The Central Bank of Nigeria has ordered bank directors with non-performing insider-related loans to immediately resign from their positions as part of efforts to strengthen corporate governance and reduce credit risk exposure in the banking sector.
The directive was issued in a circular signed by the acting Director of Banking Supervision, Dr Adetona Adedeji, on Monday.
In the circular addressed to all banks, the apex bank mandated compliance with insider-related credit limits as stipulated in Section 19 of the Banking and Other Financial Institutions Act, 2020.
It directed banks to ensure that directors with non-performing loans step down immediately while initiating recovery efforts on outstanding debts, including seizing collaterals and liquidating the shareholdings of affected directors.
The circular read, “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 directive also requires banks to regularise all insider-related facilities that exceed the statutory limits within 180 days.
Under the new compliance rule, insider-related loans must be brought within the prescribed 5 per cent limit of a bank’s paid-up capital for individual directors, while total aggregate insider facilities for a bank must not exceed 10 per cent of its paid-up capital.
The CBN noted that any insider-related facility previously approved without a specific timeline must now be adjusted within the given period.
For insider-related loans approved by the CBN with specific timelines, banks have been instructed to ensure full adherence to the permitted deadlines. Any failure to comply with the set timelines will be considered a breach of regulatory requirements and may attract further sanctions.
The circular stated that all banks must implement the directives with immediate effect. The CBN emphasised that these measures are necessary to enforce sound corporate governance practices, curb reckless lending to insiders, and protect depositors’ funds.
This directive mandating the resignation of bank directors with non-performing insider-related loans comes amid a significant reduction in director-related lending across some Nigerian banks, as revealed in their Q3 2024 unaudited financial statements.
However, some banks did not clearly disclose their insider loan figures, raising transparency concerns. Data from four publicly available financial statements show that director-related lending across these banks fell from N12.44bn in September 2023 to N5.44bn in September 2024, reflecting a 56.3 per cent decline.
Access Holdings Plc recorded the most drastic cut, slashing its insider-related facilities from N975m to just N13m, a 98.7 per cent reduction. Similarly, Jaiz Bank Plc significantly reduced its insider loan exposure from N7.53bn to N1.36bn, marking an 81.9 per cent decline.
Zenith Bank Plc saw a 24.6 per cent decrease, with director-related loans dropping from N2.89bn to N2.18bn. Conversely, Stanbic IBTC Holdings reported an increase in insider-related lending, rising from N1.05bn to N1.89bn, a 79.8 per cent surge.
While these banks provided some level of disclosure, others—including GTBank, Wema Bank, UBA, Fidelity Bank, FCMB, and Sterling Bank—did not clearly state the amount of insider-related loans in their Consolidated and Separate Unaudited Interim Financial Statements for the period ended 30 September 2024.
The lack of transparency makes it difficult to assess their compliance with regulatory limits. Earlier in 2023, the CBN issued guidelines that imposed responsibilities on the bank board and the executive compliance officers on insider loans.
On related party transactions, the apex bank said, “Banks shall establish a policy concerning insider trading and related party transactions by directors, senior executives, and employees, as well as publish the policy or a summary of that policy on their website.
“The policy shall contain appropriate standards and procedures to ensure it is effectively implemented. In addition, there shall be an internal review mechanism carried out by the internal audit function of the bank, to assess the compliance and effectiveness of the policy.
“Any director whose facility or that of his/her related interests remains nonperforming in any financial institution for more than one year shall cease to be on the board of the bank and shall be blacklisted from sitting on the board of such bank and that of any other financial institution under the purview of the CBN. No director-related loans and/or interest thereon shall be written off without the CBN’s prior approval.”
