Key points
- Financial expert Prof. Uche Uwaleke urged domestic banks to strengthen credit appraisal and loan monitoring frameworks to curb bad loans.
- The banking sector’s non-performing loan ratio increased to 8.03% in January 2026 from 7.51% in December 2025.
- Elevated interest rates, high inflation, and foreign exchange volatility have severely weakened the loan repayment capacity of borrowers.
- The increase in bad loans reflects a transparent recognition of asset quality challenges following the central bank’s withdrawal of regulatory forbearance.
- The apex bank is being advised to closely monitor asset quality trends and perform regular stress testing across banking institutions.
Main Story
Financial and capital market expert Professor Uche Uwaleke has called on commercial banks to strengthen their internal credit appraisal processes and optimize loan monitoring frameworks to combat rising non-performing loans (NPLs) across the banking sector.
Speaking to journalists on Monday in Abuja, Uwaleke, who also serves as the President of the Capital Market Academics of Nigeria (CMAN), reacted to recent regulatory data showing that the banking sector’s NPL ratio climbed to 8.03% in January 2026, up from 7.51% recorded in December 2025. The economist advised financial institutions to intensify the deployment of early warning tracking systems to detect repayment difficulties well before credit facilities deteriorate into default status.
According to the expert, the upward tick in default rates stems from a combination of sector-specific and broad macroeconomic pressures. Domestic businesses and households are currently contending with elevated interest rates, high inflation, and rising operational overheads, which have systematically choked corporate cash flows. Uwaleke noted that the lingering shocks from fuel subsidy reforms and exchange rate liberalization have placed immense pressure on industries heavily dependent on imported inputs or foreign currency obligations.
Consequently, multiple facilities that were previously healthy have slipped into default. He clarified, however, that the rising NPL ratio does not indicate a sudden collapse in credit conditions, but rather a more transparent, accurate recognition of asset quality challenges following the Central Bank of Nigeria’s (CBN) decision to discontinue regulatory forbearance on stressed loans and single obligor limits.
To achieve a sustainable reduction in bad loans, Uwaleke emphasized that banks must adopt proactive credit restructuring for viable but stressed borrowers, improve sectoral diversification to eliminate concentration risks, and tighten governance around large exposures.
He also stated that long-term asset stability depends heavily on broader indicators like inflation management and exchange rate predictability. Turning to regulatory oversight, the CMAN president urged the CBN to maintain a balanced stance by combining strict asset supervision and stress testing with growth-friendly policies that enhance borrower repayment capacity.
The Issues
- Enhancing the technical precision of early warning tracking systems to catch credit defaults before assets degrade.
- Managing the financial impact on bank balance sheets as institutions adapt to the withdrawal of regulatory forbearance.
- Safeguarding commercial loan books from concentration risks amid ongoing foreign exchange volatility and inflation shocks.
What’s Being Said
- Outlining the essential oversight duties of the apex banking regulator, CMAN President Prof. Uche Uwaleke stated: “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.”
- Explaining the structural drivers behind the recent regulatory data, Uwaleke added: “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. With the withdrawal of these measures, institutions are now required to more accurately reflect the true quality of their loan books.”
What’s Next
- Risk management departments at commercial banks will review their credit portfolios to execute defensive restructuring on stressed loans.
- The Central Bank of Nigeria will implement targeted supervisory interventions and stress testing in vulnerable economic sectors.
- Corporate loan committees will adjust their risk-based pricing models to counter elevated interest rates and high operational costs.
Bottom Line
A spike in Nigeria’s non-performing loan ratio to 8.03% has prompted expert calls for banks to tighten credit appraisals and use early warning systems, though the surge primarily reflects a more transparent reporting of asset quality following the central bank’s withdrawal of regulatory relief.
