The Banking System Stability Review Report of the Central Bank of Nigeria (CBN) has shown that in general, the banking system remained safe, sound and resilient, but operating cost-to-total operating income rose from 75.5 per cent in March 2022 to 77.3 per cent in April 2022.
The cost-to-income ratio is a key financial metric which shows a company’s costs as a proportion of its income. It helps to give investors a clear view of how efficiently a bank is being run. Specifically, it shows how much input the bank requires to generate N1 of output.
Notably, the lower this ratio, the more profitable, productive and competitive the bank will be.
Indeed, in the first quarter of the year, the cost of diesel rose from N225 to over N750, an increase of over 230 per cent.
The impact on business operations has forced some banks to adopt new survival measures.
The strategies range from rationalisation, reduction in pay to closing down some branches regarded as ‘loss centres’ as well as banning or outsourcing the operations of dispatch riders, for those that have not done so.
These developments are coming in the wake of the incessant national grid collapses that leave the country in darkness, forcing organisations to heavily rely on diesel for their operations.
Analysis of the first quater (Q1) 2022 financial results of some banks in terms of the lowest cost-to-income ratio shows that First Bank of Nigeria took the first position with (-12.48 per cent).
The second position went to FCMB at (-6.83 per cent) while Wema Bank at -5.5 per cent took the third position. Others are; fourth position – Stanbic IBTC (-5.4 per cent); fifth position – Sterling Bank (-2.1 per cent)
Records show that First Bank recorded the highest decline in its cost-to-income ratio in Q1 2022, dropping from 79.5 per cent recorded in Q1 2021 to 67.03 per cent in the review period.
FCMB also saw a decline in their numbers to 72.69 per cent. However, GT Bank currently has the lowest cost-to-income ratio of 42.42 per cent in Q1 2022.
In terms of Return on Equity (ROAE), Access Bank’s ROAE compares with Zenith Bank at 19.22 per cent; United Bank for Africa (UBA), 20.36 per cent; Guaranty Trust Holding Company (GTCO), 19.29 per cent; Wema Bank, 15.96 per cent; Stanbic IBTC Holdings, 15.60 per cent; First City Monument Bank (FCMB), 8.39 per cent and Fidelity Bank, 13.29 per cent.
A higher ROAE means Access Bank has returned its income as shareholders’ equity, as it made more money from non-interest-income.
The return on equity, according to experts, is an important metric that shows the percentage of profit made on every N1 of the shareholders’ fund. It is used to measure the performance and efficiency of the banks.
It shows how well the bank has utilised the resources of its shareholders in generating higher profit (return on average equity) more than peer rivals.
Return on average equity (ROAE) is a financial ratio that measures the performance of a company based on its average shareholders’ equity outstanding.