On the back of inflationary pressure, regulating levy, among others, operating expenses of 10 banks went up by a whooping 103 per cent to N1.58 trillion in the first quarter (Q1) ended March 2024/
This represents about 103 per cent increase when compared to N780.09 billion recorded in first the quarter of 2023.
The 10 banks are: Access Holdings Plc, Ecobank Transnational Incorporated (ETI), FBN Holdings Plc, Zenith Bank Plc, United Bank for Africa (UBA) and Guaranty Trust Holding Company Plc (GTCO).
Others include; Stanbic IBTC Holdings Plc, FCMB Group Plc, Wema Bank Plc, and Fidelity Bank Plc.
According to National Bureau of Statistics (NBS) inflation rate increased to 33.2 per cent Year-on-Year (YoY) in March 2024 from 22.04 per cent March 2023, driven by money supply, exchange rate, net exports, interest rates, fiscal factors, agro-climatic factor and real output.
Currently at 33.95 per cent in May 2024, analysts have predicted further hike in banks' OPEX this year, stressing that its impact may cut down on earnings and dividend payout to shareholders.
The 33.95 per cent inflation rate in Nigeria makes it 17th straight month acceleration, the highest reading since March 1996.
Also, the Naira depreciated to N1,329.76 against the dollar in Q1 2024 from N459.85 against the dollar Q1 2023 as these figures are influenced with government decisions to remove subsidy on Premium Motor Spirit (PMS) and Central Bank of Nigeria (CBN) policy on Naira at the foreign exchange market.
Aside from inflationary pressure, other key factors that contributed to the banks OPEX include wages and salaries for staff, Deposit insurance premium, Asset Management Corporation of Nigeria (AMCON)'s 0.5 per cent sinking funds levy, among others.
THISDAY analysis of the banks' results showed that ETI reported the highest OPEX in Q1 2024, followed by Access Holdings and UBA. The Pan-Africa financial institutions have banking operations across the countries in the continent where rising inflation rattling businesses.
A breakdown of the banks' results showed that in Q1 2024, ETI declared N357.97billion OPEX, an increase of 180.5 per cent from N127.6billion reported in Q1 2023, while Access Holdings reported N279.31billion OPEX in Q1 2024, an increase of 86 per cent from N149.79billion reported in Q1 2023.
On its part, UBA announced N218.97 billion OPEX in Q1 2024, representing an increase of 104 per cent from N107.31 billion in Q1 2023 while FBN Holdings declared N212.78 billion OPEX in Q1 2024, an increase of 91.4 per cent from N111.17 billion reported in Q1 2023.
In a chat with THISDAY, analysts stated that the hike in inflation rate is affecting banks' ability to generate profits
Speaking, the Vice President, Highcap securities Limited, Mr. David Adnori said the hike in banks operating expenses is a reflection of global economic unrest following the crisis between Russia and Ukraine, 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 banks would definitely have an impact on profit and dividend payout to shareholders of these banks.
According to him, "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.
"Reacting to the surging inflation rate, regulators of several countries where Nigerian banks operate have also raised their interest rates to curb the rising cost of goods and services. However, this is yet to yield any positives as the inflation rate continues to remain high. With cost impacted, Nigerian banks might suffer slow profitability this year and it might impact on dividend payout."
On his part, the CEO, Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf told THISDAY 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 utilisation, 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."
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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."
Recently, the World Bank in a report 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 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 stated, "The war in Ukraine is exacerbating already high inflation and weighing on economic activity by depressing both business investments and household consumption."
