July 9 (THEWILL) — Climate-related risks could increasingly weigh on the financial health of Nigerian banks over the coming decades, with rising exposure to vulnerable sectors likely to weaken credit quality and increase loan losses, according to Fitch Ratings.
In a new report titled “African Banks Have Structural Exposure to Climate Risk; Credit Implications Evolving”, the global rating agency said that while the immediate impact of climate risks remains manageable, both transition and physical risks are expected to intensify, posing growing challenges for banks across Africa.
Fitch noted that Nigeria’s heavy reliance on hydrocarbons and agriculture makes its banking sector particularly susceptible to climate-related shocks.
According to the agency, a significant share of banks’ loan portfolios is concentrated in sectors that could be adversely affected by global decarbonisation efforts, technological changes, and shifting investor preferences.
The report warned that stricter international climate policies could reduce the profitability of carbon-intensive industries, leaving some assets stranded and increasing credit risks for lenders with high sectoral exposure.
Agriculture-related borrowers are also expected to face mounting pressure as floods, droughts, and other extreme weather events become more frequent.
Fitch said these developments could weaken borrowers’ repayment capacity, reduce the value of collateral, and increase credit losses across the banking sector.
The agency also highlighted Nigeria’s ongoing efforts to develop carbon-pricing and carbon-market frameworks, noting that while the reforms support the country’s climate goals, they could raise operating costs for businesses and indirectly affect banks through weaker borrower performance.
Looking ahead, Fitch expects physical climate risks to become more pronounced by 2050, with rising temperatures and extreme weather weighing on household incomes, corporate profitability and overall economic growth.
Using its Climate Vulnerability Signals framework, Fitch estimates that Nigeria could record a climate-risk score of between 50 and 55 by 2050, placing it among Africa’s more climate-vulnerable economies.
Despite the risks, the agency said opportunities exist for banks that strengthen climate risk management, diversify lending portfolios and expand into green finance and sustainable investment products.
It added that institutions that adapt early will be better positioned to manage emerging risks, attract investors and support long-term economic growth.
Ogochukwu Onwaeze is a writer specializing in business and economic journalism. At THEWILL News Media, she translates market trends, financial developments, and policy shifts into clear and engaging stories.
