CBN orders immediate step down of bank directors with insider loans

The Central Bank of Nigeria (CBN) has ordered commercial bank directors with non-performing insider related loans, to step down immediately.

This was disclosed in a circular titled ‘Compliance with Insider-Related Credit Limits’ issued on February 17 and signed by Adetona Adedeji, acting director of banking supervision at the CBN.

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.

The circular stated that all banks must now ensure that insider-related loans exceeding statutory limits are brought within the approved thresholds within 180 days. This measure is aimed at reducing excessive exposure to such loans, which could undermine the financial stability of institutions.

According to Section 19(5) of the Banks and Other Financial Institutions Act (BOFIA), no individual bank director is permitted to hold insider loans that surpass 5 percent of the bank’s paid-up capital.

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It stated that the total insider-related credit exposure for an entire bank must remain within 10 percent of its paid-up capital.

Paid-up capital represents the total amount of funds a company has received from shareholders in exchange for issued shares. This financial benchmark plays a crucial role in maintaining a stable and well-balanced capital structure for banks.

Furthermore, CBN said that all facilities approved without specific timelines must be adjusted to comply with the new regulations within the stipulated period. Meanwhile, for insider-related credit facilities previously approved by the CBN with set timelines, banks are required to ensure full compliance within the agreed timeframes.

The Non-Performing Loans (NPLs) of Nigerian banks, also known as bad loans fell below 5 percent industry threshold to 4.8 percent in October 2024.