Nigerian banks are particularly vulnerable to climate-related risks because large shares of their loan books finance oil, gas and agriculture — sectors that face profit pressure from global decarbonisation and rising extreme weather, Fitch Ratings has warned.
The rating agency said banks are facing growing climate risk that could hit asset quality and credit profiles over the coming decades,
In a new report titled “African Banks Have Structural Exposure to Climate Risk; Credit Implications Evolving,” Fitch Ratings said the immediate impact on African lenders is still manageable but both transition and physical risks will intensify over time, posing “significant challenges for banking systems across the continent.”
Fitch singled out Nigeria’s heavy reliance on hydrocarbons and agriculture as a key vulnerability.
A substantial share of Nigerian banks’ loan books is concentrated in sectors that may be damaged by global decarbonisation policies, technological shifts and changing investor preferences.
“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 stated.
The agency warned that stricter international climate commitments could hurt profitability in carbon-intensive industries and leave some assets “stranded,” raising credit risks for lenders with concentrated exposures.
Agriculture borrowers also face growing uncertainty as floods, droughts and other extreme weather events become more frequent and severe.
Fitch said these developments could weaken borrowers’ repayment capacity, reduce collateral values and lead to higher credit losses across the banking sector.
The report also flagged an increasing regulatory focus on climate-related policy across Africa. Nigeria is developing carbon-pricing and carbon-market frameworks as part of its wider climate commitments.
While these measures support sustainability goals, Fitch said they could raise operating costs for businesses in affected sectors, with potential knock-on effects for banks through weaker borrower performance.
African banks generally face elevated transition risks because of exposure to industries vulnerable to emissions-reduction policies and technological disruption. Although transition risks dominate the near-term outlook, Fitch expects physical climate risks to become more significant by 2050, as rising temperatures, flooding, droughts and other hazards weigh on economic growth.
West Africa is identified among the most vulnerable regions, and Fitch said the indirect effects for Nigeria could be substantial.
Climate shocks may weaken household incomes, reduce corporate profitability and increase macroeconomic volatility, all of which could translate into higher credit risks for banks.
Real estate and agriculture-linked collateral could also lose value over time, increasing loan-to-value ratios and impairment charges.
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, putting it in a similar bracket as Ghana, Egypt, Kenya and South Africa.
Despite the risks, Fitch noted opportunities for banks that act early. The report pointed to growth in green finance, sustainable lending and climate-focused investment products as potential avenues for diversification and resilience.
It recommended that banks integrate climate considerations into risk-management frameworks, diversify sector exposures and engage customers on low-carbon transition strategies.
Fitch also highlighted rising regulatory scrutiny. The Central Bank of Nigeria has begun developing frameworks to improve climate-risk classification, governance and transparency in the financial sector. The agency warned that banks failing to adapt may face reputational damage, reduced investor confidence and funding constraints as global capital shifts toward institutions with stronger sustainability credentials.
Nigeria faces a delicate balancing act between supporting growth and meeting climate commitments. The country remains heavily dependent on oil and gas revenues and holds significant natural gas reserves, yet it has also pledged emissions reductions under the Paris Agreement.
Fitch concluded the transition is likely to be gradual but added that banks must start preparing now.
“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,” the report said.
Recall that, Fitch last month warned that Nigeria’s proposed $5 billion Total Return Swap (TRS) with First Abu Dhabi Bank could obscure sovereign debt risks and complicate any future debt restructuring.
In the report Emerging Market Sovereigns’ Use of Total Return Swaps Raises Risks: Balancing Transparency and Recovery Risks Against Financing Flexibility, Fitch said TRSs can provide cheaper financing and diversify funding sources but also carry “significant structural and transparency risks.”
