The Central Bank of Nigeria has issued a directive to bank directors with non-performing insider-related loans to step down immediately while ordering banks to commence remediation of the loan default of the affected individuals through collateral forfeiture.

“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 apex bank said in a circular on Monday. 

Insider loans are loans a bank or financial institution grants to its executives, directors, employees, major shareholders, or other related parties.

When these loans become non-performing, they can create massive financial disruption and corporate governance challenges in the banking system. 

To avoid such consequences and strengthen the banking industry, the CBN has now ordered directors of banks with non-performing insider-related facilities to step down immediately and directed the respective banks to initiate proceedings to recover the defaulted loans, which include forfeiture of collaterals and shareholding of the affected directors. 

In the circular signed by Adetona Adedeji, acting director of banking supervision, the CBN said all banks must regularise all insider-related facilities within 180 days, citing the provisions of Section 19 (5) of the Banking and Other Financial Institutions Act (BOFIA), 2020.

“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 the BOFIA, 2020, which were approved by the CBN without specific timelines,” said CBN. 

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