In a bold move to enhance corporate governance and risk management, the Central Bank of Nigeria (CBN) has instructed bank directors with non-performing insider-related loans to step down immediately. The directive, announced in a circular dated February 17, 2025, aims to strengthen oversight within Nigeria’s banking sector.
Signed by the Acting Director of Banking Supervision, Adetona Adedeji, the CBN’s new guidelines mandate banks to strictly adhere to insider credit limits set out under the Banking and Other Financial Institutions Act (BOFIA), 2020. The regulations outline a clear requirement that directors involved in non-performing insider loans must resign from their positions, while banks must begin taking action to recover the outstanding debts.
The circular emphasizes the importance of recovering collaterals, including the shareholdings of the affected directors, as a means of reducing potential risks. The CBN has also called on banks to promptly initiate the remediation of these loans, focusing on the liquidation of collateral assets to mitigate the financial risks associated with non-performing loans.
“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,” the circular stated.
In a further tightening of regulations, the CBN has set a 180-day deadline for all banks to regularize any insider loans that exceed the statutory limits. According to Section 19 (5) of BOFIA, directors are prohibited from holding insider loans that surpass 5% of the bank’s paid-up capital, while the total aggregate for the entire bank must not exceed 10% of the paid-up capital.
These changes are expected to have significant implications for the management of insider-related loans, which have long been a point of concern for Nigeria’s financial system. Insider loans—granted to directors, major shareholders, or their affiliates—can present substantial risks to a bank’s stability if not carefully monitored.
The CBN’s directive comes as part of an ongoing effort to address corporate governance weaknesses in the Nigerian banking sector. The regulator is placing additional pressure on financial institutions to align with these updated rules, ensuring that all insider-related loans comply with the prescribed limits within the stated timelines.
The CBN has emphasized that banks must ensure full compliance with the new measures without delay to safeguard the integrity of the country’s financial system.
