Nigerian Banks’ Operating Costs Soar to ₦5.18 Trillion Amid Economic Pressures
Highlights from the Report:
In the face of challenging macroeconomic conditions both locally and globally, 12 Nigerian banks listed on the Nigerian Exchange Limited (NGX) recorded a staggering ₦5.18 trillion in operating expenses during the first nine months of 2024. This marks a 101.9% increase compared to ₦2.56 trillion in the same period of 2023.
Key Drivers of the Surge :
1. Inflationary Pressures:
• Nigeria’s inflation rate climbed to 34.6% in November 2024, exacerbating operational costs.
• Rising personnel expenses and depreciation costs contributed significantly to the increase.
2. Currency Challenges:
• The unstable naira in the foreign exchange market added to the financial strain.
3. Additional Factors:
• Asset Management Corporation of Nigeria (AMCON) expenses.
• Rising deposit insurance premiums.
• Security challenges across the nation.
Top Performers by Operating Expenses :
• Ecobank Transnational Incorporated Plc (ETI): ₦1.17 trillion (146% increase YoY).
• United Bank for Africa (UBA): ₦812.2 billion (119% increase YoY).
• Access Holdings Plc: ₦755.08 billion (103.4% increase YoY).
Implications of Rising Costs :
• Impact on Profits and Dividends:
• Analysts predict reduced profit margins and lower dividend payouts to shareholders.
• Operational Challenges:
• Higher inflation rates erode purchasing power, escalate production costs, and weaken manufacturing capacity utilization.
• Global Headwinds:
• The World Bank noted that rising inflation and the ongoing Russia-Ukraine conflict continue to dampen economic growth in Africa.
Expert Insights :
Dr. Muda Yusuf, CEO of the Centre for Promotion of Private Enterprise (CPPE), outlined key inflationary drivers:
• Exchange rate depreciation.
• High transportation and port transaction costs.
• Liquidity challenges in the foreign exchange market.
According to Mr. David Adnori, Vice President at Highcap Securities, the hike in operating costs is reflective of global economic unrest and will likely slow profitability for Nigerian banks, further impacting shareholders.
Looking Ahead :
Regulators are raising interest rates in an effort to curb inflation, but with the rate still hovering above 30%, businesses, including banks, are bracing for continued cost pressures into 2025.
This surge in operating expenses underscores the resilience required to navigate Nigeria’s economic landscape as the year concludes.
Highlights from the Report:
In the face of challenging macroeconomic conditions both locally and globally, 12 Nigerian banks listed on the Nigerian Exchange Limited (NGX) recorded a staggering ₦5.18 trillion in operating expenses during the first nine months of 2024. This marks a 101.9% increase compared to ₦2.56 trillion in the same period of 2023.
Key Drivers of the Surge :
1. Inflationary Pressures:
• Nigeria’s inflation rate climbed to 34.6% in November 2024, exacerbating operational costs.
• Rising personnel expenses and depreciation costs contributed significantly to the increase.
2. Currency Challenges:
• The unstable naira in the foreign exchange market added to the financial strain.
3. Additional Factors:
• Asset Management Corporation of Nigeria (AMCON) expenses.
• Rising deposit insurance premiums.
• Security challenges across the nation.
Top Performers by Operating Expenses :
• Ecobank Transnational Incorporated Plc (ETI): ₦1.17 trillion (146% increase YoY).
• United Bank for Africa (UBA): ₦812.2 billion (119% increase YoY).
• Access Holdings Plc: ₦755.08 billion (103.4% increase YoY).
Implications of Rising Costs :
• Impact on Profits and Dividends:
• Analysts predict reduced profit margins and lower dividend payouts to shareholders.
• Operational Challenges:
• Higher inflation rates erode purchasing power, escalate production costs, and weaken manufacturing capacity utilization.
• Global Headwinds:
• The World Bank noted that rising inflation and the ongoing Russia-Ukraine conflict continue to dampen economic growth in Africa.
Expert Insights :
Dr. Muda Yusuf, CEO of the Centre for Promotion of Private Enterprise (CPPE), outlined key inflationary drivers:
• Exchange rate depreciation.
• High transportation and port transaction costs.
• Liquidity challenges in the foreign exchange market.
According to Mr. David Adnori, Vice President at Highcap Securities, the hike in operating costs is reflective of global economic unrest and will likely slow profitability for Nigerian banks, further impacting shareholders.
Looking Ahead :
Regulators are raising interest rates in an effort to curb inflation, but with the rate still hovering above 30%, businesses, including banks, are bracing for continued cost pressures into 2025.
This surge in operating expenses underscores the resilience required to navigate Nigeria’s economic landscape as the year concludes.