Some banking experts and shareholders are backing a recent decision by the Central Bank of Nigeria (CBN). The CBN has ordered bank directors who have made loans that aren’t being repaid—known as non-performing insider-related loans—to resign immediately. This move is part of an effort to improve how banks are managed and to lower the risks associated with lending money.
In a statement released on Monday, signed by Dr. Adetona Adedeji, the Acting Director of Banking Supervision, the CBN emphasized the need for banks to follow specific rules regarding insider loans. These rules are outlined in a law called the Banking and Other Financial Institutions Act, 2020. The CBN has directed banks to ensure that any directors with these bad loans must step down right away. The banks are also expected to begin recovering the money owed, which may involve taking back any collateral (assets pledged as security for the loan) and selling off shares owned by those directors.
The statement from the CBN read: “Directors with non-performing insider-related loans must leave the board immediately, and the bank should start recovering the loans right away by seizing collateral and selling shares from the affected directors.”
Additionally, the CBN has set a deadline of 180 days for banks to correct any insider loans that exceed the legal limits. According to the new rules, a bank can only lend up to 5% of its total capital to any one director. Furthermore, the total amount of insider loans across all directors in a bank cannot exceed 10% of the bank’s total capital. If banks have previously approved loans without a set timeline, they must now adjust these loans within the new timeframe. Any failure to comply with these rules could lead to penalties.
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The CBN has instructed all banks to start following these guidelines immediately.
Marcel Okeke, a former chief economist at Zenith Bank, spoke about this decision, noting that insider loans have been a significant issue. He said that when directors misuse their positions to get loans, it can disrupt the entire bank’s operations. He views the CBN’s directive as a positive step toward cleaning up the system and addressing the misuse of power. He believes that if directors step down, it won’t create major problems for the banks, especially since they are already working on strategies to strengthen their finances.
Professor Segun Ajibola, a former president of the Chartered Institute of Bankers of Nigeria, also expressed support for the CBN’s actions. He has extensive experience in banking and highlighted that the main issue is the abuse of power by directors. He explained that directors should fully disclose their interests when taking loans, especially if family members are involved. Ideally, they should recuse themselves from discussions about their loans to ensure fairness. However, he noted that over time, there have been many cases of abuse that have put banks in difficult situations, which is likely why the CBN is taking a strong stance now.
Ajibola raised a concern that this directive might unfairly affect directors who have been responsible and are repaying their loans. He suggested that the rules should specifically target those directors who have non-performing loans rather than applying to all directors.
Moses Igbrude, the National Coordinator of the Independent Shareholders Association of Nigeria, welcomed the CBN’s decision, calling it a timely measure to prevent past mistakes when insider loans were misused by bank owners and directors. He believes that the CBN should continue to monitor the situation and take action against any wrongdoing.
Bisi Bakare, the President of the Pragmatic Shareholders Association of Nigeria, also praised the move, stating that it could help reduce the number of bad loans and improve the overall health of banks. He believes this will protect the investments of minority shareholders and help prevent banks from failing.
Overall, the consensus among these experts and shareholders is that the CBN’s directive is a necessary step to ensure better management and accountability in the banking sector.
