Nigerian banks face mounting long-term risks to their loan portfolios as climate change and the global transition away from fossil fuels threaten the profitability of key borrowing sectors, according to a new report by Fitch Ratings.
The global rating agency said banks’ significant exposure to oil and gas and agriculture (two pillars of Nigeria’s economy), could increasingly weigh on asset quality as climate-related policies tighten and extreme weather events become more frequent.
In its report, African Banks Have Structural Exposure to Climate Risk; Credit Implications Evolving, Fitch said the immediate impact remains manageable but warned that both transition and physical climate risks will intensify over the coming decades, creating “significant challenges for banking systems across the continent.”
Nigeria was identified as one of the African banking markets most exposed because a substantial share of banks’ loan books is concentrated in hydrocarbon and agriculture-related businesses.
“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,” Fitch said.
The agency warned that tighter global climate policies, technological disruption and shifting investor preferences could erode profitability across carbon-intensive industries, leaving some assets stranded and increasing credit risks for lenders with concentrated sector exposures.
Agriculture, another major destination for bank lending, also faces rising vulnerability from floods, droughts and other climate-related shocks that could weaken borrowers’ repayment capacity, reduce collateral values and increase loan losses.
Fitch said the combination of transition risks and worsening physical climate events could place sustained pressure on banks’ credit profiles, particularly as climate-related disruptions begin to affect household incomes, corporate earnings and overall economic activity.
The report comes as Nigeria advances climate-related reforms, including the development of carbon-pricing and carbon-market frameworks aimed at supporting its emissions reduction commitments under the Paris Agreement.
While such policies strengthen the country’s sustainability agenda, Fitch cautioned that they could raise operating costs for businesses in carbon-intensive sectors, with potential spillover effects on banks through weaker borrower performance.
Using its Climate Vulnerability Signals (Climate.VS) framework, Fitch estimates Nigeria could record a combined climate-risk score of between 50 and 55 by 2050, placing it alongside Ghana, Egypt, Kenya and South Africa among African countries facing elevated climate-related financial risks.
The agency, however, said the transition also presents opportunities for lenders willing to reposition their business models.
It identified green finance, sustainable lending and climate-focused investment products as emerging growth areas capable of diversifying revenue streams while strengthening resilience.
Fitch urged banks to embed climate considerations into enterprise risk management, diversify loan portfolios away from vulnerable sectors and work with customers to support low-carbon transition strategies.
The report also highlighted increasing regulatory attention to climate risk in Nigeria, noting that the Central Bank of Nigeria (CBN), is developing frameworks to improve climate-risk governance, classification and disclosure across the financial sector.
“Institutions that effectively manage climate risks and capitalise on emerging green finance opportunities are expected to be better positioned to remain resilient and support sustainable economic growth,” Fitch said.
