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Union, Wema, Unity Bank Bloated Operating Expenses Are a Problem

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Union Bank Plc, Wema Bank Plc, and Unity Bank Plc have the highest cost-to-income-ratio (CIR) as they are spending more money to earn every single Naira, MoneyCentral’s analysis shows.

A very high CIR means these three lenders are not utilizing their operating resources to generate income.

Union Bank has a CIR of (73.31 percent); Unity Bank, (99.32 percent), and Wema Bank (78.79 percent) as at September 2022, according to MoneyCentral calculations.

Guaranty Trust Holding Company (GTCO), is the most efficient lender with a CIR of 36.76 percent; followed by Zenith Bank, (51.58 percent); Sterling Bank, (51.78 percent); Stanbic IBTC Holdings, (56.10 percent); United Bank for Africa, (63.93), FirstBank Holdings, Access Bank (65.32 percent): (65.02 percent); First City Monument Bank, (65.65 percent), and Fidelity Bank, (68.68 percent).

Nigerian banks have been hit by inflationary pressures and currency volatility that balloons operating expenses and perhaps more worrisome is that they cannot pass on rising costs to customers in the form of higher prices.

Nigeria’s National Bureau of Statistics says that the country’s inflation rate for November 2022 increased 20.47%, representing 6.07% points higher to the rate recorded in November 2021, which was 15.40%.

To compound the woes of lenders is an astronomical rise in the price of diesel oil which they use to power generator plants at head offices and branches across the country.

To tame higher overhead costs banks were forced to adjust their operating times as a measure to cushion the impact of the high cost of diesel occasioned by the Russia –Ukraine crisis.

“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” said David Adnori, vice president, Highcap securities Limited.

“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,” he explained.

The largest lenders in Africa’s largest economy collectively incurred N1.74 trillion in operating costs as at September 2022, which is 23.82 percent higher than 2021’s N1.40 trillion, according to data gathered by MoneyCentral.

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