Business
CBN Issues Stringent Measures to Curb Insider Loan Defaults
- The CBN has mandated immediate compliance with its directives to uphold regulatory standards and improve corporate governance practices in the banking sector.
- Experts acknowledge that insider lending has been a major corporate governance issue in Nigeria.
In an effort to bolster corporate governance and enhance risk management in Nigeria’s banking sector, the Central Bank of Nigeria (CBN) has issued a directive ordering bank directors with non-performing insider-related loans to resign immediately, Eko Hot Blog reports.
The circular, signed by Adetona Adedeji, Acting Director of Banking Supervision, was sent to banks on Monday.
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Insider loans are credit facilities granted by banks to their executives, directors, employees, major shareholders, or other related parties.
In addition to the resignation order, the CBN has instructed banks to recover outstanding debts by enforcing collateral recovery and seizing shareholdings of affected directors.
Furthermore, the apex bank has given banks 180 days to regularise all insider-related facilities, particularly those exceeding the limits stipulated in Section 19(5) of the Banking and Other Financial Institutions Act (BOFIA), 2020, which were previously approved without specific timelines.
The CBN stated: “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.”
It also stressed the importance of compliance with Section 19 of BOFIA 2020, which limits insider-related loans:
“Banks are required to regularise within 180 days, all insider-related facilities above the limits prescribed in Section 19 (5) of BOFIA, 2020.
“Individual director-related facilities must be brought within the 5 per cent paid-up capital limit, while the aggregate insider facilities for the bank must not exceed 10 per cent of its paid-up capital.”
The CBN has mandated immediate compliance with its directives to uphold regulatory standards and improve corporate governance practices in the banking sector.
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Experts acknowledge that insider lending has been a major corporate governance issue in Nigeria.
While larger banks with established governance structures are anticipated to adhere to the CBN’s directives without significant hurdles, smaller and mid-sized banks may find it more challenging to meet the deadline without considerable balance sheet adjustments.
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