The CBN has ordered bank directors with non-performing insider loans to resign immediately as part of efforts to strengthen corporate governance

[dropcap]T[/dropcap]he Central Bank of Nigeria (CBN) has directed bank directors with non-performing insider-related loans to step down immediately.

Also read: CBN staff outraged over consultants’ influence, alleged excessive pay

This directive, issued in a circular signed by the Acting Director of Banking Supervision, Adetona Adedeji, on Monday, aims to reinforce corporate governance and improve risk management in the banking sector.

Insider loans refer to credit facilities granted by a bank to its own executives, directors, employees, major shareholders, or their related parties.

The CBN’s latest directive seeks to curb financial risks posed by these loans, which often contribute to instability in the banking sector.

“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 CBN stated in the circular.

The CBN also instructed banks to comply with Section 19 of the Banking and Other Financial Institutions Act (BOFIA) 2020, which regulates insider-related lending. The directive mandates that:

– Insider-related loans approved without specific timelines must be regularised within 180 days.
– Individual director-related loans must be within 5% of the bank’s paid-up capital.
– Aggregate insider-related loans for a bank must not exceed 10% of its paid-up capital.
– Loans granted with specific timelines must be fully repaid within the permitted period.

Paid-up capital refers to the total funds a company receives from shareholders in exchange for shares, forming the financial foundation of the institution.

To recover outstanding debts, the apex bank has instructed financial institutions to enforce collateral collection, including seizing the shareholdings of directors with bad loans.

This move is expected to mitigate financial risks and ensure a healthier banking environment.

Also read: CBN fines nine banks ₦1.35 billion over ATM cash shortages

The CBN’s latest action reinforces its commitment to promoting transparency and accountability in Nigeria’s financial sector, preventing bank executives from exploiting their positions for personal financial gain.