THE Central Bank of Nigeria (CBN) has directed bank directors with non-performing insider-related loans to step down immediately.
CBN gave the directive in a circular signed by the acting director of banking supervision, Adetona Adedeji, on Monday, February 17.
According to Investopedia, a non-performing loan (NPL) is a loan that is in default because the borrower has not made the scheduled payments for a specified period. Although the exact elements of non-performing status can vary depending on the specific loan’s terms, “no payment” is usually defined as zero payments of either principal or interest.
Insider loans are loans granted by a bank or financial institution to its executives, directors, employees, major shareholders, or other related parties. However, checks by The ICIR showed some of those loans, as a result of insider influence often violate corporate governance rules while exposing the financial health of the banks.
According to the apex bank, the move is to strengthen corporate governance and risk management within the banking sector.
To mitigate potential risks, the financial regulator urged banks to take steps to recover outstanding debts by enforcing collateral recovery and seizing shareholdings of affected directors.
“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,” the circular reads.
The CBN further said in line with the provisions of Section 19 of the Banking and Other Financial Institutions Act (BOFIA), 2020, all banks are to implement the following directives regarding the insider-related facilities in their books.
“Insider-Related Facilities Approved by the CBN without Specific Timelines: Banks are required to regularise within 180 days, all insider-related facilities above the limits prescribed in Section 19 (5) of the BOFIA, 2020, which were approved by the CBN without specific timelines,” the apex bank said.
The CBN also instructed banks to take aggressive steps to recover outstanding debts linked to insider-related loans.
The measures include enforcing collateral recovery and taking possession of the shareholdings of affected directors to mitigate financial risks.
Additionally, all banks are now required to ensure that insider-related loans exceeding statutory limits are brought within the approved thresholds within 180 days, a move that is intended to curb excessive exposure to insider-related loans, which could compromise the stability of financial institutions.
Under Section 19(5) of BOFIA, individual bank directors are prohibited from holding insider loans that exceed 5 per cent of the bank’s paid-up capital. Furthermore, the total insider-related credit exposure for an entire bank must not exceed 10 per cent of its paid-up capital.
The ICIR reported that most Nigerian banks are gearing up for consolidation and are currently raising money now in the Nigerian stock market as the deadline for recapitalisation draws nearer.
The apex bank has set a March 31, 2026 target for all commercial, merchant, and non-interest banks to meet the requirements for recapitalisation.
Analysts believe that the CBN’s strengthening the capital base and corporate governance structure of commercial banks would make Nigerian banks investors’ toast for lending and other forms of business.
“It is good the CBN has given this directive. Some of us will be watching closely to see the successful implementation of this to ensure that the banking sector works for the Nigerian people and lend to businesses,” a development economist, Celestine Okeke, told The ICIR.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.