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Financial services sector expands by 0.15% on banks’ capital buffers

Financial services sector recorded a positive growth of 0.15 percent in real terms, in the first quarter of 2021 compared to a contraction of 2.48 percent in the fourth quarter of 2020, according to the National Bureau of Statistics (NBS).

The banking and financial services has been resilient thanks to the ample pre-crisis buffers. Banks in Africa’s biggest economy entered the crisis with adequate capital buffers and profitability, which they are now tapping into, according to the International Monetary Fund (IMF).

The Banking Stability Report shows that the banking industry remains stable and resilient, said Festus Adenikinju, member of the Monetary Policy Committee (MPC).

“The Capital Adequacy Ratio, Non-performing Loans (NPLS) Ratio and the Liquidity Ratio remain quite encouraging and not significantly different from where they were at the January meeting of the MPC,”.

However, there were moderate declines in Returns on Equity (ROE) and Returns on Assets (ROA) and a significant rise in the share of operating incomes in total interest incomes of Deposit Money Banks.

He said all measures of bank size, total assets, credit and deposits significantly rose year-on-year. Over N4.56 trillion additional credit was created in the last one year, N300 billion in the last one month and N6.95 trillion of additional deposits.

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The Other Financial Institutions have also expanded credit appreciably, thereby providing credit support to women, workers, and informal sector operators, those that are discriminated against by the traditional banks. Data on the industry’s credit disbursement shows that 83.04 percent of banking creditors were able to access credit at below 15 percent lending rates.

The NBS Gross Domestic Product (GDP) report released at the weekend showed that financial and insurance Services sector consists of the two subsectors, Financial Institutions and Insurance, which accounted for 87.55 percent and 12.45 percent of the sector respectively in real terms in Q1 2021. The sector grew at 2.15 percent in nominal terms (year on year), with the growth rate of Financial Institutions as 2.78 percent and –2.08 percent growth rate recorded for Insurance.

According to the report, the overall rate was lower than that in Q1 2020 by –21.81 percent points, but 3.25 percent points higher than the preceding quarter.

Quarter- on- quarter growth stood at 6.47 percent. The sector’s contribution to the aggregate nominal GDP was 3.25 percent in Q1 2021, lower than the 3.57 percent it represented the previous year, but higher than the contribution of 2.80 percent in the preceding quarter.

In real terms, the Financial and Insurance Services sector grew by –0.46 percent, or –21.26 percent points lower from the rate recorded in the first quarter of 2020, but 3.16 percent points higher than the rate recorded in the preceding quarter. Quarter-on-quarter growth in real terms stood at 5.78 percent.

The sector’s contribution to real GDP was 3.77 percent, lower than the contribution of 3.81 percent recorded in the first quarter of 2020 by –0.04 percent points, but higher than 3.07 percent recorded in Q4 2020 by 0.70 percent points.

Uche Uwaleke, professor of capital market and president, Capital Market Academics of Nigeria, said the Q1 2021 GDP report reflects an economy already on the path of gradual economic recovery with a positive real GDP growth rate following that recorded in the previous quarter.

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