The impressive performance of the financial services sector in 2023 despite the turbulence in the economy is a clear indication that the sector holds a lot of promise for Nigeria’s economic revival. The impressive performance, as highlighted by the 2024 State of the Enterprise (SOE) report published by the EnterpriseNGR, has defied all odds.

The SOE is the first of its kind to provide detailed insights on all the sub-sectors of the financial and professional service (FPS) sector, comprising banking, insurance, capital markets, asset management, pensions, non-interest finance, financial technology, legal services management consulting and sustainable finance.
The report showed that the sector had significant positive impacts on people, businesses and the economy with the banks and other financial services collectively, contributing 4.6 per cent to Nigeria’s gross domestic product (GDP) in 2023.

Last year, especially the second half of the year would go down in history as one of Nigeria’s most difficult periods – for businesses and even households. Yet, the investment market posted impressive returns on investment, with the capital market gaining nearly 50 per cent.

The hard times came on the back of fuel subsidy removal and the unification of the exchange rate of the naira. The twin policies, which are part of the economic reform measures of the new administration, saw prices of goods and services hitting the rooftop, driving inflation to an all-time high of over 30 per cent.

This led to the shut-down of many businesses while those that are still struggling to sustain operations have drastically scaled down their operations.

The first and second quarter of 2024 gross domestic product (GDP) clearly shows the devastating effect the economic headwinds have had on different sectors of the economy, especially the manufacturing sector or the real sector, which maintained a steady decline moving from 2.2 per cent in the second quarter of 2023 to 1.28 per cent in the second quarter of 2024.

In contrast with the financial services sector which within the same period maintained a positive trajectory hitting 28.79 per cent in the second quarter of 2024 about 1.95 per cent higher than the figure, it was in the second quarter of 2023 when it had a growth of 26.84 per cent.
That shows the resilience of the sector, defying the harsh economic environment to sustain the economy and drive growth in other sectors.

The government recognises this crucial role the financial services sector can play in economic growth hence the ongoing banking sector recapitalisation exercise which is premised on the fact that if the sector is solid, it can stimulate other sectors and help them try to achieve the target of a $1 trillion economy.

The SOE report equally recognised the centrality of the financial and professional services sector in catalysing economic growth. According to the report, which was prepared with contributions from some of the leading investment banks, Nigerian banks and other financial services accounted for 4.6 per cent of GDP, which translates to financial institutions accounting for approximately N5 for every N100 generated nationally in 2023, up from about N4 in 2022.

“The collective deposit money banks (DMB) had total assets of N121 trillion that are equivalent to half of the national gross domestic product,” it noted. It added that banks also played a significant supportive role in facilitating necessary funds to support businesses and the productive sector.

“The sub-sector’s role in tax revenue was equally commendable, ranking third out of the 23 economic sectors, in income tax and VAT generation to the government coffer. The insurance sub-sector saw impressive momentum in 2023, with gross premium written reaching the N1 trillion mark.

“Even though this growth was driven by a regulatory intervention, such as increased motor insurance rates, the sub-sector paid 36 per cent more claims than in 2022, an indication that the Insurance sub-sector is rising to its responsibility to protect policyholders against adverse financial and economic consequences,” the report said.

Other sub-sectors surveyed that also showed impressive performance include, the asset management sub-sector, which drives much of the activity in the markets. The sub-sector, according to the report, is also laying the foundation for national future growth through collective investments.

“The total net asset value (NAV) for all collective investment schemes soared by almost 50 per cent in 2023, and the number of registered mutual funds increased to 144 from 133 in 2022,” the report said, adding that this growth highlights the growing confidence in the markets.

The report said the pension sub-sector is one of Nigeria’s regulatory success stories, steadily building a secure future for millions of employees.
With over 10 million contributors, the sub-sector has accumulated over N18 trillion in investments, with 65 per cent of this invested in government securities.

“By 2023, the sub-sector had paid over N400 billion in retirement benefits, and about N36 billion to contributors temporarily out of jobs, 2023. “The Pensions sub-sector is not just a growing force in the economy, it is a safety net,” it noted.

It said that non-interest finance is broadening financial inclusion by providing access to many Nigerians who do not engage in traditional financial services. It told the sub-sector boasts a market size worth ₦2.5 trillion, growing by ₦1 trillion in a year.

“Strong demand for ethical investments is driving numbers in the sub-sector. A key example is the issuance of a ₦150 billion sovereign sukuk in 2023, which was oversubscribed by more than 400 per cent. The sub-sector is aligning financial practices with ethical values to grow national investments.” it reported.

Other sub-sectors highlighted in the report include, Nigeria’s fintech sub-sector is connecting millions of Nigerians to financial services, helping them meet their everyday needs at reduced costs compared to traditional banks. “Mobile money operators processed 140 per cent more transaction values, at about ₦46.6 trillion in 2023 compared to ₦19.4 trillion in 2022.

The Chief Executive Officer of EnterpriseNGR, Obi Ibekwe in her comment on the report, noted that it reflects SOE’s dedication to providing evidence to showcase the critical role of the FPS sector in Nigeria’s economy and to inspire collective action to advance the growth and development of the sector.