By MIKE ABBAH
The Central Bank of Nigeria (CBN) has issued a sweeping directive mandating commercial banks to comply with stricter insider lending limits or risk regulatory sanctions.
In a letter to banks, CBN set a 180-day deadline for financial institutions to regularize all insider-related credit facilities that exceed the statutory limits prescribed under the Banking and Other Financial Institutions Act (BOFIA) 2020.
The move is part of broader efforts to rein in governance lapses and curb excessive exposure to politically connected or influential insiders, a long-standing issue in Nigeria’s financial sector.
Insider lending where banks extend credit to their directors, top shareholders, or affiliates—has long been a source of corporate governance risk in Nigeria.
The CBN, wary of the impact on financial stability, has now made it clear that banks must bring all insider-related exposures within regulatory limits within six months.
At the heart of the directive is Section 19 of BOFIA 2020, which caps lending to insiders at a percentage of a bank’s total loan book.
However, in recent years, some banks have received CBN approvals for insider-related facilities without clear timelines for compliance, leaving room for regulatory arbitrage.
The latest directive closes that loophole, ensuring that all insider loans are brought into compliance without exception.
In addition to compliance, banks are now required to submit periodic reports to the CBN, detailing the status of their insider lending portfolios and actions taken to conform with the new requirements.
For Nigeria’s top-tier lenders, the new rules are unlikely to pose a significant challenge, as many have spent the past decade cleaning up their books and strengthening corporate governance structures.
However, smaller and mid-sized banks—where insider lending tends to be more prevalent—could struggle to meet the deadline without significant balance sheet restructuring.
Analysts believe that non-compliance could expose banks to heightened regulatory scrutiny, capital adequacy concerns, and potential penalties, further compounding an already challenging macroeconomic environment.
The timing of the CBN’s directive is significant. Nigeria’s banking sector is undergoing a major transformation, with a recapitalization drive expected to reshape the industry.
The regulator is keen to ensure that banks operate with stronger governance structures ahead of anticipated industry consolidation.
Furthermore, the crackdown on insider lending aligns with broader financial reforms aimed at curbing systemic risks in the wake of previous banking crises. The 2009 banking sector meltdown, triggered in part by reckless insider lending and lax oversight, remains a cautionary tale.
With the 180-day clock now ticking, banks must act swiftly to comply. The coming months could see a flurry of loan restructuring, potential debt sales, or even equity injections to dilute excessive insider exposure.
