It is a generally accepted principle that banks tend to pursue improvement in operational efficiency as a way of buoying profitability amid a slow growing economy and increased uncertainty.
Fidelity Bank, a tier 2 lender defiled the aforementioned focus strategy and found its bottom line taking a hit, a faltering performance that would have been avoided if cost control mechanisms were pursued assiduously.
The lender’s half year financial statement, posted on the floor of the Nigeria Stock Exchange (NSE), showed net income drop by 31.91 percent to N5.59 billion from N8.21 billion as at June 2015, despite a strong net interest income.
The one or two punch at the bottom line was due to rising cost of running its activities. Total operating expenses moved to N31.07 billion, in the period under review from N28.81 billion the previous year.
More worrisome is the bank’s cost to income ratio (CIR), which increased to 79.15 percent in June 2016 as against 72.19 percent the previous year. The bank is therefore spending nearly N80 out of every N100 in revenues. This can’t be tolerated in an economy test the limits of survival for the financial services industry.
Operational efficiency in banking is commonly proxies by the cost-to-income (CI) ratio – that is, the ratio of total operating costs (excluding bad and doubtful debt charges) to total income (the sum of net interest and non-interest income).
The lower the (CI), the more efficient a bank in reducing costs and recording higher profit.
Earlier this year, the Economic and Financial Crimes Commission (EFCC) arrested the CEO of the bank, Nnamdi Okonkwo, on the grounds that he allegedly helped a former Minister of Petroleum Resources, Diezani Alison Madueke, to launder $153 million during the build up to the presidential election.
Fidelity’s share price dropped -4.88 percent to N1.17 while -11.42 (1 year return to date) percent as investors dump bank stocks on the back of lack of policy direction on the part of the government and bleak economic outlook stoked by falling oil price.