Finance and insurance sector’s growth declines by 2.41% in Q2

Economic activities in Nigeria’s finance and insurance sector fell by 2.41 percent in the second quarter (Q2) of this year, after rising to a 13-year high in the previous quarter.

According to the latest Gross Domestic Product (GDP) report by the National Bureau of Statistics (NBS), the sector fell to 28.79 percent in the second quarter of 2024 from 31.2 percent in the first quarter of 2024.

“The slowdown in the Finance and Insurance sub-sector was primarily due to the CBN’s intensification of monetary tightening measures, which slowed banks’ creation of risky assets.”

Read also: Finance and insurance sector grew by 6.57% in Q2

“Specifically, the MPC raised the MPR further to 26.25 percent in May (Previous: 24.75 percent), while lowering Banks’ Loan-to-Deposit Ratio to 50 percent from the previous rate of 60 percent,” analysts at Cordros Securities said in a recent note.

Experts have attributed this contraction to a slowdown in the volume of transactions banks undertook owing to a high interest rate environment.

“The volume of transactions in the banking and insurance sector is down due largely to the harsh operating environment. With the increases in energy costs such as fuel and electricity, the FX devaluation, etc. financial transactions appear to be fewer,” Shuaib Idris, managing director, Timeline Consulting said.

Clement Izu, head of research, Financial Derivatives Company Limited, stated that the growth in the financial services sector appears strong, but unusual owing to the CBN’s monetary policy tightening stance.

“In the financial services sector, the growth is not unusual. When you have monetary policy tightening, yields and interest rates go up, which means that the spread between deposits and lending widens and the banks make more profit,” he said in an interview with Arise News.

BusinessDay’s analysis of the report showed that the quarterly contribution to the total GDP also contracted by 0.24 percent in the second quarter of 2024.

Read also: Finance and insurance sector’s growth surges to 13-year high

“The contribution of Finance and Insurance to real GDP totalled 6.57 percent, higher than the contribution of 5.26 percent recorded in the second quarter of 2023 by 1.31 percent points, but lower than 6.81 percent recorded in Q1 2024 by 0.24 percent points,” it said.

Uche Uwaleke, Director, Institute of Capital Market Studies said that the aggregate GDP growth is weak compared to population growth.

“3.1 percent is still weak if we look at the average we have done in the last 5-6 years. It’s been under 2.5 percent and there’s a situation where the population is growing above the GDP growth rate, so there won’t be much of that impact,” he said in an interview with Arise News.