BanksÔÇÖ operating costs tops N$500m

The banking sector’s operating expenses increased by N$523.4 million to N$4.4 billion due to a N$270.9 million increase in staff costs, administration and a N$100 million climb in other operating expenses.

At 51. 7% staff cost made up the bulk of operating expenses, followed by administration and other overheads at 24.8 percent, other operating expenses at 11.6%, occupancy expenses at 6.6 percent, depreciation and amortization at 5.3%, Deputy Director of Corporate Communications at Bank of Namibia Kazembire Zemburuka told The Villager.

According to Zemburuka, higher operating expenses means that banks are more challenged in cost management and effi ciency strategies. “Staff costs increased by 13. 5%, administration and other overheads by 16. 3% and 107% increase in other operating expenses have been recorded. “In addition, it is an indicator in the effi ciency ratio which indicates the effectiveness of expense controls and the extent to which non- interest expenses like staff cost, administration and other overheads offset total income,” Zemburuka said.

He further noted that Bank of Namibia uses an internal benchmark ratio of the cost-to-income or effi ciency ratio to establish if operating cost is increasing out of the norm. The Villager understands that only if banking institutions exceed the BoN internal threshold of 65% will they be required to present and implement dedicated action plans to reduce the ratio to within the benchmark level.

This is because such high level of the ratio may indicate some serious insuffi ciencies in their operations, where the operation cost is skyrocketing in relation to the net income figures.

End of December last year the industry cost-to-income or efficiency ratio stood at 52% which is a health ratio where the running costs or operating expenses for the industry are will managed in relation to the net income figures, The Villager found. Accounting to Bank of Namibia report in profi tability and earnings of banking industry’s increased during 2016.

The report states that the Banking institutions total income of net interest income and non-interest income increased by N$580.6 million to N$8.3 billion. Net interest income alone increased by 9.5% to N$4.8 billion while other operating income increased by 4.9% to N$3.5 billion. Net interest income accounted for more than half of total income, namely 57.7% and stood as the largest contributor to total income.

The main source of income for the banking sector originated from lending and transactional banking the report states. The report further state that the banking sector remained profi table in 2016 with after tax profits having increased slightly compared to year ago.

The banking sector net profi t after tax increased by 1.8% to N$2.b billion. This increase which refl ects the rise in total income is attributable to a slight decline in the Return on Assets 2.5% to 2.3% while the Return on Equity decreased from 24.5% to 24.1%.