Operating Expenses Surge by 42.51% for Top Nigerian Banks in 2023: Analysis Reveals Drivers and Implications

Reports indicate a significant spike in the combined operating expenses of ten major Nigerian banks, soaring by 42.51% to reach N3.23 trillion in 2023 compared to N2.26 trillion in the preceding year. These findings stem from the annual financial results filed with the Nigerian Exchange Limited by leading financial institutions, including Access Holdings, FBN Holdings, Zenith Bank, United Bank for Africa, FCMB Group, Sterling Financial Holding, Fidelity Bank, Wema Bank, Stanbic IBTC, and Guaranty Trust Holding Company.

An operating expense, as defined by Investopedia, encompasses various expenditures incurred during regular business operations, spanning rent, equipment, inventory costs, marketing, staff expenses, insurance, research and development allocations, and depreciation and amortization.

Personnel costs and other operational outlays emerged as the primary drivers behind the surge in the banks’ operating expenses during the review period. Notably, Nigeria’s largest bank, AccessCorp, witnessed a 38.85% rise in operating expenses to N697.53 billion, attributed to a substantial increase in personnel costs and IT-related expenditures.

Similarly, FBN Holdings reported a staggering 46.83% surge in operating expenses to N534.34 billion, while FCMB Group saw a 35.64% increase to N154.44 billion, primarily fueled by elevated personnel expenses.

The uptrend continued across the sector, with Sterling Financial Holdings Company and subsidiaries witnessing a 25.26% rise to N109.24 billion, and Fidelity Bank recording a notable 60.77% surge to N194.18 billion in operating expenses.

Wema Bank, amid a remarkable 196% profit-before-tax growth, reported a 32.16% increase in operating expenses to N78.76 billion. Stanbic IBTC and Guaranty Trust Holding Company also experienced upticks of 29.41% and 26.54%, respectively, attributed to personnel expenses and other operational costs.

Zenith Bank PLC disclosed a 32.31% surge in operating expenses to N449.47 billion, while UBA witnessed a substantial 68.99% rise to N591.64 billion from N350.09 billion in the preceding year.

Experts have linked this surge in operating expenses to inflationary pressure, currency devaluation, and upward salary reviews. Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co., emphasized the criticality of effectively managing operating expenses to uphold profitability and competitiveness while meeting evolving customer demands and regulatory standards.

Furthermore, projections suggest an increase in non-performing loans for Nigerian Deposit Money Banks in 2024 due to economic slowdown, necessitating measures such as enhancing credit risk management, regulatory oversight, economic stability, and corporate governance standards.

Moreover, a 2023 report by KPMG Nigeria highlighted significant pay rises among bank employees following the removal of fuel subsidies, with various banks implementing salary increases and additional benefits to mitigate the impact on their workforce.

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