CBN orders bank directors with non-performing loans to step down

The Central Bank of Nigeria (CBN) has ordered bank directors with non-performing insider-related loans to step down immediately as part of new measures to strengthen corporate governance and risk management within the banking sector.

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The directive is in a circular dated 17 February and signed by the bank’s Acting Director of Banking Supervision, Adetona Adedeji, mandating strict compliance with insider credit limits prescribed under the Banking and Other Financial Institutions Act (BOFIA), 2020.

The apex bank said banks must take steps to recover outstanding debts by enforcing collateral recovery and taking possession of shareholdings belonging to affected directors to mitigate potential risks.

“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, seen by PREMIUM TIMES, noted.

Regularisation

Under the new rules, all banks must ensure that insider-related loans exceeding statutory limits are regularised within 180 days.

According to Section 19 (5) of BOFIA, individual directors are not permitted to hold insider loans exceeding 5 per cent of the bank’s paid-up capital, while the aggregate insider-related facilities for the entire bank must not exceed 10 per cent of the paid-up capital.

Paid-up capital refers to the amount of money a company has been paid from shareholders in exchange for shares of its stock.

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The CBN also stated that all facilities approved without specific timelines must be brought within these limits within the stipulated period.

For insider-related facilities approved by the CBN with specific timelines, the regulator instructed banks to ensure full compliance within the agreed periods.

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The directive signals a tougher stance on corporate governance lapses within Nigeria’s banking sector, particularly regarding insider lending, a long-standing issue in the industry.

Insider-related loans—credit facilities granted to directors, significant shareholders, or their related entities—often pose risks to financial stability when left unchecked.

The CBN’s latest move reinforces its push for stricter financial discipline in the banking sector, following recent regulatory actions such as revoking Heritage Bank’s licence in June 2024.

The CBN has urged all banks to comply with the new directives with immediate effect to uphold regulatory standards and ensure the integrity of Nigeria’s financial system.