Financial Institution GDP Growth Down 2.76% to N846.77bn on Fuel Subsidy, FX Reforms

Kayode Tokede

The fallout of 2023 general elections, uncertainty surrounding domestic and foreign economics, among others weakened financial institution’s Gross Domestic Product (GDP) growth in second quarter of (Q2) 2023, dropping by 2.76 per cent to N846.77 billlion from N870.82 billion reported by National Bureau of Statistics (NBS) in first quarter of (Q1) 2023.

The N846.77 billion financial institution GDP is 29 per cent Yea-on-Year (YoY) from N655.22 billion in Q2 2022 and it is coming on the backdrop of significant increase in online lending, commercial banks expansion in loans, among others.
However, the insurance sector GDP growth stood at N86.04billion in Q2 2023, a growth of 9.9 per cent from N78.3 billion in Q1 2023.

The NBS said Finance and Insurance, accounted for 90.78 per cent and 9.22 per cent of the industry respectively in real terms in Q2 2023.

According to NBS’s latest report, the contribution of Finance and Insurance to real GDP totalled 5.26 per cent, higher than the contribution of 4.25 per cent recorded in the Q2 2022 by 1.01percentage points, and lower than 5.35 per cent recorded in Q1 2023 by 0.08 percentage points.

Nigeria’s real GDP, according to NBS dropped to 2.51 per cent in Q2 2023 from 3.54 per cent in Q2 2022. GDP growth had opened Q1 2023 at 2.31 per cent from 2.25 per cent in Q4 2022.

NBS attributed the decline in GDP to the challenging economic conditions Nigeria currently experiencing.

The performance of the GDP in Q2 2023 was driven mainly by the Services sector, which recorded a growth of 4.42per cent and contributed 58.42per cent to the aggregate GDP

S&P Global in its PMI surveys had stated that acceleration of services sector growth pushed the pace of global expansion.

All major economies reported robust service sector growth, in all cases outperforming manufacturing, which consequently remained broadly stalled on a global basis.

Nigeria business environment is currently facing double-digit inflation, associated cash shortages that has impacted on consumer spending, aggravating foreign-exchange shortages, among others.

Speaking with THISDAY, a Senior Lecturer at Lagos Business School, Dr. Adi Bongo attributed the decline in finance and insurance to fuel subsidy and foreign exchange reforms in the domestic economy.

According to him, “It is in two parts. First, we had the fuel subsidy removal and foreign exchange reforms. In the month of June, Nigeria economy was faced with both and it played a significant role in financial and insurance sectors real GDP growth. Financial sector over the years has been resilient against emergence of economy misfortune in Nigeria for obvious reasons. But for this time, the financial and insurance sectors were not insulated against the economy turmoil witnessed in Q2 2023.”

He predicted further decline in third quarter (Q3) of 2023, stating that the removal of fuel subsidy and foreign exchange reforms had half impact towards June 2023 ending.

“With happenings in the economy that has trigged inflation rate, the volume of business activities in Nigeria has significantly dropped. It may take a long time before the adjustment begins to happen. Nigeria is still stuck with high level of infrastructure deficit, low energy production and insecurity. These are the major indicators to drive that sectors and for now, no improvement, ”he said.

On his part, the CEO, Vice President, Highcap Securities Limited, Mr. David Adnori stated that the sectors recorded an aggressive growth rate through excessive use of online and internet banking facilities because of cash scarcity, but the reform of the new government, most especially in the foreign exchange market impacted on the financial sector GDP performance in Q2 2023.  

He added that, “The implication is that other key sectors like Agriculture and Manufacturing suffered the deficiency in wrong implementation of currency redesign program and cash scarcity. The policy was badly mismanaged by CBN, and that is the result we are seeing today.”

Also speaking, the CEO Wyoming Capital and Partners, Mr. Tajudeen Olayinka said the decline in financial and insurance real GDP growth is a reflection of the state of the economy.

According to him, “Economy itself suffered a decline in Q2 2023 to 2.51per 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.”

Financial Institution GDP Growth Down 2.76% to N846.77bn on Fuel Subsidy, FX Reforms

Kayode Tokede

The fallout of 2023 general elections, uncertainty surrounding domestic and foreign economics, among others weakened financial institution’s Gross Domestic Product (GDP) growth in second quarter of (Q2) 2023, dropping by 2.76 per cent to N846.77 billlion from N870.82 billion reported by National Bureau of Statistics (NBS) in first quarter of (Q1) 2023.

The N846.77 billion financial institution GDP is 29 per cent Yea-on-Year (YoY) from N655.22 billion in Q2 2022 and it is coming on the backdrop of significant increase in online lending, commercial banks expansion in loans, among others.
However, the insurance sector GDP growth stood at N86.04billion in Q2 2023, a growth of 9.9 per cent from N78.3 billion in Q1 2023.

The NBS said Finance and Insurance, accounted for 90.78 per cent and 9.22 per cent of the industry respectively in real terms in Q2 2023.

According to NBS’s latest report, the contribution of Finance and Insurance to real GDP totalled 5.26 per cent, higher than the contribution of 4.25 per cent recorded in the Q2 2022 by 1.01percentage points, and lower than 5.35 per cent recorded in Q1 2023 by 0.08 percentage points.

Nigeria’s real GDP, according to NBS dropped to 2.51 per cent in Q2 2023 from 3.54 per cent in Q2 2022. GDP growth had opened Q1 2023 at 2.31 per cent from 2.25 per cent in Q4 2022.

NBS attributed the decline in GDP to the challenging economic conditions Nigeria currently experiencing.

The performance of the GDP in Q2 2023 was driven mainly by the Services sector, which recorded a growth of 4.42per cent and contributed 58.42per cent to the aggregate GDP

S&P Global in its PMI surveys had stated that acceleration of services sector growth pushed the pace of global expansion.

All major economies reported robust service sector growth, in all cases outperforming manufacturing, which consequently remained broadly stalled on a global basis.

Nigeria business environment is currently facing double-digit inflation, associated cash shortages that has impacted on consumer spending, aggravating foreign-exchange shortages, among others.

Speaking with THISDAY, a Senior Lecturer at Lagos Business School, Dr. Adi Bongo attributed the decline in finance and insurance to fuel subsidy and foreign exchange reforms in the domestic economy.

According to him, “It is in two parts. First, we had the fuel subsidy removal and foreign exchange reforms. In the month of June, Nigeria economy was faced with both and it played a significant role in financial and insurance sectors real GDP growth. Financial sector over the years has been resilient against emergence of economy misfortune in Nigeria for obvious reasons. But for this time, the financial and insurance sectors were not insulated against the economy turmoil witnessed in Q2 2023.”

He predicted further decline in third quarter (Q3) of 2023, stating that the removal of fuel subsidy and foreign exchange reforms had half impact towards June 2023 ending.

“With happenings in the economy that has trigged inflation rate, the volume of business activities in Nigeria has significantly dropped. It may take a long time before the adjustment begins to happen. Nigeria is still stuck with high level of infrastructure deficit, low energy production and insecurity. These are the major indicators to drive that sectors and for now, no improvement, ”he said.

On his part, the CEO, Vice President, Highcap Securities Limited, Mr. David Adnori stated that the sectors recorded an aggressive growth rate through excessive use of online and internet banking facilities because of cash scarcity, but the reform of the new government, most especially in the foreign exchange market impacted on the financial sector GDP performance in Q2 2023.  

He added that, “The implication is that other key sectors like Agriculture and Manufacturing suffered the deficiency in wrong implementation of currency redesign program and cash scarcity. The policy was badly mismanaged by CBN, and that is the result we are seeing today.”

Also speaking, the CEO Wyoming Capital and Partners, Mr. Tajudeen Olayinka said the decline in financial and insurance real GDP growth is a reflection of the state of the economy.

According to him, “Economy itself suffered a decline in Q2 2023 to 2.51per 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.”