CBN governor directs bank directors with bad loans to resign

CBN governor directs bank directors with bad loans to resign

Bank directors with non-performing insider-related loans have been given a quit order by the Central Bank of Nigeria (CBN).

They are to step down immediately.

The apex bank gave the directive in a circular signed by Acting Director in charge of Banking Supervision, Adetona Adedeji and sent to all commercial banks on Monday.

According to the CBN, the move will eliminate insiders’ abuses, strengthen corporate governance and improve risk management in the banking sector.

The circular reads: “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.”

Insider loans are credit facilities granted by a bank to its executives, board members, key employees, major shareholders, or related parties. When these loans become non-performing – meaning the borrowers fail to repay them as agreed – they pose a serious risk to financial stability.

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The circular reads: “The CBN has directed banks to recover these outstanding insider-related loans by enforcing collateral agreements and seizing the shares of defaulting directors. The apex bank insisted that all banks must take immediate action to ensure compliance.

“In accordance with Section 19 of the Banking and Other Financial Institutions Act (BOFIA) 2020, all banks are required to implement specific measures concerning the insider-related loans on their books.

“Banks are required to regularise within 180 days, all insider-related facilities above the limits prescribed in Section 19 (5) of BOFIA, 2020, which were approved by the CBN without specific timelines.”

The CBN further explained that all individual director-related facilities must be brought within the prescribed limit of five per cent of the bank’s paid-up capital. Additionally, the total insider-related loans of a bank should not exceed ten per cent of its paid-up capital. Paid-up capital refers to the total amount of money a company has received from shareholders in exchange for stock shares.

“For insider-related facilities approved by the CBN with specified timelines, the central bank expects all loans to be regularised within the given timeframes.”

The regulator warned banks to fully comply with its directives to meet regulatory standards and uphold sound corporate governance practices.

A senior banking executive, who spoke on condition of anonymity, described the CBN’s directive as a necessary step to restore confidence in the financial system.

“This move will ensure that directors are held accountable for their financial obligations and will prevent further abuse of insider lending practices,” the official said.

The banker added that the CBN’s actions demonstrate a firm commitment to enforcing transparency in the banking sector.

“By taking strong measures against defaulting directors, the central bank is sending a clear message that financial misconduct will not be tolerated,” he noted.

CBN governor directs bank directors with bad loans to resign