The Central Bank of Nigeria (CBN) has issued a decisive directive ordering bank directors with unpaid insider-related loans to step down immediately.
The move is part of broader efforts to strengthen corporate governance and reduce risks within the banking sector.
In a circular released on Tuesday, the apex bank told banks to strictly adhere to the insider credit limits outlined in the Banking and Other Financial Institutions Act (BOFIA) 2020.
The directive signals a tougher stance against financial mismanagement, particularly the long-standing issue of insider lending, where directors and key shareholders grant themselves credit facilities that sometimes go unpaid.
The CBN has also mandated that all banks take immediate steps to recover outstanding debts, including enforcing collateral recovery and reclaiming shareholdings of affected directors.
“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 letter stated.
Under the new guidelines, all banks must ensure that insider-related loans exceeding statutory limits are brought into compliance within 180 days.
BOFIA sets a cap of 5% of a bank’s paid-up capital for individual directors and 10% for the entire bank.
In June 2024, the CBN revoked the license of Heritage Bank, a local commercial bank, over governance failures, underscoring the regulator’s commitment to financial stability.
More recently, in a move to safeguard depositors’ funds, the central bank took over Keystone Bank, further demonstrating its readiness to intervene in troubled institutions.
This latest move serves as a warning shot to bank executives who have long exploited insider lending practices without consequences.
Such loans, when mismanaged, can weaken financial institutions, reduce liquidity, and create systemic risks in an already fragile economy.
By enforcing these stricter regulations, the CBN is aiming to rebuild trust in the financial system while ensuring that banks prioritize responsible lending and corporate governance.
The central bank has urged all financial institutions to comply with the new rules immediately, warning that failure to do so could attract further regulatory action.