Despite inflationary pressure on cost of running banking operations, Guaranty Trust Bank Plc (GTBank) outperformed 10 other commercial banks in cost-to-income ratio for financial year ended 2016.
Cost-income ratio is a ratio between the costs involved in running a business and the income the business produce. Cost-to-income ratio is important for determining the profitability of a bank. The ratio gives a clear view of how efficiently the bank is being run- the lower the ratio, the more profitable the bank.
GTBank’s cost-to-income ratio dropped from 44.4 per cent in 2015 to 40.76 per cent due to a combination of strengthened revenue and improved operational efficiency. The bank in 2016 announced 37 per cent increase in Profit before tax to N165.1 billion from N120.9 billion in 2015, the highest in the banking industry.
GTBank was closely followed respectively by Ecobank Nigeria with a cost-to-ratio that closed 2016 at 52.4 per cent as against 62 per cent and Zenith Bank with Cost-to-Income Ratio that declined by 7.9 per cent from 57.2 per cent in 2015 to 52.7 per cent in 2016), as the management is committed to keeping its cost-to-income ratio under control.
Head line Inflation followed a consistent upward trend through 2016, peaking at 18.6per cent in 2016. This increase was driven by the effect of the devaluation on imports and commodity prices, foreign exchange scarcity and the fuel price hike.
But banks were effective in managing cost with all the 11 banks maintaining an average 50 per cent cost-to-income rate. Interestedly, Wema Bank has the highest cost-to-income ratio of the considered banks with 88.32 per cent in 2016 from 88.49 per cent in 2015. Wema bank cost-to-income ratio in 2012 was around 142.6 per cent.
The management of Wema Bank explained that Operating expenses grew by 6.73 per cent to N24.79 billion as against N23.47 billion in 2015 and drivers for the increase were, staff cost increased by 5.72 per cent from N9.79 billion to N10.35 billion; Depreciation and Amortization increased 2.67 per cent to N2.31 billion from N2.25 billion in 2015.
“We expect further streamlining of our processes through alternative platforms, thereby reducing our cost to serve,” the management explained. Stanbic IBTC Holdings cost-to-income rate dropped by 6.9 per cent to 54.8 per cent from 61.7 per cent in 2015 while FCMB Group Plc closed 2016 with 56.1 per cent cost-to-income rate, 18.7 per cent below 74.8 per cent in 2015.
Access Bank Plc with 16 per cent increase in operating Income from N234.8 billion in 2015 to N272.6 billion in 2016 and operating expenses that rose by modestly by eight per cent N160.3billion from N145.6billion in 2015 cost-to-income ratio moved from 62 per cent to 58.8 per cent in 2016