CBN insider credit crackdown forces some bank owners, directors out of banking system

The Central Bank of Nigeria (CBN) has disclosed that some bank owners, shareholders and board members have exited the banking industry following stricter enforcement of insider credit rules, warning that directors who persist in insider credit abuses could lose their board positions.

The disclosure was made by the CBN’s Director of Banking Supervision, Dr Olubukola Akinnwunmi, at the 38th Seminar for Finance Correspondents and Business Editors held in Abuja.

Although he did not identify the affected individuals or banks, Akinnwunmi linked the exits to the regulator’s February 2025 insider credit circular and its commitment to enforcing prudential requirements.

Insider Credit Enforcement triggers exits:

Akinnwunmi said the CBN’s stricter monitoring of insider lending had resulted in the departure of some bank owners, shareholders and board members. He added that the regulator had warned banks that directors could no longer remain on their boards where insider credit problems persisted.

He described corporate governance as fundamental to banking-sector resilience and said the regulator would continue enforcing the rules.

• “You would have seen that some owners of banks or some shareholders of banks are big, and maybe some of the board members have exited the banking system because the bank is strictly monitoring that.”
• “We have had occasions where we had to point out to banks that if this insider credit persists, this person can no longer continue to be in your bank on the board of your bank, because corporate governance is the bedrock of resilience.”
• “The bank, under the leadership of Governor Olayemi Cardoso, has made it clear to the banking system that we will follow the rules to the letter, and it’s all in the interest of the banking system and its resilience.”

Insider credit refers to loans or credit facilities granted to individuals or entities closely connected to a bank, including directors, senior executives, major shareholders and companies they own or control.

Akinnwunmi said enforcement of insider credit rules, large exposures and single-obligor limits had reached an unprecedented level under the current regulatory approach.

CBN circular tightens insider lending:

The enforcement follows the CBN’s February 2025 directive requiring banks to address insider-related credit facilities exceeding statutory limits. Nairametrics previously reported that banks were given 180 days to regularise facilities breaching the limits prescribed under the Banks and Other Financial Institutions Act (BOFIA) 2020.

• The directive also required periodic reporting on insider lending portfolios, while a separate provision addressed directors with non-performing insider-related loans.
• Banks were given 180 days to regularise insider-related credit facilities exceeding statutory limits.
• Banks were required to submit periodic reports detailing their insider lending exposures and compliance measures.
• A separate Nairametrics report stated that directors with non-performing insider-related loans were directed to resign immediately.

The circular cited Section 19 of BOFIA 2020 as the basis for insider credit limits and required immediate compliance with the resignation directive.

Nairametrics also reported that some banks had previously obtained CBN approvals for insider facilities without clearly defined compliance timelines, creating opportunities for regulatory arbitrage.

Akinnwunmi’s latest remarks indicate that the regulator has moved beyond issuing directives to enforcing compliance, including through pressure for the departure of affected bank insiders.

Insider lending raises capital requirements:

Akinnwunmi warned that stronger capital positions alone would not prevent banking distress if corporate governance remained weak. He identified excessive risk-taking, insider abuses, poor board oversight, weak credit decisions and ineffective internal controls as major causes of financial distress.

He said the CBN’s new risk-based capital framework would require banks to hold capital that reflects their actual risk exposures, including those arising from insider lending.

• “Bank failures are often preceded by governance weaknesses rather than capital deficiencies alone.”
• “If there is poor corporate governance, if insider credit pervades the industry, in a short time we will all live to see a repeat of the problem that we have battled or we have dealt with through recapitalization.”
• “What that means is that you require more capital when you engage more in insider credit, which may be a source of problem or has been the source of problem in the past.”
• “It is not just about maintaining a minimum capital requirement. It’s about maintaining a capital requirement that speaks to the level of risk exposure or risk taking that a bank has decided to embark on based on its business model.”

For shareholders, the development highlights the potential governance implications of insider credit exposures and associated board changes, while directors face increased scrutiny over lending to themselves and related parties.

The CBN’s message is that recapitalisation must be supported by stronger governance, effective risk management and compliance with prudential requirements to sustain banking-sector resilience.