Publications Ángeles Sostenible April 2026 Introduction This report is intended to provide a comprehensive analysis of Nigeria’s structural, regulatory, institutional barriers limiting growth of green lending portfolios among commercial banks in Nigeria. The review offers a balanced depth of insight while remaining concise and actionable for policymakers, financial institutions and development partners. It highlights Nigeria’s vast renewable energy GREEN LENDING IN NIGERIA: WHY BANKS ARE SLOW TO MOVE

GREEN LENDING IN NIGERIA: WHY BANKS ARE SLOW TO MOVE

Introduction

This report is intended to provide a comprehensive analysis of Nigeria’s structural, regulatory, institutional barriers limiting growth of green lending portfolios among commercial banks in Nigeria. The review offers a balanced depth of insight while remaining concise and actionable for policymakers, financial institutions and development partners.

It highlights Nigeria’s vast renewable energy potential and urgent climate financing needs, noting that commercial bank participation in green finance remains limited. It further discusses the contradiction given the country’s exposure to climate risks and the growing global shift towards sustainable finance. While Nigeria has made notable progress in establishing sustainability frameworks, particularly through its Sustainable Banking Principles, these efforts have not translated into meaningful scaling of green credit by domestic financial institutions.

The report maintains the view that the inertia in green banking in Nigeria is not because of lack of opportunity or even capital, but rather a combination of structural ineptitudes, regulatory uncertainty and ambiguity, capacity constraints and persistent misperceptions of risk. By analyzing the above, the report discusses the requirements needed to catalyze a meaningful shift in Nigeria’s green finance landscape.

The scale of Nigeria’s green finance gap

The realities experienced in the Nigerian infrastructural and power sector amongst others highlight the significant and growing climate finance gap in Nigeria. Recent data from the World Bank and Nigeria’s Multiple Indicator Cluster Survey indicate that approximately 53–55% of Nigerians have access to electricity, with a pronounced urban–rural divide, urban access exceeding 80%, compared to roughly 40% in rural areas (African Development Bank Group, 2023). Despite this, approximately 86 million Nigerians remain without electricity access, the largest access deficit globally. This represents beyond development statistics but also a financing signal, highlighting the structurally underserved market with clear demand for distributed renewable energy solutions.

Studies shows that Nigeria requires tens of billions of dollars annually to meet its energy transition targets, climate adaptation needs, and broader sustainable development goals. This financing gap is fueled by multiple factors such as urbanization, energy deficits, increasing climate vulnerability and rapid population growth. In Nigeria, off-grid solar already accounts for millions of new connections, yet commercial bank participation remains disproportionately low. Despite this, ECOFIN market data reveals that Nigeria represents 74% of West Africa’s off-grid solar sales, yet experienced a 37% decline in 2024, driven largely by macroeconomic constraints rather than demand failure.

Nigeria’s significant renewable energy potential, especially in solar power, represents a viable pathway to expand energy access while reducing carbon intensity. Beyond the energy sector, opportunities have been identified in climate-smart-agriculture, green infrastructure and sustainable transport. Despite all these opportunities, Nigerian commercial banks in Nigeria remain reluctant to substantially increase their exposure to these sectors. Green banking remains a small fraction of total loan portfolios of most Nigerian commercial banks, with most commercial banks focusing on more renowned sectors like oil and gas, trade finance and general commerce. Moreso, Nigerian commercial banks tend to restrict their engagement with sustainability to compliance, reporting and environmental risk management related issues rather than proactive capital allocation.

This misalignment underscores a fundamental paradox, while green finance related opportunities continue to grow, domestic financial brokerage into these opportunities remains limited.

Closing this gap requires not only addressing financial constraints but also confronting deeper institutional and behavioral barriers within the banking sector.

Risk Perception vs. Actual Performance of Green Assets.

A majorly discussed drawback in green lending investments is the perception that such investments possess higher risks compared to traditional assets. Some of these perceived risks include technology uncertainty, regulatory and policy uncertainty, currency volatility and counterparty risk, particularly in relation to off-grid energy projects and small-scale developers. Global evidence has, however, portrayed that these highlighted risks are most times overemphasized. Evidence from institutions such as the IFC, Moody’s, and the Climate Bonds Initiative suggests that green infrastructure assets, particularly those underpinned by long-term contracted revenues like power purchase agreements, tend to exhibit relatively strong credit performance and lower default rates compared to traditional asset classes In some cases, some of such projects have outperformed conventional energy investments in the context of risk-adjusted returns.

Additionally, some features adopted by some of these green projects have resulted in mitigation tactics against the several highlighted risks. Some of such tactics include long term contracts, blended finance structures that absorb first-loss risk and concessional financing from development finance institutions. In Nigeria, donor-backed programmes have played a critical role in de-risking climate and off-grid energy investments. Through instruments such as guarantees, concessional capital, results-based financing, and technical assistance, donors effectively absorb early-stage and systemic risks that would otherwise deter private investors. These interventions have already proven that off-grid and distributed energy solutions can be financially viable under the right risk conditions. However, despite this demonstrated viability, commercial banks in Nigeria have been slow to adopt or scale these models independently.

This simply raises the presumption, that the persistence of risk aversion among Nigerian commercial banks are less about actual performance data and more about information asymmetry and unfamiliarity. These Nigerian commercial banks seem to lack access to reliable data on green asset performance or have limited internal expertise to assess such projects effectively. Thus, leading to a default conservative lending approach by the commercial banks which exclude novel or complex sectors. Addressing this misalignment will require both better dissemination of performance data and targeted efforts to build confidence in green asset classes.

Regulatory Ambiguity and the Limits of the Sustainable Banking Principles

In West Africa, Nigeria has been a pioneer in establishing a framework for sustainable finance through its Sustainable Banking Principles (“NSBP). These principles require Nigerian commercial banks to integrate environmental and social considerations into their operations and to report on sustainability-related activities.

While the framework represents an important standardization amongst Nigerian commercial banks, its impact on the actual lending behaviour adopted by these banks remains limited. This is particularly due to its principle-based nature and voluntary compliance as against mandatory compliance with enforceable targets or incentives. Consequently, Nigerian commercial banks still tend to focus on aspects of the framework that are easiest to implement, such as policy development and reporting, while avoiding more complex changes to their lending strategies.

Also, a key obstacle of this regulatory approach is the absence of a clear green taxonomy. A lack of a standard definition of what constitutes a “green” asset, increases the uncertainty experienced by these Nigerian commercial banks when categorizing or reporting green loans. Such ambiguity further discourages proactive lending, as institutions may be unsure whether such lending may be recognized or rewarded.

Additionally, there is a lack of explicit prudential incentives for green lending. For instance, capital adequacy requirements do not differentiate between green and non-green assets, and there are no risk-weight adjustments or refinancing windows specifically targeted at sustainable investments. This contrasts with other jurisdictions which have introduced such measures to encourage banks to allocate capital to priority sectors.

A combination of the above inadequacies results in a regulatory environment that signals the importance of sustainability but does not provide the necessary tools or incentives to drive behavioural change of stakeholders within the domestic financial space. It therefore becomes imperative to strengthen this framework to unlock improved participation from the banking sector.

Capacity constraints within Nigerian Banks

Another major barrier to green banking in Nigeria is the limited technical expertise within Nigerian banks to originate, assess and manage green projects. Unlike traditional lending sectors, renewable energy and other green investments often require specialized knowledge, such as an understanding of new technologies, regulatory frameworks and project finance structures. Most Nigerian commercial banks lack dedicated teams or units focused on green finance. As such, credit officers often lack the technical expertise to evaluate the technical and commercial viability of renewable energy projects, resulting in delays, higher perceived risks or outright rejections of such proposals.

These capacity gaps are further compounded by the relatively small pipeline of bankable green projects. As such, developers often struggle to meet documentation and structuring requirements of commercial lenders creating a misalignment between supply and demand. Without strong intermediaries to bridge this gap, both banks and project sponsors face challenges in pushing these deals beyond the negotiation phase to project execution.

While training and capacity building initiatives have been introduced in some cases, with some level of support from development partners, these efforts are yet to reach the scale required to transform the market. Thus, improving internal technical expertise remains essential for banks to move beyond a cautious, compliance-driven approach and toward more active participation in green finance.

Lessons from Peers

It is important to note that several African countries have made more substantial progress in mobilizing green finance through their banking sectors. While each context is unique, there are common elements that have contributed to success in these markets which could be adopted by green finance stakeholders within the Nigerian financial sector. For instance, according to the IFC, Off-grid solar markets globally have reached mass scale, with tens of millions of users added annually, showing that growth is strongest in markets where subsidies are predictable, blended finance is available, policy frameworks are clear. However, in Nigeria there remains slower growth and recent contraction, despite strong underlying demand.

In Kenya, the development of a clear green taxonomy and the active involvement of development finance institutions have helped to create a more structured market for sustainable lending. Through reliance on this structured taxonomy, commercial banks have been able to leverage concessional funding and guarantees to reduce risk and expand their portfolios.

South Africa has also benefited from a more mature financial system and strong regulatory leadership. Initiatives such as green bonds, climate stress testing, and integrated reporting have created both pressure and incentives for banks to engage with sustainability in a meaningful way.

On the other hand, Egypt has taken a more directive approach, with the central bank setting explicit targets for sustainable finance and introducing incentives to encourage lending to priority sectors. This has led to a more rapid scaling of green credit, particularly in renewable energy and infrastructure.

These examples illustrate the importance of coordinated action across regulators, financial institutions, and development partners. Key success factors include regulatory clarity, risk-sharing mechanisms, capacity building, and the development of robust project pipelines.

Recommendations

For Commercial Banks:Firstly, banks should invest in building dedicated green finance capabilities. This includes establishing specialised teams, developing sector-specific credit frameworks, and integrating climate considerations into core lending decisions. Without internal expertise, efforts to scale green lending will remain limited. Secondly, banks should actively pursue partnerships with development finance institutions and other stakeholders to access blended finance structures. These arrangements can help mitigate risk and unlock new opportunities, particularly in sectors such as off-grid energy and climate-smart agriculture. Thirdly, banks should adopt a more data-driven approach to risk assessment. By leveraging global and local evidence on the performance of green assets, institutions can move beyond perception-based decision-making and better align their portfolios with emerging opportunities.
For Central Bank of Nigeria: The Central Bank of Nigeria should consider transitioning from a principles-based approach to a more incentive-driven framework. This could include the introduction of a national green taxonomy, the provision of capital or liquidity incentives for green lending, and the establishment of clear targets or benchmarks for sustainable finance. The regulator could play a more active role in market development by supporting capacity-building initiatives, facilitating data sharing, and coordinating with other stakeholders to strengthen the pipeline of bankable green projects.
Private Developers: Firstly, private developers must improve the quality of project preparation by developing robust financial models, clear revenue frameworks, and well-structured vehicles (e.g., SPVs with ring-fenced cash flows). Standardization and strong documentation will make projects more aligned with bank lending requirements and easier to finance. Secondly, private developers should Leverage partnerships and risk sharing mechanisms. Developers should actively engage development finance institutions, climate funds, and technical partners to access blended finance, guarantees, and concessional capital. Strategic partnerships also enhance credibility and help de-risk projects, making them more attractive to commercial banks. Thirdly, build credibility and data transparency. This can be done by establishing a strong track record, engaging experienced technical partners, and systematically collect and sharing performance data will help reduce perceived risks. Over time, this improves lender confidence and supports more accurate credit assessments.

Conclusion

Nigeria’s green finance challenge is often framed as a problem of capital scarcity or excessive risk. This report demonstrates that neither explanation is sufficient. The evidence shows demand for green investment is substantial and measurable, global performance data contradicts prevailing risk perceptions, regulatory frameworks exist but lack catalytic force, capacity and data gaps distort decision-making, the role of Ángeles Sostenibles is to bridge this gap. By quantifying what market participants already sense, but cannot prove, Ángeles Sostenibles enables better risk pricing, more informed policy design and stronger capital allocation decisions. Ultimately, unlocking green banking in Nigeria is not about introducing new ideas. It is about making the invisible visible, and the intuitive undeniable.

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