CBN orders immediate resignation of bank directors with unpaid loans

The Central Bank of Nigeria (CBN) has directed bank directors with unpaid loans from their own banks to step down immediately.

In a circular signed by Acting Director of Banking Supervision, Adetona Adedeji, the CBN said the move is aimed at strengthening corporate governance and reducing financial risks in the banking sector, Premium Times reported Tuesday.

“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 reads.

To recover the debts, the CBN instructed the banks to enforce collateral and seize the shareholdings of affected directors.

The CBN also reminded banks to comply with Section 19 of the Banking and Other Financial Institutions Act 2020, which limits loans to an individual director to 5% of the bank’s paid-up capital and caps total insider-related loans at 10% of the bank’s paid-up capital.

Banks have 180 days to regularize insider loans above these limits.

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Insider lending, where banks extend credit to their own directors, executives, or related entities, has been a persistent issue in Nigeria’s banking sector, often leading to financial instability.

In 1994, insider loans constituted approximately 65% of the total loans of four local banks that were liquidated. Alarmingly, less than 1% of these insider loans were recovered by the liquidator, highlighting severe governance and risk management failures.

During the 2008 and 2009 financial crisis, weak risk management systems allowed banks to bypass insider lending limits, contributing to the crisis. The excessive insider lending, coupled with inadequate oversight, undermined the stability of the financial system.

Between 2019 and 2023, directors and key management personnel of commercial banks borrowed about ₦549 billion from their institutions. In 2023 alone, they borrowed ₦52.40 billion, from ₦111.31 billion in 2022.