CBN Cracks Down on Insider Loans: Bank Directors with Non-Performing Debts Ordered to Step Down Immediately

A Legacy of Lapses and Reform in Nigeria’s Banking Sector

CBN Governor, Olayemi Michael Cardoso

For decades, Nigeria’s banking sector has battled the plague of insider lending—an entrenched practice where bank executives and major shareholders secure loans under favorable terms, often with minimal accountability. While these credit facilities were meant to foster business expansion and economic growth, they frequently became avenues for financial mismanagement, ultimately contributing to the collapse of several institutions.

The Central Bank of Nigeria (CBN) has, over the years, introduced reforms to curb these abuses, from stricter credit exposure limits to enhanced corporate governance measures. However, the latest directive—demanding the immediate resignation of bank directors with non-performing insider-related loans—marks one of the most decisive interventions yet.

The move rekindles memories of past regulatory crackdowns, notably the 2009 banking sector reforms led by then-CBN Governor, Sanusi Lamido Sanusi. At the time, investigations revealed that a staggering portion of non-performing loans was tied to insider lending, pushing the financial system to the brink of collapse. Several bank executives were removed, institutions were bailed out, and tighter lending guidelines were enforced.

Despite these efforts, the problem persisted in various forms, with some bank directors leveraging their influence to access funds without adequate collateral. The consequences have been dire—eroding investor confidence, distorting credit allocation, and exposing depositors’ funds to undue risk.

This latest directive by the CBN, Acting Director of Banking Supervision Adetona Adedeji, in a circular reinforces the apex bank’s renewed stance on accountability. By enforcing collateral recovery and requiring errant directors to relinquish their positions, the CBN is sending a clear message: insider loan abuse will no longer be tolerated.

The directive also places a 180-day deadline for banks to regularize insider-related facilities exceeding statutory limits, further tightening the noose on lax lending practices. It follows a series of regulatory actions, including the revocation of Heritage Bank’s license in June 2024, underscoring the CBN’s determination to uphold financial discipline.

As Nigeria’s banking sector navigates this wave of reform, the echoes of past financial crises serve as both a cautionary tale and a call to vigilance. Will this latest intervention finally put an end to the cycle of insider lending abuse? Or will history repeat itself, requiring yet another regulatory shakeup in the future?

Only time will tell. But one thing is certain: the days of unchecked insider lending are numbered.

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