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Nigerian Banks Hit by Higher Expenses from Regulatory Costs

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Nigerian banks are spending their way into the future as operating expenses have risen to record levels brought on by ballooning regulatory costs that adds to another layer of concerns.

Of course, banks are under pressure to rein in costs so as to bolster profit margin, but it is difficult to tame the Asset Management Corporation of Nigeria (AMCON) charges that shareholders and institutional investors say have outlived its usefulness.

The largest lenders saw combined operating expenses increase by 18.62 percent to N538.29 billion as at March 2022, according to data gathered by MoneyCentral.

Drilling down the numbers shows operating expenses were up a mere 11.68 1.07 percent to N453.75  billion in the first quarter of 2021, while it spiked by 23.30 percent in 2020, and went up 2.56 percent in 2018, and rose by 12.05 percent in 2018.

Interestingly, they paid N106.14 billion in AMCON charge in the first quarter, which is 17.71 percent higher than 2021’s N90.39 billion.

The N106.14 billion regulatory cost is 22.57 percent of total operating expenses for the period, and the mandatory level hinders banks from recording double digit growth at the bottom line even as they operate in a punitive regulatory environment.

The corporation charges 0.50 percent of Banks’ total assets on and off balance sheet items, which is essentially a penalty on growth, as the higher the assets the higher the charges.

Guaranty Trust Holding Company or GTCO‘s operating expenses of N48.08 billion marks the highest first-quarter Opex in any given year in the bank’s history.

The higher regulatory costs is a deviation from the norm according to analysts at Chapel Hill Denham Limited in a recent note to clients.

“As a result, we seek to engage management to get clarity on this cost line item,” said the analysts.

Zenith Bank saw operating expenses increase by 15.71 percent to N91.09 billion from N78.68 billion the previous year. Its AMCON charge was up 12.84 percent to N21.40 billion as at March 2022.

Access Bank incurred N117.18 billion operating expenses, and that represents a 28.07 percent uptick from 2021’s N91.49 billion.

United Bank for Africa saw operating expenses grow by 20.46 percent to N77.64 billion in March 2022 from N64.45 billion the previous year.

Fidelity Bank’s total operating expenses increased by 12.38 percent to N25.80 billion in the period under review from N22.96 billion the previous year.

First City Monument Bank Plc saw total operating expenses increase by 14.52 percent to N26.65 billion in March 2022 from N23.27 billion the previous year.

So far, It has not been easy for banks as they have been spending a lot on diesel oil to run generator plants in offices and branches across the country.

There has been an energy crisis stoked by a rally in crude oil prices stoked by the sanction imposed on Russia by the European Union and the United States for the evasion of Ukraine.

However, despite the challenging operating environment and high cash reserve ratios, banks recorded profit growth in the first quarter, thanks to the gradual improvement in yield that underpinned income from investment securities, revaluation gains, and creation of risk assets.

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