Financial institutions 2.85% growth reflects devaluation gains

The third quarter Gross Domestic Product (GDP) report released by the National Bureau of Statistics (NBS) showed Nigeria’s financial sector reported a real GDP growth rate of about 2.85 percent, from -13.26 percent in the second quarter.

This, analysts said it is a reflection of the gains of the foreign exchange devaluation, which moved the official exchange rate from N197 to N305 per dollar.

Johnson Chukwu, managing director/CEO of Cowry Asset Management limited, attributed the GDP growth to sharp increase in the earnings of financial institutions as a result of the naira devaluation recently.

He noted that the GDP of the financial institutions moved from .5 trillion to .51 trillion in real terms. Some industry observers see this as a reflection of the soundness and weight of these institutions. The Central Bank of Nigeria (CBN) had said that the Nigerian financial institutions are safe and sound.

“It is a positive surprise because there has been a lot of downward pressure on the banking sector,” said Tajudeen Ibrahim, head of research at Chapel Hill Denham Limited in an emailed note to BusinessDay (CHD).

“There has been a lot of value addition and we noticed that the profitability from their core business is not bad. We can still say that core business growth is fair. The results are commendable given these harsh operating environment,” said Ibrahim.

The cumulative net in income of 11 banks: First Bank Nigeria Plc, UBA Nigeria Plc, GTBank Nigeria Plc, Access Bank Nigeria Plc, Zenith Bank Nigeria Plc, Fidelity Bank Plc, Union Bank Nigeria Plc, Sterling Bank Nigeria Plc, Diamond Bank Nigeria Plc, Wema Bank Nigeria Plc and Eco Bank Plc, increased by 10.80 percent to N455.54 billion as at September 2016.

“The only sector that has shown strong growth this quarter is the banking sector,” according to Kunle Ezun, currency analyst atEcobank Nigeria.

“Government securities are also a plus to their earnings. They are lending to the real sector,” said Ezun.

Meanwhile the contraction of the insurance sector growth to 1.22 percent as at September 2016 from 5.5 percent in September 2105 has been described by insurers as a clear reflection of the economy.

They players said that since insurance is driven by consumption, the current economic situation in Nigeria exacerbated by scarcity of dollar, fall in commodity prices and its attendant effects on manufacturing sector as well as other businesses have also slowed insurance business.

Mayowa Adeduro, managing director/CEO, Anchor Insurance Plc said “Insurance premium is driven by consumption, and when people have increasing fall in their income, the first thing they drop in their priority list is insurance”.

Adeduro said the current shock in the economy, which has affected manufacturing business, agric sector which has been worsened by insecurity in the North Easter part the country have all contributed to low premium for insurance.

 

HOPE MOSES-ASHIKE & BALA AUGIE