Non-Performing Loans: Looking Beyond the Numbers
By Ibrahim Happiness
I read with keen interest The Nation editorial of June 9, 2026, titled “Non-Performing Loans: Return of the Old Delinquency?” The editorial rightly raises concerns about the growing volume of non-performing loans (NPLs) within Nigeria’s banking sector and the potential implications for financial stability. It is an important warning that deserves serious attention from regulators, financial institutions, businesses, and policymakers alike.
However, while the editorial accurately identifies the symptoms of the problem, a deeper examination suggests that the conversation should extend beyond the banking sector to the broader economic realities that have contributed to the current situation.
An NPL ratio of 8.03 per cent does not emerge in isolation. Behind every non-performing loan is a business, entrepreneur, contractor, or investor operating within a challenging economic environment. Many borrowers did not obtain credit with the intention of defaulting. Rather, they encountered circumstances that significantly undermined their ability to meet financial obligations.
Businesses have had to contend with persistent inflation, foreign exchange volatility, rising operating costs, inadequate power supply, declining consumer purchasing power, and unpredictable policy shifts. For many enterprises, survival has become a daily struggle.
Viewed from this perspective, non-performing loans are not merely banking statistics; they are indicators of deeper structural weaknesses within the economy.
The editorial correctly references the regulatory forbearance introduced during the COVID-19 pandemic. At the time, the measure was necessary and prudent. Businesses were facing unprecedented disruptions, supply chains had collapsed, and economic activity had slowed considerably. Regulatory relief provided temporary breathing space for both lenders and borrowers.
However, forbearance was never a permanent solution. It postponed financial obligations; it did not eliminate them.
What is becoming evident today is that many businesses emerged from the pandemic only to encounter a new wave of economic pressures. Inflation accelerated, foreign exchange challenges intensified, and operating expenses soared. Consequently, some businesses that restructured their loans during the forbearance period found themselves once again struggling to remain afloat.
The uncomfortable truth is that regulatory relief provided a pause, but not necessarily a recovery.
This broader context must inform any meaningful discussion about rising loan defaults.
One proposal attracting attention is the restriction of non-performing borrowers from accessing additional credit facilities. While this may appear to be a logical risk-management measure, its practical implications deserve careful consideration.
For many small and medium-sized enterprises (SMEs), access to credit is not a luxury; it is a survival mechanism. Businesses often rely on short-term financing to bridge cash-flow gaps, pay salaries, purchase inventory, and sustain operations while awaiting receivables.
Denying access to credit without providing alternative support mechanisms could worsen financial distress and accelerate business closures.
The consequences would extend beyond individual borrowers. SMEs remain the backbone of employment and economic activity in Nigeria. Their collapse would affect households, reduce tax revenues, increase unemployment, and further weaken economic growth.
This is why regulatory interventions must strike a balance between financial discipline and economic sustainability.
Equally important is the role of government in addressing the problem.
The editorial acknowledges that many affected borrowers are contractors awaiting payments for completed government projects. This point deserves greater emphasis.
When government agencies delay payments to contractors for months or even years, they create a chain reaction of financial distress. Contractors are unable to repay bank loans, suppliers cannot settle obligations, employees face uncertainty, and banks eventually record non-performing assets.
In such circumstances, the NPL challenge becomes not merely a banking issue but also a fiscal governance issue.
Expecting monetary authorities alone to resolve a problem partly rooted in delayed government obligations places an unfair burden on the financial system.
Nigeria’s experience during the 2008–2009 banking crisis offers an important lesson. At the time, several banks faced severe distress due to weak credit practices, poor risk management, and broader economic vulnerabilities. The Central Bank of Nigeria intervened decisively to prevent systemic collapse.
The memory of that period should encourage vigilance today—not panic, but proactive action grounded in accurate diagnosis.
Banks must strengthen credit appraisal processes and improve risk management frameworks. Lending decisions should be based not only on collateral but also on realistic assessments of market conditions, borrower capacity, and sector-specific risks.
At the same time, regulators must avoid policy responses that appear decisive on paper but inadvertently deepen economic hardship.
Most importantly, policymakers must recognise that non-performing loans are ultimately a reflection of the broader health of the economy. An economy characterised by policy uncertainty, infrastructure deficits, delayed government payments, and rising business costs will inevitably produce financial stress within its banking system.
Non-performing loans are therefore not merely a banking story. They are a Nigeria story.
They tell the story of entrepreneurs trying to survive in difficult conditions, businesses struggling with rising costs, contractors waiting endlessly for payments, and financial institutions attempting to manage risks within an unpredictable environment.
Until these structural realities are addressed, the country may continue to witness recurring cycles of rising defaults, regulatory concern, and financial instability.
The old delinquency has not necessarily returned because borrowers suddenly became less responsible.
Rather, it persists because many of the underlying conditions that fuel loan distress have remained unresolved.
The solution, therefore, lies not only in stricter regulation but also in building a more stable, predictable, and business-friendly economy—one in which enterprises are given a fair opportunity to succeed and, consequently, to repay their obligations.
Only then can Nigeria hope to break the cycle and move from managing financial distress to sustaining economic growth.
Ibrahim Happiness is a PRNigeria Intern and a student of Strategic Communication at the University of Abuja. He can be reached via: [email protected]