CBN Targets Improved Corporate Governance with Insider Loan Crackdown

Industry experts and shareholders have welcomed the Central Bank of Nigeria’s (CBN) decision requiring bank directors with non-performing insider loans to resign. The measure aims to strengthen governance structures and minimize credit risk in the financial sector.

In a circular issued by the Acting Director of Banking Supervision, Dr. Adetona Adedeji, the CBN highlighted the importance of adhering to credit exposure limits set under Section 19 of the Banking and Other Financial Institutions Act (BOFIA), 2020. Banks must act swiftly to recover outstanding loans, including taking possession of collateral and liquidating affected directors’ shares.

The document stated, “Directors with non-performing insider-related facilities are required to step down immediately from the board, while the bank should commence immediate remediation of the loans through the recovery of the collaterals, including the shareholdings of the affected directors.”

Banks have been given 180 days to ensure insider-related loans comply with regulatory limits, capping individual director exposure at five percent of paid-up capital and total insider facilities at 10 percent. Failure to meet the deadline could trigger regulatory sanctions.

Marcel Okeke, former Chief Economist at Zenith Bank, described the move as essential. “Insider abuse undermines internal systems. Directors leveraging their positions to secure unserviceable loans weaken the industry. This policy is a much-needed corrective step,” he said, noting minimal disruption to ongoing recapitalisation efforts.

Professor Segun Ajibola, a former president of the Chartered Institute of Bankers of Nigeria, stressed the importance of full disclosure when directors seek loans from their institutions. “While insider loans aren’t inherently wrong, unchecked abuses have previously destabilized banks. The CBN’s decisive stance is timely,” he noted. Ajibola, however, cautioned against penalizing directors with performing loans. “Those meeting repayment terms shouldn’t be grouped with defaulters,” he argued.

Moses Igbrude, National Coordinator of the Independent Shareholders Association of Nigeria, praised the directive as a proactive safeguard. “This policy helps prevent the lapses seen after previous consolidations, where insider lending jeopardized financial stability. Continuous oversight is key,” he emphasized.

Bisi Bakare, President of the Pragmatic Shareholders Association of Nigeria, echoed these views. “Reducing insider-related loan defaults will bolster the sector’s resilience and protect shareholder investments. It’s a crucial step in ensuring long-term financial health,” she stated.

The directive takes immediate effect, with the CBN emphasizing strict compliance and ongoing supervision to ensure banking sector integrity.