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Sunday, June 26, 2022

Sky High Diesel Prices to Balloon Nigerian Banks Operating Expenses

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The energy crisis as evidenced by the skyrocketing price of diesel oil will further balloon  Nigerian banks operating expenses, forcing them to embark on cost cuts to meet profit targets.

Tier 1 lenders (Zenith Bank, Guaranty Trust Holding Company or GTCO, United Bank for Africa or UBA, Access Bank, and FBN Holdings) spent N114.74 billion on fuel, repairs, and maintenance, which is 14.12 percent of other total operating expenses of N835.47 billion as at December 2021.

Of course, there are indications that lenders’ cost to income ratio will continue to rise because companies are spending more fuel to run offices and branches across the country as the price of diesel oil has been spiking on the back of the rally in crude oil price brought on by the war in Eastern Europe.

The price of diesel rose from N300 at the beginning of the year to over N700 per liter, putting the cost beyond the reach of most consumers. And it now sells for around N800.

The fuel shortage forced some GTCO branches to close across the country at 1pm, and many of them have intensified their cost control strategies.

“Energy costs could balloon operating expenses,” said Segun Agbaje, chief executive officer Guaranty Trust Holding Company (GTCO) Plc.

Nigerian Economist and businessman, Tony Elumelu recently lamented over the worsening electricity blackouts, hike in prices of diesel, and its effect on businesses in the country.

The CEO of Heirs Holdings in a series of tweets said businesses are suffering under the situation with Nigerian citizens groaning under food inflation as well.

The big Nigerian banks collectively incurred N1.32 trillion in total operating expenses (staff cost plus other operating expenses), which is 47.52 percent of 2020’s N943 billion, according to data gathered by MoneyCentral.

Nigerian lenders are beset by several regulator-imposed difficulties that are undermining the net interest margins and return on equity, but they have good asset qualities and solid balance sheet which makes it easier for them to surmount macroeconomic headwinds.

Zenith Bank spent N20.65 billion on fuel, repairs, and maintenance, which is 11.15 percent of other operating expenses. Total operating expenses were up 11.68 percent to N285.75 billion as at December 2021.Its cost to income ratio increased to 50.80 percent in December 2021 from 50.0 percent the previous year.

Access Bank incurred N20.10 billion on fuel, repairs, and maintenance, which is 8.66 percent of other operating expenses. Total operating expenses were up 13.67 percent to N371.14 billion in December 2021 from N326.50 billion the previous year.

United Bank for Africa (UBA) spent 27.97 billion on fuel and maintenance, which is 17.16 percent of other operating expenses. Total operating expenses increased by 11.67 percent to N279 billion in December 021 from N249.84 billion the previous year.

GTCO incurred N9.65 billion on energy, and that represents 10.31 percent of other operating expenses. Total operating expenses 11.65 percent to N162.26 billion in December 2021 from N145.32 billion as at December 2020.

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