Global credit rating agency Fitch Ratings has warned that climate-related risks could weaken the credit quality and asset performance of Nigerian banks over the coming decades, citing the country’s heavy reliance on hydrocarbons and agriculture.
The warning is contained in the agency’s latest report, African Banks Have Structural Exposure to Climate Risk: Credit Implications Evolving, which examines the long-term impact of climate change on banking systems across the continent.
According to Fitch, while the immediate impact of climate risks on African banks remains manageable, both transition and physical risks are expected to intensify over time, posing growing challenges for lenders.
The agency noted that Nigerian banks are particularly exposed because a substantial share of their loan portfolios is concentrated in sectors such as oil and gas, mining and agriculture, which are vulnerable to global decarbonisation policies, technological changes and shifting investor preferences.
Fitch warned that tighter international climate commitments could reduce profitability in carbon-intensive industries, increase the risk of stranded assets and heighten credit risks for banks with significant exposure to these sectors.
The report also identified agriculture as another key source of vulnerability, noting that more frequent floods, droughts and other extreme weather events could weaken borrowers’ repayment capacity, reduce collateral values and increase credit losses across the banking sector.
The rating agency further highlighted Nigeria’s ongoing efforts to develop carbon pricing and carbon market frameworks, stating that while these initiatives support the country’s climate commitments, they could increase operating costs for businesses and indirectly affect banks through weaker borrower performance.
Fitch projected that physical climate risks, including rising temperatures, flooding and prolonged droughts, will become increasingly significant by 2050, with West Africa expected to be among the regions most vulnerable to climate change.
Using its Climate Vulnerability Signals framework, the agency estimated that Nigeria could record a combined climate risk score of between 50 and 55 by 2050, placing it alongside countries such as Ghana, Egypt, Kenya and South Africa in terms of climate vulnerability.
Despite the risks, Fitch said the evolving climate landscape also presents opportunities for banks through green finance, sustainable lending and climate-focused investment products.
The agency urged banks to integrate climate considerations into their risk management frameworks, diversify sector exposures and support customers in transitioning to lower-carbon business models.
Fitch also noted that regulators, including the Central Bank of Nigeria, are increasing their focus on climate risk governance, disclosure and transparency. It warned that banks that fail to adapt could face reputational risks, declining investor confidence and tighter access to funding as global capital increasingly favours institutions with strong sustainability credentials.
The report concluded that although Nigeria’s transition to a low-carbon economy is expected to be gradual, banks that proactively prepare for climate-related risks and embrace sustainable finance opportunities will be better positioned to remain resilient and support long-term economic growth.
