Supporting local initiatives has continued to become increasingly essential for sustainable development and resilience, in the current ever-evolving economic landscape.
Serving as the backbone of national growth, financial institutions and government recognise the importance of nurturing home grown businesses. But the challenges of obtaining financing has continued to plagued businesses – both local and international – and a central challenge in assessing credit risks remains a crucial part of lending decisions.
Credit risk as critical component of decision-making…
Credit risks is the potential or chance that a borrower may fail or won’t repay a loan or meet financial commitments and obligations, which can lead to losses for the lender or banks.
Financial organisations must thoroughly analyse this risk before approving credit facility, in other to protect their capital. For banks and other financial institutions, credit risk assessment involves a combination of human technology and advanced technology in making smarter, safer lending decisions.
This comprehensive assessment system takes into consideration several factors such as the borrower’s economic health, its business model as well as current market conditions.
“A robust credit risk analysis requires a combination of qualitative insights and quantitative data for each business. Such holistic analyses are crucial for identifying viable initiatives and ensuring that loans are granted based on sound principles.
“Both methods complement each other, allowing for a well-rounded evaluation of credit risk, thereby producing a comprehensive, workable credit evaluation. Analysts consider industry trends, historical performance, potential growth trajectories, and economic forecasts to build an accurate picture of a borrower’s creditworthiness,” according to Stanley Epstein, economist, banking operations specialist consultant and trainer/instructor, Stanley Epstein Training, University of South Africa.
High-quality credit assessments serve multiple functions beyond merely providing risk mitigation for banks. They also enhance the confidence of local entrepreneurs seeking financial support.
“When banks offer reliable creditworthiness evaluations, it fosters trust in the lending process, which is vital for enabling SMEs to secure the financial backing they need to grow and innovate. This means that a well-structured credit assessment can also identify exceptional businesses that might otherwise be overlooked, creating opportunities in segments previously considered too risky,” he said.
Scrutinising borrower’s reputations, operational capabilities…
Lenders are increasingly scrutinising borrower’s reputations and operational capabilities in lending decisions in addition to credit risks. Banks must assess the track records of businesses applying for loans, examining factors such as financial management practices, the quality of their products or services, and their commitment to fulfilling contractual obligations. A solid history of timely repayments, robust financial controls, and a transparent operational structure can greatly enhance a company’s chances of securing funding.
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A comparative analysis of the 2025 third quarter (Q3) financial statements of selected banks in Nigeria indicate stabilisation and improvements in non-performing loans (NPLs) across several Nigerian banks, driven by enhanced recovery initiatives, regulatory reclassifications, and proactive provisioning.
While economic pressure persists, it underscore the importance of robust credit risk management.
Notable banks with updated NPL metrics…
Access Bank which recorded an NPL ratio of approximately 2.8 percent in its Q3 2025 financial report, demonstrating superior asset quality and leadership among Tier-1 peers through aggressive loan recoveries and strong coverage.
Zenith Bank reported NPLs of around 3 percent, marking a continued decline from prior periods via write-offs and portfolio monitoring, supporting sustained profitability with a ROAE above 25 percent.
Also, First Bank of Nigeria saw its NPL ratio improve to approximately 8.5 percent, a reduction from earlier highs. However, it remains elevated and highlights the need for ongoing enhancements in risk frameworks and impairment strategies.
Guaranty Trust Bank noted an NPL ratio of 4.5 percent, reflecting positive momentum with improved coverage at 146.9 percent, even as the loan book expanded 20.5 percent to N3.36trillion.
United Bank for Africa (UBA) reported NPLs of about 5.6 percent, maintaining stability amid 10 percent loan growth and economic headwinds, with coverage at around 58 percent bolstering resilience.
Ecobank Nigeria experienced an NPL ratio of around 5.3 percent at the group level (proxy for Nigeria operations), benefiting from remediation programmes that reduced ratios from 6.7 percent in December 2024.
Stanbic IBTC Bank recorded an NPL ratio of approximately 4.2 percent in its H1 2025 financial report, with a management target below 5 percent for the full year, supported by effective write-backs and resilient asset quality amid strong profit growth.
The stabilising NPL landscape of these banks indicates a maturing banking sector response to challenges with the average NPL rate across Nigerian banks forecasted at around 5percent as at the third quarter of 2025.
This progress reinforces the critical role of effective credit risk management strategies in maintaining financial stability and long-term economic growth fostering.
While 11 banks exceeded the 5percent threshold in April 2025, subsequent reports have continued to show a stabilisation or decline with the International Monetary Fund (IMF) projection at 4.5percent.
Substantial impairment charges totaling N1.96 trillion across Nigeria’s top eight banks in the first nine months of 2025 highlight the imperative for sustained caution. However, proactive risk management strategies have effectively curbed the emergence of systemic vulnerabilities.
Ongoing prioritisation of rigorous due diligence and enhanced credit assessment frameworks is essential, particularly for outlier performers such as FirstBank, Access Bank, UBA, and select peers. Nonetheless, the sector’s projected average stability—ranging from 3.8 percent to 4.5 percent for the full year 2025—signals a marked enhancement in overall resilience.
The commitment to providing credit facility for businesses, especial SMEs and local businesses, facilitate local production and boost home-grown products and services, thereby contributing to the ‘Made in Nigeria’’ products drive, a crucial enabler for the Nigerian economy.
Lenders are increasing aware that supporting local businesses would spur economic benefits while ensuring a more robust and resilient banking ecosystem. By dedicating resources to encourage sustainable lending practices, banks have continued to foster growth and innovation among local businesses.