The Central Bank of Nigeria (CBN) recently issued a directive mandating the resignation of bank directors with non-performing insider-related loans. This move, aimed at strengthening corporate governance and mitigating credit risk, has garnered support from industry experts and shareholders who view it as a necessary step to curb the prevalent issue of insider abuse within the banking sector. The CBN’s circular, issued under the authority of the Banking and Other Financial Institutions Act, 2020, requires banks to ensure compliance with insider-related credit limits and mandates the immediate resignation of directors with non-performing loans. The directive further emphasizes the importance of initiating recovery efforts on outstanding debts, including the seizure of collaterals and the liquidation of shareholdings belonging to affected directors.
The CBN’s directive has been lauded as a proactive measure to address the long-standing problem of insider loans. Experts like Marcel Okeke, the former chief economist at Zenith Bank, highlight the seriousness of insider abuse, where individuals exploit their directorial positions, jeopardizing internal processes and increasing the risk to the banking system. The directive, Okeke believes, will sanitize the system and curb such abuses, ultimately benefiting the banking sector, especially in light of the ongoing recapitalization efforts. He further asserts that the resignation of directors with non-performing loans is unlikely to disrupt banks’ recapitalization plans, which are already well underway.
Professor Segun Ajibola, a former CIBN president and experienced banking practitioner, echoes Okeke’s sentiments, emphasizing the importance of addressing the abuse of insider loans. He acknowledges that while directors engaging in legitimate business activities may require loans from their institutions, full disclosure and adherence to standard terms and conditions are crucial to avoid preferential treatment. He notes that the CBN’s intervention stems from the increasing instances of abuse where directors exploit their positions, leading to financial distress for banks.
While supporting the CBN’s directive, Ajibola also raises concerns about the potential for unfairly impacting directors with performing loans. He suggests a more nuanced approach, targeting only directors whose insider-related loans are non-performing, rather than imposing a blanket directive that may inadvertently penalize those who have diligently serviced their debts. He argues that directors who have demonstrated responsible borrowing practices should not be subjected to the same consequences as those who have abused their positions.
Shareholder groups have also expressed their support for the CBN’s directive. Moses Igbrude, the National Coordinator of the Independent Shareholders Association of Nigeria, welcomes the move, emphasizing its timeliness and proactive nature in preventing a recurrence of the post-consolidation era issues, where insider-related loans were rampant. He urges the CBN to maintain continuous monitoring and enforce sanctions against any violations, highlighting the positive impact of the directive on minority shareholders. Bisi Bakare, the President of the Pragmatic Shareholders Association of Nigeria, similarly commends the directive as a welcome measure to address the detrimental effects of insider-related loans on banks’ financial health.
The consensus among experts and shareholders is that the CBN’s directive is a crucial step in addressing the issue of insider loans, promoting corporate governance, and ensuring the stability of the banking sector. This move is expected to reduce non-performing loans, enhance the financial health of banks, and protect shareholder investments. While some concerns have been raised about the potential for unintentional consequences for directors with performing loans, the overall sentiment is one of support for the CBN’s efforts to strengthen the banking system. The long-term impact of this directive will depend on the CBN’s consistent monitoring and enforcement efforts, as well as the willingness of banks to fully comply with the new regulations.
This decisive intervention from the CBN has effectively demonstrated the regulatory body’s commitment to addressing the challenges of non-performing insider-related loans within Nigeria’s banking industry. The directive’s impact will not only be felt within the financial sector but also contribute to a more robust and transparent financial landscape, benefiting all stakeholders in the long run. Moving forward, The CBN will need to closely monitor the implementation of this directive and remain adaptable to evolving circumstances to ensure its continued effectiveness in safeguarding the stability of the banking sector.
