Nigerian Banks Face Credit Risks from Climate Change

Fitch Ratings has released a report indicating that Nigerian banks are facing evolving credit challenges due to climate-related risks. The report highlights the significant exposure of the banking sector to the oil and gas industry and agriculture, which together constitute a large portion of bank loan portfolios.

As Nigeria pursues decarbonization policies, the report anticipates that physical transition risks will intensify, particularly as extreme weather events become more frequent. Fitch warns that stricter international climate commitments could lead to carbon-intensive assets becoming stranded, complicating borrowers' ability to repay loans and increasing the likelihood of non-performing loans within the banking system.

The report also notes that the agricultural sector is particularly vulnerable to flooding, drought, and other extreme weather events, which could reduce farm output and weaken borrowers' repayment capacity. Fitch projects that Nigeria will record a combined climate risk score of 50.55 by 2050, indicating its vulnerability among African economies.