
- Financial experts suggest that the surge in operating expenses due to inflation could impact profit generation and dividend payouts to investors. The global economic unrest, particularly the Russia-Ukraine crisis, is a contributing factor.
- The World Bank has reported that rising inflation is slowing economic growth in Africa, and the war in Ukraine is exacerbating this situation.
Analysis: The sharp increase in operating expenses for Nigerian banks underscores the economic challenges posed by high inflation rates and regulatory costs. This trend could impact the profitability of these banks and subsequently influence dividend payouts. Additionally, the global economic climate, including geopolitical events like the Russia-Ukraine conflict, continues to play a significant role in shaping the financial landscape in Nigeria and beyond.