CBN Orders Bank Directors With Non-Performing Insider Loans to Resign

The Central Bank of Nigeria (CBN) has issued a mandate requiring bank directors who have non-performing insider loans to step down immediately. This decision is part of a larger initiative by the CBN to improve corporate governance and risk management within the nation’s financial sector.

The directive, titled Compliance with Insider-Related Credit Limits, was issued on February 17 and signed by Adetona Adedeji, the acting director of banking supervision at the CBN. The circular emphasizes full adherence to the insider credit limits specified under the Banking and Other Financial Institutions Act (BOFIA) of 2020.

In addition to this, the CBN has instructed banks to take urgent action to recover outstanding debts related to insider loans. The recovery measures include enforcing collateral collection and potentially seizing shareholdings from the directors involved, in order to reduce financial risks.

According to the circular, “Directors with non-performing insider-related facilities are required to resign from the board immediately. Banks should also begin the recovery process by securing collateral and seizing the shareholdings of the affected directors.”

The CBN has also set a 180-day deadline for banks to bring any insider loans exceeding legal limits within the approved thresholds. This move is designed to reduce the potential for excessive exposure to insider loans, which could jeopardize the financial stability of institutions.

Under Section 19(5) of BOFIA, bank directors are prohibited from holding insider loans that surpass 5% of the bank’s paid-up capital. The total insider credit exposure across the entire bank cannot exceed 10% of its paid-up capital.

Paid-up capital represents the total funds raised by a company through the sale of shares, playing a critical role in maintaining a sound capital structure for banks.

The CBN further emphasized that facilities approved without set timelines must be adjusted to meet the new regulations within the stipulated period. Banks with pre-approved insider loans that already have timelines must ensure compliance within the designated timeframes.

The CBN has urged immediate implementation of these measures to ensure adherence to regulatory standards and bolster public confidence in the financial sector. Any institution that fails to comply with the directive could face additional regulatory actions.

By tightening controls on insider-related loans, the CBN aims to enhance accountability among bank directors and mitigate the risks associated with unregulated insider lending. These changes are expected to promote a more stable and transparent banking environment, fostering improved corporate governance and risk management practices across the industry.