LAGOS – Nigerian banks face structural credit profile and asset quality threats over the next few decades due to high concentrations in climate-sensitive sectors, according to a new report by Fitch Ratings titled “African Banks Have Structural Exposure to Climate Risk; Credit Implications Evolving”.
Fitch predicts that by 2050, Nigeria will score between 50 and 55 out of 100 for combined climate vulnerability, matching the high-risk profiles of South Africa, Kenya, and Egypt.
“Climate risk is becoming a structural consideration for African banks’ credit profiles,” Fitch stated, noting that recurrent environmental shocks and policy shifts will inevitably weaken borrower repayment capacity and hit asset quality.
Lenders are heavily exposed to transition risks in carbon-intensive hydrocarbons, alongside physical risks like severe flooding and droughts that threaten collateral values in the domestic agriculture and real estate markets.
The agency expects these environmental pressures to become financially material to bank balance sheets by the mid-2030s, ultimately translating into higher non-performing loans through weakened borrower cash flows.
The warning arrives as local lenders navigate a fragile macroeconomic landscape, marked by the central bank’s withdrawal of regulatory forbearance on oil exposures that recently pushed sector non-performing loans to 8%.
However, the system remains resilient. Over 30 Nigerian financial institutions successfully met the Central Bank of Nigeria’s mandatory trillion-naira recapitalization deadline to cushion their balance sheets against immediate credit shocks.
Fitch noted that while green financial instruments offer a buffer for banks to diversify funding, high local borrowing costs and underdeveloped markets will limit their near-term mitigation potential.
