Financial Service Sector Contribution to GDP Plummet by 7.7% to N1.11tn

Kayode Tokede

Amid impressive loans growth by banks and increasing insurance participation, the financial service sector’s contribution to real Gross Domestic Product (GDP) dropped by 7.7 per cent to N1.11trillion in third quarter of (Q3) 2024 from N1.2 trillion reported in second quarter of (Q2) 2024.

Financial institutions in Nigeria are faced with regulatory/policy uncertainties, macro economic instability, high Non-performing Loans (NPLs), economic inequality and financial inclusion, among other challenges.

On the backdrop of the challenges, the latest report by the National Bureau of Statistics (NBS) revealed that financial service sector witnessed a decline in real GDP growth in Q3 2024.

A breakdown showed that banks in Q3 2024 recorded N1.02 trillion, about 7.9 per cent Quarter-on-Quarter (QoQ) decline from N1.1 trillion in Q2 2024, while insurance sector closed at N91.32 billion in Q3 2024, representing about 6.3 per cent QoQ decline from N97.5 billion reported by NBS in Q2 2024. 

The NBS report revealed that the banking and insurance sector consist of the two subsectors, Financial Institutions, and Insurance, in which the former accounted for 91.76 per cent and the latter 8.24 per cent of the sector respectively in real terms in Q3 2024.

The report stated that, “Overall, the sector grew at 74.54 per cent in nominal terms (year-on-year), with the growth rate of Financial Institutions at 75.99 per cent and 59.84 per cent growth rate recorded for Insurance. The overall rate was higher than Q3 2023 by 44.34percentage points, and lower by 12.05percentage points than the preceding quarter.

“The quarter-on-quarter growth was -13.80per cent. The sector’s contribution to the nominal GDP was 4.72per cent in Q3 2024, higher than the 3.17per cent it represented a year previous, and lower than the contribution of 6.39per cent it made in the preceding quarter.”

“Growth in this sector in real terms totaled 30.83per cent, higher by 2.62percentage points from the rate recorded in the 2023 third quarter and higher by 2.04percentage points from the rate recorded in the preceding quarter.

“Quarter-on-quarter growth in real terms stood at -7.73perr cent. The contribution of Finance and Insurance to real GDP totalled 5.51per cent, higher than the contribution of 4.36per cent recorded in the third quarter of 2023 by 1.15perrcentage points, and lower than 6.57per cent recorded in Q2 2024 by 1.06percentage points,” the report added.

NBS had stated that Nigeria’s GDP grew by 3.46 per cent (year-on-year) in real terms in Q3 2024, stressing that the growth rate is higher than the 2.54 per cent recorded in the Q3 2023 and higher than the second quarter of 2024 growth of 3.19 per cent.

“The performance of the GDP in the third quarter of 2024 was driven mainly by the Services sector, which recorded a growth of 5.19 per cent and contributed 53.58 per cent to the aggregate GDP. The agriculture sector grew by 1.14 per cent, from the growth of 1.30 per cent recorded in the third quarter of 2023.

“The growth of the industry sector was 2.18 per cent, an improvement from 0.46 per ecnt recorded in the third quarter of 2023. In terms of share of the GDP, the services sector contributed more to the aggregate GDP in the third quarter of 2024 compared to the corresponding quarter of 2023.

“In the quarter under review, aggregate GDP at basic price stood at N71,131,091.07 million in nominal terms. This performance is higher when compared to the third quarter of 2023 which recorded aggregate GDP of N60,658,600.37 million, indicating a year-on-year nominal growth of 17.26 per cent,” NBS said.

 Analysts have questioned the decline in financial institution and insurance sector contribution to GDP in Q3 2024, expressing the sector’s lending to real sector currently at N75.85 trillion as of September 2024.

One analyst who does not want his name in print stated that the loan books of banks in nine months of 2024 witnessed significant increase that does not reflect in GDP report of NBS.

He expressed that the Fintech companies have played a significant role in lending to real sector, most especially the small and medium-sized enterprises (SMEs) the report failed to capture in the period under review.

THISDAY had reported that credit to the private sector in Nigeria crossed the N75 trillion mark as of September 2024, reflecting a substantial year-on-year growth of around 30per cent compared to N59.5 trillion in the same month of 2023.

This increase indicates robust lending activity despite tight monetary policies implemented by the Central Bank of Nigeria (CBN).

The lending growth is linked to efforts to stimulate economic activity, particularly through funding businesses and enhancing productivity. However, challenges persist, such as ensuring inclusive credit access across all sectors, especially to SMEs, which play a critical role in job creation and economic inclusion.

Analysts agreed that increasing private sector credit implies a major boost for the economy as there is a link between credit to the private sector and economic growth. Several studies have continuously found that increased lending by banks directly leads to increase in GDP.

Analysts at Cordros Capital said the trend in credit to private sector may continue in the period ahead.

“We believe the re-enforcement of the CBN’s limit on Deposit Money Bank’s loans-to-deposits macro-prudential ratio will continue to drive the willingness of commercial banks to create risky assets over the short to medium term,” Cordros Capital stated.

 The financial institutions and insurance sectors’ contribution to GDP in 2023 had increased by 27 per cent to N3.81 trillion from N3.01 trillion reported in 2022. 

The total assets of Nigerian banks soared to N121 trillion in 2023, and financial institutions generated about N5 for every N100 earned nationally. The banking sub-sector also ranked third in generating income tax and value-added tax (VAT) for the government. Fintechs in 2023 played a key role in making financial services more accessible. In 2023, mobile money transactions skyrocketed by 140 per cent, reaching N46.6 trillion, while personal loans increased by 19 per cent to N2.28 trillion.