By Ginika Okoye
A financial and capital market expert, Prof. Uche Uwaleke, has urged banks to strengthen their credit appraisal processes and improve loan monitoring frameworks to address rising non-performing loans (NPLs) in the banking sector.
Uwaleke, who is also the President of the Capital Market Academics of Nigeria (CMAN), made the call in an interview with the News Agency of Nigeria (NAN) on Monday in Abuja.
He advised banks to intensify the use of early warning systems to identify repayment difficulties before loans become non-performing.
The expert was reacting to the increase in the banking sector’s NPL ratio to 8.03 per cent in January from 7.51 per cent in December 2025.
According to him, the increase reflects a combination of macroeconomic and sector-specific pressures.
Uwaleke said sustainable reduction in NPLs would depend not only on reforms within the banking sector but also on broader improvements in macroeconomic stability, inflation management, exchange rate predictability and overall business confidence.
He urged banks to adopt proactive restructuring of viable but stressed loan exposures, improve sectoral diversification to reduce concentration risks, and strengthen risk-based pricing and governance around large credit exposures.
“For the Central Bank of Nigeria (CBN), the priority should be to maintain a balanced regulatory approach.
“While preserving financial stability through strict supervision remains essential, the apex bank should also continue to support policies that promote economic growth and improve borrowers’ repayment capacity.
“Close monitoring of asset quality trends, stress testing of banks and targeted interventions in vulnerable sectors will be important,” he said.
Analysing factors responsible for the increase in NPLs, Uwaleke said businesses and households were contending with elevated interest rates, high inflation and rising operating costs.
He said these factors had weakened the repayment capacity of many borrowers, particularly those in sectors heavily dependent on imported inputs or foreign currency obligations.
According to him, the lingering effects of economic adjustments following subsidy reforms and exchange rate liberalisation have continued to exert pressure on cash flows across several industries.
“Consequently, a growing number of credit facilities that may previously have been classified as performing have slipped into the non-performing category.
“Furthermore, the rise in the NPL ratio must be viewed in the context of the CBN’s decision to discontinue regulatory forbearance on certain credit exposures and breaches of single obligor limits.
“During the period of forbearance, banks were granted some flexibility in recognising and provisioning for stressed loans.
“With the withdrawal of these measures, institutions are now required to more accurately reflect the true quality of their loan books,” he said.
Uwaleke said the increase in bad loans did not necessarily indicate a sudden deterioration in credit conditions, but rather a more transparent recognition of underlying asset quality challenges previously masked by regulatory relief. (NAN)
Edited by Chinyere Joel-Nwokeoma
