Banks Bring Down Cost-to-income ratios As Industry Margins Tighten

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Wednesday, March 18, 2020/   08:47PM/ Proshare Research  / Header Image Credit: Proshare Research a


 

As back room discussions continue between banks over mergers and acquisitions, the issues of operating efficiency and cost reduction have become hot button topics. The consequences of the recent Coronavirus outbreak have made the search for efficiency even more pressing as banks review growth strategies for 2020.

 

Despite the fact that most banks listed on the Nigerian Stock Exchange (NSE) have not released their financial year-end (FYE) 2019 results, interim numbers show that the banks are in a race for costs efficiency as the domestic economy tightens and operating margins get chiselled down.

 

Information as regards 2019-year end cost-to-income ratio was available for only five (5) banks amongst the thirteen (13) banks listed on the NSE. Seven (7) banks had indicative cost-to-income ratio for Q3 2019 results while Wema Bank had ratios for Q2 2019 (see table 1 below).


 

Table 1: Banks cost-to-income ratio 2017-2019

SN

Banks

FY 2019

FY 2018

FY 2017

1

GUARANTY

36.11

37.09

38.89

2

ETI

66.4*

61.5

61.8

3

ZENITHBANK

48.8

49.3

52.8

4

STANBIC

50.4

52.9

49.8

5

ACCESS

        61.9

62.2

61.9

6

FBNH

71.5*

44.4

39.7

7

FCMB

78.8*

44.6

40.9

8

UBA

60.8*

64

57.8

9

UBN

74.1

79.2

61.5

10

FIDELITYBK

71.7*

71.1

68.6

11

STERLNBANK

82.3*

43.9

71.5

12

UNITYBNK

86*

54.2

27.2

13

WEMABANK

86.03**

87.16

89.9

Source: Banks investors reports, Proshare Research

Data with Asterisk   *Are as at Q3 2019

Data with Asterisk **Are as at Q2 2019


 

The Hard Dash For Cheap Cash

GT Bank and UBN were the two banks that reported the lowest cost-to-income ratio so far for the year ended December 2019, they recorded cost-to-income ratios of 36.11% and 42.6% respectively. While Unity Bank, Sterling Bank and FCMB were the three banks with the highest cost-to-income ratio for Q3 2019 as they reported cost-to-income ratios of 86%, 82.3% and 78.8% respectively (see Table 1 below).

 

All seven-banks that reported cost-to-income ratio in Q3 had cost-to-income ratios above 60%. This indicates clearly that the majority of banks listed on the NSE recorded high expense costs relative to incomes in the Q3 2019 (see Chart 1 below).


 

Chart 1: Banks cost-to-income ratio 2017-Q3 2019

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Source: Banks investors reports, Proshare Research

 


Over the past three years GT Bank, Zenith Bank, and UBN have consistently reported low CIR relative to other banks, with GT Bank consistently recording the lowest CIR among the three big money centre institutions. GT Bank recorded a decline in its CIR to 36.11% in 2019 from 37.09% in 2018 which was as a result of repricing of time deposits, sustained low cost deposit mix, continuous customer acquisition drive and a retail strategy anchored on focused digital solutions to support a low cost deposit drive.

 

Zenith Bank recorded a decline in its CIR to 48.8% in 2019 from 49.3% in 2018, part of the strategy it adopted was effective deposit mobilization at the retail end of the market to lend to corporate clients, leveraging the bank's strong digital platform and emerging technologies (see Chart 2 below).

 

Chart 2: GT Bank and Zenith Bank Cost-to-income ratio 2017-2019

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Source: Banks investors reports, Proshare Research

 

Pulling Out The Stops

With the looming Coronavirus pandemic banks will see business volumes collapse as manufacturers and traders alike find their businesses orphaned by low or non-existent demand. The reverberations in the banking halls of the declining economic fortunes in Q2 2020 may become the herald of a new business era. Banks with strategic intent may require a comprehensive cost containment and business growth and recovery plan.  They may need to pull out all the stops now.



Proshare Nigeria Pvt. Ltd.


 

Related News On Banking Sector

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