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

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-nQuarter (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