The Central Bank of Nigeria (CBN) has issued a directive mandating the immediate resignation of bank directors with non-performing insider-related loans. This decisive action is part of the apex bank’s broader efforts to enhance corporate governance and mitigate credit risk within Nigeria’s financial sector.
The order follows the new corporate governance guidelines introduced by the CBN, which took effect on August 1, 2023. According to Section 22.4 of the guidelines, any bank director whose loan facility—or that of their related interests—remains non-performing for over a year must step down from the bank’s board. Additionally, such individuals will be blacklisted from serving on the board of any financial institution under the CBN’s supervision.
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The CBN, further reinforcing its stance, specified in Section 22.5 that no director-related loan or its associated interest can be written off without prior approval from the regulator.
In a circular signed by Adetona Adedeji, the acting director of banking supervision at the CBN, the central bank emphasized that the directive aims to strengthen corporate governance and risk management in the banking sector.
Enforcement Measures
The CBN’s directive outlines several enforcement measures:
- Immediate Resignation: Directors associated with non-performing insider-related loans must resign from their positions without delay. Insider loans refer to credit facilities extended to a bank’s executives, board members, employees, major shareholders, or other connected parties.
- Loan Recovery: Banks are required to take swift action to recover outstanding loans from affected directors. This includes reclaiming collaterals such as shares and other pledged assets.
- Regulatory Compliance: To ensure adherence to the Banking and Other Financial Institutions Act (BOFIA) 2020, banks must maintain insider-related loans within stipulated limits. Under the law, no single director can have insider loans exceeding 5% of a bank’s paid-up capital, while total insider loans must not exceed 10% of a bank’s paid-up capital.
- Timeline for Regularization: Banks have been granted a 180-day window to rectify insider-related loans that surpass the prescribed limits.
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The CBN’s directive is a response to the rising volume of non-performing loans (NPLs), which pose a significant threat to financial stability. Insider lending has been a major contributor to toxic assets and irrecoverable loans, a key factor in past banking crises, particularly in the 1990s.
The crackdown on insider loans comes amid broader regulatory actions, including the recent revocation of Heritage Bank Plc’s license on June 3, 2023. The CBN cited the bank’s inability to improve its financial standing as a major threat to the sector’s stability.