Banking, Insurance Sectors’ Contribution to GDP Down 10% to N660.84bn

Kayode Tokede

As companies in Nigeria continue to battle the tough operating environment, banks and other Financial institutions contribution to Nigeria’s real Gross Domestic Product (GDP) in third quarter of 2022 dropped by 10.14 per cent Quarter-n-Quarter (QoQ) to N660.84billion from N735.4billion, the National Bureau of Statistics (NBS) report has revealed.

Analysis of the NBS numbers revealed financial institutions’ contribution to real GDP dropped to N5594.68 billion in Q3 2022, representing a decline of 9.24 per cent from N655.22 billion in Q2 2022, while Insurance contribution to real GDP dropped significantly by 17.49 per cent to N66.16 billion in Q3 2022 from N80.18 billion reported in Q2 2022.

Analysts blamed the decline in financial institutions and insurance contribution to real GDP on macro economic challenges part of which is the hike in the inflation rate.

The annual inflation rate in Nigeria accelerated for the ninth straight month to 21.09per cent in October of 2022 from 20.77 per cent in September, according to the NBS.

 It was the highest reading since September of 2005, even after a recent 150 basis points rate hike by the Central Bank of Nigeria (CBN), largely due to a weaker currency that raised the costs of imported products. Food inflation climbed for the eighth straight month to 23.72per cent, the highest since October of 2005, amid supply disruptions caused by widespread flooding and higher import costs.

Commenting, Professor of Economics, Lagos Business School, Bongo Adi said the drop in financial institutions and insurance contribution to real GDP is a reflection of the general economy, backed by the high level of inflation rate.

According to him, “Purchasing power has dropped due to the inflation rate and many people will need cash to stay buoyant. We have seen lower deposits in the banking sector and investible funds. So, people are more cautious, looking for safe haven and it is not the time of taking risks.”

On his part, the CEO Wyoming Capital and Partners, Mr. Tajudeen Olayinka said the decline in financial and insurance real GDP growth to the reflection of the state of the economy.

According to him, “Economy itself suffered a decline in Q32022 to 2.25per cent from 3.54per cent in Q2 2022. The fact that CBN has used more monetary policy tools to arrest inflationary pressure that is driven largely by supply-side factors, means that economic agents who rely more on demand-side improvement to survive would suffer severe setbacks, and that is the problem we are beginning to see in Banking and Insurance sectors.

“Rising inflation that is driven by supply side factors and CBN’s rate hikes in four quick successions are never going to be in the interest of demand side of the economy. A situation where financial instruments, including loans and advances by banks, are now being repriced on a continuous basis, means that economy will suffer more severe setback from the resulting hardship.”

Also speaking, analyst at PAC Holdings, Mr. Wole Adeyeye said, “On QoQ basis, finance and Insurance sector declined by 10.14 per cent in Q3 2022 (in real term), probably due to the setback in gross premium earnings and gross earnings of some banks and insurance companies during the period.

“This might have contributed to the decline in the contribution of the sector to GDP. In addition, the performance of major sectors in the economy might have dragged down the contribution of finance and Insurance sector to GDP in Q3-2022. For instance, the contribution of Agricultural Sector to GDP increased from 23.24per cent in Q2 2022 to 29.67per cent in Q3 2022, despite the slowdown in country’s GDP.”

The report by NBS disclosed that the Finance and Insurance Sector consists of the two subsectors, Financial Institutions and Insurance, which accounted for 89.99 per cent and 10.01 per cent of the sector respectively in real terms in Q3 2022.

“As a whole, the sector grew at 21.37per cent in nominal terms (year-on-year), with the growth rate of Financial Institutions at 20.65 per cent and a 28.26 per cent growth rate recorded for Insurance. The overall rate was lower than Q3 2021 by 5.09- per cent points, and lower by 8.53 per cent points than the preceding quarter.

“The QoQ growth was -9.40 per cent. The sector’s contribution to the overall nominal GDP was 2.83 per cent in Q3 2022, higher than the 2.70 per cent it represented a year previous, and lower than the contribution of 3.63per cent it made in the preceding quarter.

“Growth in this sector in real terms totalled 12.70per cent, lower by 10.53 per cent points from the rate recorded in the 2021 third quarter and down by 5.78 per cent points from the rate recorded in the preceding quarter. QoQ growth in real terms stood at -10.14 per cent.

“The contribution of Finance and Insurance to real GDP totalled 3.49 per cent, higher than the contribution of 3.16 per cent recorded in the third quarter of 2021 by 0.32 per cent points, and lower than 4.25 per cent recorded in Q2 2022 by 0.77 per cent points.”

Despite decline in financial institutions contribution to real GDP in Q3 2022, banking lending to real sector and Central Bank of Nigeria (CBN) intervention in the economy has witnessed significant increase.

For instance, banks credit to private sector added N5.32 trillion to N40.8 trillion as of September 2022 from N35.18 trillion reported in January 20222 by the CBN.

On the insurance sector performance, the Minister of Finance, Budget and Planning, Mrs.  Zainab Ahmed had urged insurance operators to address the low contribution of the sector to the country’s GDP, calling on stakeholders to develop new innovative products based on data and customer preferences and introduction of new channels of distribution beyond the traditional channels to reach new segments of the market.