The Central Bank of Nigeria (CBN) has issued a directive mandating that bank directors with non-performing insider-related loans must immediately resign from their positions. This move is aimed at enhancing corporate governance and mitigating financial risks within the banking sector.
What Are Insider-Related Loans?
Insider loans refer to credit facilities extended by a bank to its own executives, directors, employees, major shareholders, or related parties. These loans can create significant conflicts of interest and risk mismanagement if they remain unpaid.
CBN’s Directives on Insider Loans
In a circular signed by Acting Director of Banking Supervision, Adetona Adedeji, the CBN outlined immediate steps for banks to ensure compliance:
- Directors with unpaid insider loans must resign immediately.
- Banks must recover outstanding debts by enforcing collateral agreements.
- The shareholdings of affected directors may be seized to settle the debts.
The directive aligns with Section 19 of the Banking and Other Financial Institutions Act (BOFIA) 2020, which regulates insider-related lending practices.
New Limits on Insider Loans
The CBN also issued new guidelines for insider-related loan limits:
- Individual insider loans must not exceed 5% of the bank’s paid-up capital.
- Total insider-related facilities must remain within 10% of the bank’s paid-up capital.
For previously approved insider loans without specific repayment timelines, banks have 180 days to regularize them within the prescribed limits.
Additionally, for insider loans with existing timelines, all outstanding amounts must be cleared within the permitted period.
Why This Matters
This directive signals CBN’s tougher stance on corporate governance and financial discipline. By enforcing stricter rules on insider lending, the apex bank aims to reduce financial mismanagement, protect depositors’ funds, and restore confidence in the banking sector.
