CBN orders bank directors with bad loans to resign

…Politicians, elite face increased scrutiny

From Adanna Nnamani, Abuja

The Central Bank of Nigeria (CBN) has directed bank directors with non-performing, insider-related loans to immediately resign from their positions.

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

The apex bank, in its efforts to strengthen corporate governance and mitigate financial risks, has issued a new directive mandating all commercial banks to regularise insider-related credit facilities that exceed statutory limits within 180 days, or face regulatory sanctions.

With this move, credit facilities for politicians, business elites and other influential Nigerians must survive due diligence and other requirements before they are given.

In a circular signed by the banks it’s Acting Director of Banking Supervision, Adetona Adedeji, on Monday, the CBN explained that the measure is aimed at enhancing corporate governance and bolstering risk management within the banking sector.

To curb financial risks, the apex bank instructed financial institutions to take decisive steps to recover outstanding debts. This includes enforcing collateral agreements and seizing the shareholdings of directors involved.

Additionally, the CBN mandated banks to adhere strictly to Section 19 of the Banking and Other Financial Institutions Act (BOFIA) 2020, ensuring proper regulation of insider-related loans.

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-related facilities approved by the CBN without specific timelines: 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.

“Accordingly, all affected individual director-related facilities should be brought within the prescribed limit of 5 percent of the bank’s paid-up capital, while the aggregate insider facilities for the bank should not exceed the 10 percent paid-up capital limit.”

For insider-related loans that were approved with specific timelines, the CBN stated that all outstanding amounts must be regularised within the stipulated period.

Beyond compliance, banks are now required to submit periodic reports detailing their insider lending portfolios and the steps taken to meet the new regulatory requirements. While Nigeria’s leading banks, having spent years strengthening governance frameworks, may find it easier to comply, smaller and mid-sized banks—where insider lending is often more prevalent—could face a more daunting challenge, potentially requiring balance sheet restructuring to meet the deadline.

“There’s no doubt that some banks will be forced to unwind large insider positions or seek creative refinancing solutions to meet the deadline,” said a senior banking executive who requested anonymity. “The days of unchecked insider lending are clearly over.”

This development comes at a pivotal moment for Nigeria’s banking industry, as the sector undergoes a major transformation driven by the CBN’s recapitalization agenda. The regulator’s crackdown on insider lending aligns with broader financial reforms aimed at strengthening the sector and preventing systemic risks. Lessons from the 2009 banking crisis—triggered in part by reckless insider lending and lax oversight—remain a stark reminder of the dangers of unregulated credit exposure.

“Limiting insider-related credit exposure is a fundamental step towards entrenching discipline and accountability in the banking sector,” said a Lagos-based financial analyst. “The CBN’s latest directive signals a shift toward tighter oversight at a time when the industry is preparing for the next phase of growth.”

One of the most immediate consequences of the directive will be its impact on bank directors who hold significant ownership stakes. Many of these directors—who may have previously leveraged their positions to secure large credit facilities—will now face heightened scrutiny and difficult choices: restructure their loans, bring them within regulatory limits, or relinquish board positions to retain borrowing privileges.

As the 180-day compliance window begins to close, banks are expected to engage in a flurry of restructuring activities, including debt sales, equity injections, and changes to lending policies. The regulatory push may also trigger boardroom shakeups, particularly in institutions where influential shareholders serve as executive or non-executive directors.

While the directive presents immediate challenges, its long-term benefits are clear: a more resilient banking system where loans are granted based on merit, not connections. The era of unchecked insider lending is drawing to a close, and the Nigerian banking industry is set to emerge stronger for it.