At first glance, the numbers look impressive: Nigeria’s banks, insurance companies and other financial institutions pumped N4.94 trillion into the economy in the first nine months of 2025 – a solid 17% jump from the same period last year.
Dig one layer deeper, however, and a worrying trend appears: the sector is actually shrinking quarter after quarter in 2025, even while the overall economy expands.
According to fresh GDP data released by the National Bureau of Statistics this week, the finance and insurance sector’s real contribution (that is, after removing inflation) dropped from N1.778 trillion in January–March to N1.651 trillion in April–June, and then fell again to N1.512 trillion in July–September. That’s a painful 15% slide from the start of the year and the second straight quarterly decline.
In plain language: Nigerian banks and insurers are making more money than ever in naira terms, but they are doing less real heavy lifting for the wider economy.
What the numbers really mean
Yet when you look quarter by quarter, the picture turns gloomy.
In the first three months of the year (January to March), the sector added N1.778 trillion in real value after removing inflation, and that was 15% higher than the same period in 2024.
By the second quarter (April to June), the contribution had already dropped to N1.651 trillion. That’s a 7.1% fall in just three months, even though it was still 16% better than the second quarter of the previous year.
Then in the third quarter (July to September), it slid further to N1.512 trillion, another 8.4% decline from the previous quarter, despite being almost 20% higher than the weak third quarter of 2024.
Put together, that’s a 15% drop in real economic contribution from the beginning of 2025 to the end of September, marking two straight quarters of shrinkage inside the same year.
In simple terms: banks and insurers are posting bigger naira profits than ever, but the actual useful work they do for the wider Nigerian economy is quietly getting smaller.
Even though the sector grew nearly 20% compared with the sleepy third quarter of 2024, it is now contributing a slightly larger slice of a much bigger GDP pie – rising from 2.7% of total GDP last year to 3.0% this year – yet the actual economic value added is shrinking in real terms.
Why is this happening?
Economists and banking executives point to four big culprits:
1. Sky-high interest rates
With the Central Bank pushing policy rate to 27.5%, banks are earning massive spreads by simply parking money in Treasury Bills and bonds that yield over 25%. “Why chase risky loans when government paper pays this well?” one commercial bank treasurer admitted off-record.
2. Loan growth has collapsed
Private-sector credit grew by less than 7% in real terms this year – the slowest pace in over a decade. Companies are too scared of 35%+ lending rates to borrow, and many households are paying off old debt instead of taking new loans.
3. Insurance penetration remains tiny
Despite premium income rising in naira (thanks to asset revaluation and compulsory policies), the real volume of new policies sold has barely budged. Most of the “growth” is just existing policies becoming more expensive because of inflation.
4. The OVH effect and one-off windfalls
Much of the headline growth in Q1 came from the revaluation of foreign-currency assets after the naira was allowed to float. Once that one-time boost faded, the underlying activity slowed sharply.
The bigger picture worry
When the financial sector grows mainly by lending to the government instead of to manufacturers, farmers and small businesses, the real economy suffers a double blow:
– Productive sectors struggle to get affordable funding.
– The government ends up paying ever-higher interest, crowding out money for roads, schools and hospitals.
Dr. Tunde Lemo, former Deputy Governor of the CBN, summed it up bluntly: “If banks become glorified bond traders and insurers just collect inflated premiums without covering more risks, the financial sector becomes a drag rather than an engine.”
Any silver lining?
There are a few. Digital banking and fintech continue to expand access – mobile money agents and POS terminals are now in almost every village. Insurance awareness is also creeping up, especially for health and motor covers.
But unless lending rates come down meaningfully and businesses start borrowing again, the finance sector risks another year of “growth without growth” – plenty of profit on paper, but fewer jobs, factories and real wealth created on the ground.
For millions of Nigerians still waiting for the economic recovery to reach their pockets, that is cold comfort.
