Rapid credit growth could increase asset quality risks-Fitch warns

Global credit rating agency Fitch Ratings has projected that lending growth among Nigerian banks will exceed 20 per cent, driven by economic reforms, inflationary trends and increased demand for credit across key sectors of the economy.

The forecast reflects growing confidence in the resilience of Nigeria’s banking sector despite persistent macroeconomic challenges, including high inflation, foreign exchange volatility and elevated interest rates.

According to Fitch, Nigerian banks are expected to sustain strong loan expansion as businesses and consumers continue to seek financing to support operations, investment and working capital needs. The agency noted that higher nominal economic growth and currency adjustments are also likely to contribute to the rapid increase in loan books.

Analysts say the projected growth signals renewed momentum in the financial sector as banks reposition to capitalize on opportunities created by ongoing economic reforms.

The anticipated expansion in lending is expected to be particularly visible in sectors such as manufacturing, oil and gas, telecommunications, trade and agriculture, where financing demand has remained strong despite economic pressure.

Fitch, however, warned that rapid credit growth could also increase asset quality risks if not properly managed, especially in an environment characterized by high borrowing costs and weak consumer purchasing power.

The rating agency stated that Nigerian banks are likely to maintain strong profitability levels, supported by high interest income and improved earnings from foreign exchange-related activities. It added that most major lenders remain adequately capitalized and capable of absorbing potential economic shocks.

Industry experts believe the forecast reflects improving investor sentiment towards Nigeria’s banking industry following recent policy reforms by the Central Bank of Nigeria and the Federal Government.

The banking sector has witnessed significant changes over the past year, including exchange rate liberalization, tighter monetary policy and new recapitalization requirements introduced by regulators to strengthen the industry.

Financial analysts noted that while loan growth above 20 per cent could boost economic activity, banks would need to maintain prudent risk management practices to prevent a rise in non-performing loans.

They also stressed the importance of balancing aggressive lending with adequate liquidity and capital buffers, particularly as businesses continue to face inflationary pressure and foreign exchange uncertainties.

The projection comes at a time when Nigerian banks are intensifying digital banking expansion, enhancing financial inclusion efforts and competing for a larger share of the retail and corporate lending market.

Stakeholders say sustained growth in bank lending could support economic recovery by improving access to credit for businesses, stimulating investment and encouraging job creation across critical sectors of the economy.