By Bamidele Ogunwusi

Copyright independent

LAGOS – This is certainly not the best time for commercial banks in the country, es-pecially those who finance petroleum importation, as development in the in-dustry has shifted reliance on petroleum importation.

Recent data from the National Bureau of Statistics (NBS) reveal that mineral fuel imports fell to N4.4 trillion in the second quarter of 2025, down from N5.9 trillion a year earlier. In dollar terms, the decline is even more striking: $2.8 billion compared with $4.3 billion in Q2 2024.

The banking industry is en-tering a new era as the country’s decades-old dependence on im-ported petroleum products finally begins to ebb.

The sharp drop in petrol and diesel imports—driven largely by the steady ramp-up of the 650,000-barrel-per-day Dangote Refinery—has far-reaching impli-cations for lenders that have tra-ditionally profited from financing the nation’s fuel trade.

For decades, petroleum prod-ucts were Nigeria’s single largest import item, and banks played a pivotal role in funding those purchases. With the import bill shrinking, lenders are being forced to rethink business mod-els built around oil-trading clients and the foreign-exchange (FX) transactions that fuel the imports required.

Letters of credit, forward FX contracts, and other trade-finance tools for fuel importers have long generated fat fees and interest income for Nigerian banks. Mar-keters typically borrowed in dol-lars to pay foreign suppliers, with banks earning margins on every step—from arranging offshore guarantees to converting naira proceeds back to hard currency.

The contraction in fuel im-ports is therefore eroding a de-pendable profit centre. “It’s not just the loans themselves but the cascade of fees—advisory, docu-mentation, currency hedging,” explained Ijeoma Anaba, a petro-leum-sector consultant in Abuja. “Those revenue streams will nar-row as fewer cargoes of petrol or diesel need to be financed.”

Some large banks have al-ready reported softer trade-fi-nance income this year. While the decline is gradual, analysts warn that lenders heavily exposed to oil-trading clients will need to diversify quickly or risk weaker top-line growth.

FX Demand Eases, Stabilising The Naira

At the same time, a drop in pe-troleum importation brings sys-tem-wide benefits. Fuel importers were among Nigeria’s biggest buy-ers of dollars, putting relentless pressure on the foreign-exchange market. Less demand eases the strain on the Central Bank of Ni-geria (CBN), which has struggled to supply FX since it liberalised the market in 2023.

Lower FX demand reduces volatility, helping to stabilise the naira. For banks, a more predict-able exchange rate means fewer revaluation losses on foreign-cur-rency liabilities and less need for expensive hedging. “The naira’s stability feeds directly into banks’ capital ratios and earnings,” said Adeyemi Oke, an energy analyst with Lagos-based MacroWatch. “It lowers funding costs and im-proves planning for everything from loan pricing to treasury operations.”

Shifting Credit Portfolios

With petroleum imports shrinking, banks must reallocate lending capacity. Large down-stream marketers—once prime borrowers—may need smaller credit lines for imports. In their place, lenders are scouting oppor-tunities in domestic refining, mid-stream logistics, and distribution.

The Dangote Refinery itself, alongside a growing number of modular plants, requires financ-ing for storage depots, pipelines, and distribution fleets. “Project finance, equipment loans, and working-capital lines for domes-tic refining are the natural next frontier,” noted Tunde Bakare, a corporate-banking executive in Lagos. “Banks that pivot early will capture a new generation of cli-ents as Nigeria builds out a home-grown downstream industry.”

This reallocation also aligns with regulators’ goals. The CBN has urged banks to expand lend-ing to agriculture, manufactur-ing, and export-oriented sectors to reduce Nigeria’s reliance on crude oil. Capital that once funded petrol cargoes can now be chan-nelled into factories, farms, and infrastructure.

Opportunities In A Local Supply Chain

Domestic refining is spurring new business throughout the en-ergy value chain. Petrochemical plants, plastics manufacturers, and transport companies expect more reliable access to feedstocks such as polypropylene and naph-tha. Banks can tap these opportu-nities with tailored financing— ranging from asset-backed loans for truck fleets to trade facilities for exporters of petrochemical by-products.

Retail and SME banking may also benefit. As local marketers shift from importing to distribut-ing domestically refined products, demand for naira-denominated payment solutions and digital cash-management services is rising. Banks that provide robust payment platforms and invento-ry-finance options are well placed to capture this emerging market.

Changing Fee Income Mix

While trade-finance revenues may decline, lenders can offset losses through other fee-based activities. Domestic fuel transac-tions settled in naira create fresh opportunities for payments pro-cessing, treasury services, and cash-management products. More stable FX markets allow banks to focus on proprietary trading and bond-market activi-ties without the constant risk of currency shocks.

Government finances could further support banks’ income. With fewer dollars spent on fuel imports, the CBN can rebuild external reserves, improving the sovereign’s credit profile and potentially boosting demand for local-currency bonds—assets that banks hold in significant volumes.

Risk Landscape Evolves

The retreat from heavy fuel im-ports lowers systemic risk. In past crises, spikes in global oil prices or sudden dollar shortages often left importers and their banks exposed to large FX mismatches. Reducing this dependency shields the financial system from those external shocks.

Regulators may respond by adjusting prudential guidelines. “Expect the CBN to recalibrate its risk weights on oil-sector lending and perhaps tighten limits on single-commodity exposures,” predicted Funke Adejumo, chief economist at an Abuja invest-ment bank. “The focus will shift toward ensuring that banks fund a broader range of productive sec-tors.”

Not Without Challenges

Despite the positive outlook, risks remain. The Dangote Refinery is still in its ramp-up phase, and any technical dis-ruption could force a temporary resurgence of imports, quickly reviving dollar demand. Banks that have already trimmed their trade-finance infrastructure might struggle to scale it back up if imports spike.

Pricing transparency is an-other issue. Domestic supply con-tracts and regulatory oversight must be clear to avoid market distortions. If disagreements over pricing or distribution emerge, banks financing the supply chain could face unexpected credit risks

A New Banking Landscape

Taken together, these shifts represent a structural transfor-mation of Nigeria’s financial sector. A business model that once revolved around funding im-ported petroleum is giving way to one centred on domestic energy production, diversified lending, and more stable currency man-agement.

“The second-quarter trade numbers are a milestone,” Oke said. “If the refinery continues to scale and the government main-tains its reform agenda, Nigeria’s banks will operate in a fundamen-tally different environment—less vulnerable to global oil shocks and better positioned to finance real economic growth.”

For lenders willing to adapt— redirecting capital to manufactur-ing, agriculture, and the expand-ing domestic energy chain—the decline in fuel imports is not a threat but an opening. Those that cling to the old import-driv-en model, however, may find their profit engines running on empty.

As Nigeria edges closer to energy self-sufficiency, its banks must chart a new course—one de-fined not by financing the arrival of foreign petrol cargoes, but by powering the industries that will refine, distribute, and eventually export fuel made at home.