•Downgrades Afreximbank to ‘BBB-‘

Fitch Ratings has projected significant growth in Nigeria’s Islamic finance sector from the second half of 2025 through 2026, citing fresh regulatory reforms and liquidity support measures introduced by the Central Bank of Nigeria (CBN).

Also, the global rating agency downgraded the long-term issuer default rating of the African Export-Import Bank (Afreximbank) to ‘BBB-’ from ‘BBB’, assigning a negative outlook that signals heightened credit concerns around the bank’s sovereign loan exposure and internal risk governance. The bank’s short-term rating was also lowered to ‘F3’ from ‘F2’.

Furthermore, the global credit rating agency estimated the Islamic finance industry’s size at $4 billion as of May 2025, with potential for further expansion.

The anticipated boom was anchored on renewed sovereign sukuk issuances and the rapid rise in Islamic banking assets, following the CBN’s rollout of new liquidity management tools tailored for non-interest financial institutions. These instruments included a master repurchase agreement, non-interest asset-backed securities, and non-interest notes designed to address a longstanding funding and investment gap for Islamic banks.

It stated: “Nigeria has notable potential for Islamic finance supported by having one of the largest Muslim populations globally and a significant unbanked population.

“Still, Islamic finance in the country is still expected to be significantly smaller than that of conventional financial institutions, with the industry facing key challenges, such as lack of awareness, strong opposition from segments of the public, limited product availability and distribution channels, still-developing regulatory framework and limited Islamic banks (non-interest banks).

“The size of Nigeria’s Islamic finance industry was estimated to be around $4 billion by end-May 2025. Sukuk outstanding is the largest segment of the Islamic finance industry at 53.9 per cent, followed by Islamic banking assets at 45.2 per cent, and the rest includes takaful and sharia-compliant funds.”

It stated that non-interest banks’ assets recorded a growth of 110 per cent year-on-year as of end-2024, driven by a significant increase from deposits and loans, each more than doubling in value.

A new non-interest bank, Summit Bank Limited, was established in 2024. Despite this substantial growth, the market share in the country’s total banking assets only increased to a still small 1.7 per cent at end-2024 from 1.1 per cent end-2023.

With only five non-interest banks operating within the country, their market share was still expected to be about two per cent in the medium term.

Jaiz Bank PLC (B-/ Stable) is Nigeria’s first fully fledged non-interest banking institution (NIB), representing 38 percent of NIB sector assets at end-2024.

It added: “Takaful in Nigeria continues to have less than one percent of total insurance industry assets as of end-2024. In April 2025, Fitch upgraded Nigeria’s rating to ‘B’ from ‘B-’, reflecting increased confidence in the government’s broad commitment to policy reforms initiated following the shift to orthodox economic policies in June 2023.”

Meanwhile, Fitch Ratings has downgraded the long-term issuer default rating of Afreximbank to ‘BBB-’ from ‘BBB’, assigning a negative outlook that signals heightened credit concerns around the bank’s sovereign loan exposure and internal risk governance.The bank’s short-term rating was also lowered to ‘F3’ from ‘F2’.

Fitch attributed the downgrade primarily to a reassessment of Afreximbank’s solvency profile, now rated ‘bbb+’ from ‘a-’, following a rise in its Fitch-calculated NPL ratio to 7.1 per cent at end-2024 well above the agency’s 6 per cent threshold for a high risk classification.

 The deterioration was driven by the reclassification of exposures to sovereigns including Ghana, South Sudan, and Zambia as non-performing.

It stated: “The downgrade of Afreximbank’s ratings reflects the downward revision of our solvency assessment from ‘a-’ to ‘bbb+’, principally reflecting ‘high’ credit risks previously ‘moderate’ and ‘weak’ risk management policies previously ‘moderate’.

“The increased credit risk stems from the rise in the bank’s non-performing loans (NPLs) ratio as calculated by Fitch, which exceeded the 6 per cent ‘high risk’ threshold outlined in Fitch’s criteria at end-2024.

“The revision of risk management to ‘weak’ reflects low transparency in the recent reporting of loan performance relative to multilateral development bank peers and that Fitch’s definition of NPLs differs from the bank’s approach, which makes use of flexibilities offered by IFRS 9.”

It stated that the negative outlook reflected the risk that the debt owed to Afreximbank by some of its sovereign borrowers might be included in the perimeter of these sovereigns’ debt restructuring.

“This would put pressure on our assessment of the bank’s policy importance and heighten the risk associated with its strategy.

“SCP Drives Ratings: The ratings are driven by the bank’s Standalone Credit Profile (SCP) of ‘bbb-’, reflecting the lower of the solvency (‘bbb+’) and liquidity (‘a’) assessments, and its ‘high risk’ (-2 notches) business environment. The solvency assessment of ‘bbb+’, which Fitch has revised from ‘a-’ at the previous review, balances the bank’s ‘strong’ capitalisation and ‘moderate’ risk profile.

“Fitch has revised its assessment of Afreximbank’s risk management policies to ‘Weak’ from ‘Moderate’ to reflect recent cases of weak transparency on loan performance relative to peers as well as the bank’s increased risk from its sovereign loan portfolio.

“Combined with other exposures that Fitch considers non-performing such as South Sudan, 2.1 per cent of loans, and Zambia, 0.2 per cent. Fitch’s own measure of the NPL ratio deteriorated to 7.1 per cent at end-2024, surpassing the 6 per cent ‘high’ risk threshold. In contrast, Afreximbank’s reported NPL ratio which excludes the exposures to Ghana, Zambia and South Sudan) improved to 2.3per cent in 2024.”