Market News

BY Kayode Tokede

Despite ongoing reforms in Nigeria’s financial sector, the contribution of financial institutions to the country’s real Gross Domestic Product (GDP) declined by 10 per cent quarter-on-quarter (QoQ) to N1.57 trillion in the second quarter (Q2) of 2026, from N1.75 trillion recorded in Q1.

This was disclosed by the National Bureau of Statistics (NBS) in its latest Nigerian Gross Domestic Product Report for Q2 2026.

The decline came despite a series of reforms undertaken by the Central Bank of Nigeria (CBN) to strengthen the financial system, improve banks’ capacity to finance the economy and support the Federal Government’s ambition of building a $1 trillion economy by 2031.

The banking sector concluded its recapitalisation exercise in March 2026, following the CBN’s directive mandating banks to raise fresh capital. The exercise was designed to position Nigerian banks to provide long-term financing for large-scale infrastructure and industrial projects, while also strengthening their capacity to support economic growth.

The recapitalisation exercise also attracted significant capital inflows into the financial sector, while banks continued to support developments in the real sector and the expansion of digital payment services.

However, the CBN’s continued monetary tightening to strengthen the naira, contain inflation and maintain macroeconomic stability has placed pressure on financial institutions’ lending and transaction volumes.

According to the NBS report, the insurance sector recorded a stronger performance during the quarter, with its contribution to real GDP rising to N230.64 billion in Q2 2026, representing a 27.5 per cent QoQ increase from N180.9 billion in Q1.

In real terms, financial institutions accounted for 87.22 per cent of the combined contribution of the Finance and Insurance sector in Q2, while the insurance industry accounted for 12.78 per cent.

The NBS also reported that the Finance and Insurance sector grew by 11.88 per cent year-on-year (YoY) in nominal terms during the quarter. Financial institutions grew by 10.92 per cent, while the insurance sector recorded a stronger growth rate of 18.88 per cent.

The bureau stated that the sector’s nominal growth rate was lower than the rate recorded in Q2 2025 by 51.79 percentage points and 35.03 percentage points below the preceding quarter. However, on a QoQ basis, nominal growth stood at 21.49 per cent.

The sector’s contribution to nominal GDP stood at 4.32 per cent in Q2 2026, compared with 4.57 per cent recorded in the corresponding quarter of 2025, but higher than the 3.83 per cent recorded in Q1 2026.

In real terms, the Finance and Insurance sector grew by 9.29 per cent in Q2 2026. This represented a decline of 6.84 percentage points from the growth rate recorded in Q2 2025, but an increase of 0.74 percentage points from the preceding quarter.

However, on a QoQ basis, the sector recorded a contraction of 6.49 per cent.

The contribution of Finance and Insurance to real GDP stood at 3.37 per cent in Q2 2026, compared with 3.23 per cent in Q2 2025. However, this was lower than the 3.76 per cent contribution recorded in Q1 2026.

Commenting on the decline in the contribution of financial institutions to real GDP, the Vice President, Highcap Securitas Limited, Mr. David Adnori, attributed the slowdown largely to the CBN’s intensified monetary tightening measures.

According to him, the tighter monetary environment had slowed banks’ creation of risky assets, thereby affecting the volume of financial activities during the quarter.

“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,” he said.

The CBN has maintained the Monetary Policy Rate (MPR) at 26.50 per cent since 2026, amid efforts to curb inflation and stabilise the foreign exchange market.

Analysts have also attributed the contraction in the financial institutions’ contribution to real GDP to the slowdown in banking transactions arising from the high interest-rate environment.

The Managing Director, Globalview Capital Limited, Mr. Aruna Kebira, said the decline was primarily driven by the CBN’s monetary tightening policies.

He explained that while the measures were aimed at combating inflation, they had the unintended consequence of slowing financial and transactional activities.

“These policy measures, which include high interest rates, are designed to combat inflation but can lead to a slowdown in financial and transactional activities,” he said.

Kebira noted that the CBN’s sustained monetary tightening, including its high MPR, had directly affected the financial sector by increasing the cost of borrowing and making banks more cautious in extending credit.

“A high-interest-rate environment can slow down lending and reduce the creation of new financial assets, as banks become more cautious and borrowers are less inclined to take on new loans.

“This reduction in the volume of transactions ultimately lessens the sector’s contribution to overall GDP,” he said.

He further identified high energy costs and naira depreciation as additional challenges confronting businesses and financial institutions.

According to him, the combination of high interest rates, rising operating costs and foreign exchange pressures had weakened borrowing and investment activities by both businesses and individuals.

“The high-interest-rate environment, coupled with broader economic challenges such as high energy costs and foreign exchange devaluation, has led to a reduction in the volume of financial transactions.

“With a harsh operating environment, both businesses and individuals reduced their borrowing and investment activities, directly affecting the profitability and growth of financial institutions,” Kebira added.