CBN orders bank directors with unpaid insider loans to resign

The Central Bank of Nigeria (CBN) has ordered bank directors with non-performing insider-related loans to step down immediately. 

The directive, issued in a circular sent signed by Adetona Adedeji, the Acting Director of Banking Supervision, was sent individually to banks on Monday. 

The CBN stated that the move was aimed at strengthening corporate governance and improving risk management in the banking sector.

According to the circular, “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.”

Insider loans are credit facilities granted by a bank to its executives, board members, key employees, major shareholders, or related parties. When these loans become non-performing—meaning the borrowers fail to repay them as agreed—they pose a serious risk to financial stability.

The CBN directed banks to recover these outstanding insider-related loans by enforcing collateral agreements and seizing the shares of defaulting directors. 

The apex bank insisted that all banks must take immediate action to ensure compliance.

“In accordance with Section 19 of the Banking and Other Financial Institutions Act (BOFIA) 2020, all banks are required to implement specific measures concerning the insider-related loans on their books,” the circular stated. 

“Banks are required to regularise within 180 days, all insider-related facilities above the limits prescribed in Section 19 (5) of BOFIA, 2020, which were approved by the CBN without specific timelines.”

The CBN further explained that all individual director-related facilities must be brought within the prescribed limit of five percent of the bank’s paid-up capital. 

Additionally, the total insider-related loans of a bank should not exceed ten percent of its paid-up capital. Paid-up capital refers to the total amount of money a company has received from shareholders in exchange for stock shares.

“For insider-related facilities approved by the CBN with specified timelines, the central bank expects all loans to be regularized within the given timeframes,” the circular stated.

The apex bank warned that banks must fully comply with these directives to meet regulatory standards and uphold sound corporate governance practices.

A senior banking executive, speaking on condition of anonymity, described the CBN’s directive as a necessary step to restore confidence in the financial system. 

“This move will ensure that directors are held accountable for their financial obligations and will prevent further abuse of insider lending practices,” he said.

The banker added that the CBN’s actions demonstrate a firm commitment to enforcing transparency in the banking sector. 

“By taking strong measures against defaulting directors, the central bank is sending a clear message that financial misconduct will not be tolerated,” he noted.

The CBN’s latest intervention shows its determination to tackle financial mismanagement and prevent potential risks to Nigeria’s banking industry. 

By enforcing strict loan recovery measures and removing defaulting directors, the apex bank is ensuring that those in leadership positions remain accountable, thereby protecting depositors’ funds and maintaining stability in the financial sector.