Key points
- Fitch Ratings says Nigerian banks face increasing climate-related risks due to heavy exposure to the oil and gas, agriculture and mining sectors.
- The agency warns that climate change and global decarbonisation policies could weaken borrowers’ repayment capacity and increase credit losses.
- Fitch urges banks to strengthen climate-risk management, diversify loan portfolios and expand green finance initiatives to improve resilience.
Main Story
Fitch Ratings has warned that Nigerian banks face growing exposure to climate-related risks that could materially weaken their credit quality, asset performance and long-term financial resilience.
In a report titled “African Banks Have Structural Exposure to Climate Risk; Credit Implications Evolving,” the global ratings agency said that although the immediate impact of climate risks remains manageable, both transition and physical climate risks are expected to intensify over time, posing significant challenges for banking systems across Africa.
According to Fitch, Nigeria’s economy—and by extension its banking sector—remains particularly vulnerable because of its heavy dependence on hydrocarbons and agriculture.
The agency noted that a significant proportion of Nigerian banks’ loan portfolios is concentrated in sectors that could be adversely affected by stricter global climate policies, technological shifts and changing investor preferences.
It identified the oil and gas, mining and heavy industrial sectors as particularly exposed to the global transition toward lower-carbon economies.
Fitch warned that tightening international climate commitments could reduce the profitability of carbon-intensive industries and leave some energy assets stranded, increasing credit risks for banks with concentrated sectoral exposures.
The agency also highlighted mounting risks facing agricultural borrowers as climate-related events such as floods, droughts and rising temperatures become more frequent across the continent.
According to the report, these developments could weaken borrowers’ repayment capacity, reduce the value of collateral backing loans and increase impairment charges across the banking industry.
Beyond sector-specific risks, Fitch said climate-related disruptions could slow economic growth, weaken household incomes, reduce corporate profitability and heighten macroeconomic volatility, further increasing pressure on banks’ balance sheets.
Using its Climate Vulnerability Signals (Climate.VS) framework, Fitch projects that Nigeria could record a combined climate-risk score of between 50 and 55 by 2050, placing it among the African countries most exposed to long-term climate risks.
The report noted that Nigeria is also developing carbon-pricing and carbon-market frameworks to support its climate commitments, although such policies could increase operating costs for businesses and indirectly affect banks through weaker borrower performance.
Despite these challenges, Fitch said banks that proactively integrate climate considerations into their lending and risk management practices stand to benefit from emerging opportunities in sustainable finance.
The agency identified green finance, climate-linked lending and sustainable investment products as areas that could support future business growth while improving resilience.
Fitch also noted that the Central Bank of Nigeria (CBN) is strengthening climate-risk governance and disclosure frameworks to improve transparency and risk management across the financial sector.
The Issues
Fitch’s report highlights several structural risks facing Nigeria’s banking industry:
Heavy concentration of bank lending in oil and gas, agriculture and mining.
Rising exposure to climate-related disasters, including flooding and drought.
Potential decline in collateral values and deterioration in loan quality.
Increased regulatory requirements relating to climate-risk disclosure and governance.
Balancing Nigeria’s dependence on fossil fuels with its long-term climate commitments under the Paris Agreement.
Growing investor preference for institutions with strong environmental, social and governance (ESG) credentials.
What’s Being Said
Fitch Ratings
“Oil and gas, mining, and heavy industry remain central to economic activity in several countries, with Nigerian banks among the most exposed due to the country’s reliance on hydrocarbons and agriculture.”
The agency warned that stricter global decarbonisation policies could weaken the profitability of carbon-intensive industries, reduce collateral values and increase credit losses for banks.
Fitch also projected that physical climate risks—including flooding, droughts and rising temperatures—will become increasingly significant by 2050, particularly across West Africa.
The agency advised banks to:
Integrate climate considerations into enterprise risk management.
Diversify lending away from highly exposed sectors.
Expand green finance and sustainable lending.
Engage customers on low-carbon transition strategies.
What’s Next
Nigerian banks are expected to strengthen climate-risk governance as regulatory expectations evolve and investors increasingly focus on environmental sustainability.
The Central Bank of Nigeria is likely to continue developing frameworks for climate-risk classification, disclosure and governance, while financial institutions may increase investments in green finance and sustainable lending products.
As Nigeria advances its transition toward a lower-carbon economy, banks will also be expected to balance support for traditional energy industries with financing opportunities in renewable energy and climate-resilient sectors.
Bottom Line
Fitch’s latest assessment underscores that climate change is becoming a material financial risk for Nigeria’s banking sector. Institutions that strengthen climate-risk management, diversify their loan portfolios and embrace sustainable finance are likely to be better positioned to preserve asset quality and maintain long-term resilience as the global economy transitions toward lower-carbon growth.
