GDP: Financial Institutions, Insurance sectors’ Contribution Rose 27% to N3.81trn

The financial institutions and insurance sectors’ contribution to Gross Domestic Product (GDP) increased by 27 per cent in 2023, according to the latest information by the National Bureau of Statistics (NBS).

The bureau in its “Nigerian Gross Domestic Product Report” revealed that both the financial institution and insurance sectors contributed N3.81 trillion in 2023 from N3.01 trillion reported in 2022.

The breakdown revealed that financial institutions in 2023 show an increase of 29 per cent to N3.5triilliion from N2.72triillion, while the insurance sector recorded 4.8per cent growth to N305.02billiion in 2023 from N290.98billion in 2022.

The report by NBS stated that the finance and Insurance sector consists of the two subsectors, Financial Institutions, and Insurance, in which the former accounted for 94.02 per cent and the latter 5.98 per cent of the sector respectively in real terms in Q4 2023.

According to the report, “As a whole, the sector grew at 32.29 per cent in nominal terms (year-on-year), with the growth rate of Financial Institutions at 33.98 per cent and 10.37 per cent growth rate recorded for Insurance.

“The overall rate was higher than Q4 2022 by 9.71 percentage points, and higher by 2.09 percentage points than the preceding quarter.

“The quarter-on-quarter growth was 28.62 per cent. On an annual basis, the sector grew by 28.24 per cent, higher than 26.42 per cent in 2022. The sector’s contribution to the nominal GDP was 3.76% in Q4 2023, higher than the 3.30 per cent it represented a year previous, and higher than the contribution of 3.17 per cent it made in the preceding quarter.

Growth in this sector in real terms totalled 29.78 per cent, higher by 18.16 percentage points from the rate recorded in the 2022 fourth quarter and higher by 1.56 percentage points from the rate recorded in the preceding quarter.

“Quarter-on-quarter growth in real terms stood at 27.30 per cent. On an annual basis, the sector grew by 26.53 per cent, higher than 16.36 per cent in 2022.

“The contribution of Finance and Insurance to real GDP totalled 4.95per cent, higher than the contribution of 3.95per cent recorded in the fourth quarter of 2022 by 1.00percentage points, and higher than 4.36% recorded in Q3 2023 by 0.60percentage points.”

The financial institutions’ contribution to GDP is on the backdrop of lending to the real sector and expanding in business operating across the continent.

The Central Bank of Nigeria (CBN) revealed that the bank’s credit to the private sector rose to N76.94trilliiion in January 2024, representing an increase of 85.2 per cent or N35.4trillion Year-on-Year (YoY) from N41.54trillion reported January 2023.

On a Month-on-Month growth, the Money and Credit Statistics by CBN showed that credit to the private sector gained 23.06per cent or N14.42 trillion MoM from N62.52 trillion in December 2023 amid the unification of the naira policy of the apex bank.

According to CBN, credit to the private sector in 2023 rose to N62.52 trillion, a growth of 50.49 per cent or N20.98 trillion from N41.54 trillion reported by the CBN in January 2023.

According to analysts, the reported N76.94trillion credit to the private sector is on the backdrop of the weakening of the naira at the foreign exchange market, stressing that bank customers were lending to big corporations to meet the 65 per cent Loan-to-Deposit Ratio (LDR) threshold of the CBN.

The CBN has updated its Cash Reserve Requirement (CRR) mechanism, making banks with minimum LDR below requirement face a 50 per cent lending shortfall.

The policy was set to improve lending to customers to stimulate the real sector of the economy. It implies that for every N100 received as deposits, the banks are to lend N65 to customers.

The apex bank had in a circular to banks stated that it would resume the enforcement of the LDR policy effective July 31, 2023.

Also, CRR is one of the monetary policy tools the CBN uses to limit the circulation of money or supply in the economy, as banks’ liquidity drops. In the last monetary policy committee (MPC) meeting of the CBN in July 2023, the CRR was retained at 32.5 per cent.

However, the Acting Director of the Banking Supervision Department, CBN, Adetona Adedeji in a circular to all Deposit Money Bank (DMBs) said, the apex bank is ceasing its daily CRR debits and will be adopting an updated CRR mechanism that is intended to facilitate bank capacity for planning, monitoring and aligning with records with the CBN.

According to him, the determination of the segment of deposits subject to sterilization with the CBN as CRR will follow the processes outlined that “utilization of the incremental Approach: the extant ratios commercial banks 32.5 per cent and merchant banks 10per cent will be applied to increases in the bank’s weekly average adjusted deposits.”

The second phase is that a “CRR levy of 50 per cent of the lending shortfall will be enforced for banks that do not meet the minimum LDR as per our correspondence to all banks referenced BSD/DIR/GEN/LAB/12/049 dated September 30, 2019.”

He stated that the CBN will provide the bank with details of the applied charges and their underlying computation rationale.

Commenting on the N14trillion MoM credit to private sector growth, the Director/Chief Executive Officer · Centre for the Promotion of Private Enterprise (CPPE), Mr Muda Yusuf explained that bank customers now need more money to fund their foreign exchange commitments.

According to him, “If those in the private sector do not have the needed funds, it means they will have to borrow from banks to support their business obligations.

“The volatility in the foreign exchange has forced some customers to borrow more from banks and it is responsible for N76.94trillion credit to private in January 2024.”

The Vice President, of Highcap Securitas Limited, David Adnori also alluded to the growth to depreciation of the naira, stressing that a lot of big corporates have to access funds from the banks in a move to meet the supply of their inputs.

According to him, “It is obvious that credit to the private sector is expected to increase in January amid macroeconomy challenges. The weakening of the local currency has given more room to borrow from banks.”