I've had to replace hood release cables/latches on 3 cars. If it shows warning signs that it will fail soon, I highly recommend replacing it proactively. Otherwise it will fail under very inconvenient circumstances.
I'm not certain about the E36, but I've never seen a cable designed for adjustment. You could shim one end of the cable with a zip tie if a bit of stretch is your only problem.
Inspect, clean and lubricate all your latches and cable junctions. If it still feels like it's on the verge of breaking, replace both latches and all cables.
Here's what a PIA it is if you don't take care of it now: