By Chinwendu Obienyi
The operating expense (OPEX) of some Tier-1 banks in Nigeria rose from N731.393 billion recorded in 2019 to N872.65 billion recorded in the financial year of 2020. This represents an increase of 19.31 per cent of the 2019 figures.
An OPEX is an expense a business entity incurs in the course of its normal operations and includes rent, equipment, inventory costs, IT costs, marketing, payroll, insurance, step costs, and funds allocated for research and development.
An increase in operating expenses means less profit for a business and less dividend for shareholders. Often operating expenses receive the most scrutiny from a company, as these types of costs may be less fixed than their non-operating expenses, manufacturing costs and capital expenditures.
Year 2020 happened to be a remarkable year for the Nigerian banking industry as different policies such as the GSI policy, loan restructuring, among others were suddenly thrown up by the outbreak of the Coronavirus pandemic. The industry became more competitive in the year, with each of the banks striving to take more market share and revenue but their OPEX cost compared with last year’s cost increased significantly.
Tracking the 2020 financial information of listed banks on the NSE, our investigations revealed that Tier-1 banks such as Access Bank, Guaranty Trust (GT) Bank, United Bank for Africa (UBA) and Zenith Bank Plc recorded an OPEX amounting up to N872.65 billion.
For instance, Access Bank’s OPEX increased during the period by 29 per cent y/y to N327.30 billion, GT Bank was next with 12.6 per cent y/y to N147.44 billion, UBA recorded N249.8 billion while Zenith Bank reported N148.112 billion.
A further review of the banks’ rising operations expenses revealed that due to their increasing capacity to grow total assets tracked, their profit after tax (PAT) increased by N651.44 billion from N592.32 billion recorded in the corresponding period of 2019.
Industry experts have linked the banks’ increasing OPEX to the costs of acquring new technology products and services to enable customers migrate more to online platforms in the wake of the COVID-19 pandemic which restricted Nigerians from using the banking halls during the first 6 months of 2020 in addition to rising regulatory charges.
In a telephone chat with Daily Sun, Head, Equity Research at FBNQuest Capital, Tunde Abidoye, noted that the banks had to spend on IT related costs and these are costs done due to the lockdowns in the early part of 2020. According to him,” more application of this cost fell to IT security because working from home is not the same as working from the office. He said it was the office architecture security that was used before the lockdown even took place. Secondly, the banks had COVID-19 related costs in terms of their donations to the fight against the pandemic even though it was not that significant. I think that under normal circumstances, the banks have tried to manage their efficiencies very well, I am sure that the OPEX growth was normal and not out of proportion at least despite the lockdown considering what they had to do with other aspects”.
Abidoye noted that the rise in NPLs could have been worse had the CBN not granted banks forbearance to restructure their loans, adding that given that around 26 per cent of banks’ credit exposures was in the oil and gas sector, where prevailing oil prices actually bodes well for the sector’s asset quality.
For his part, Senior Lecturer, Lagos Business School, Dr Bongo Adi, said to deploy digital platforms cost a lot of money and so expenses went into technology upgrading and this was due to the fact some economic activities could not hold physically but virtually during COVID-19.
“COVID-19 somehow unleashed a new wave and rendered the old economic model powerless. So the banks decided to automate their processes using the deployed digital platforms and then again some of the IT companies that provide such services for banks did so at a huge cost.