CBN moves against insider lending

By Mariam Abeeb

The Central Bank of Nigeria has stepped up enforcement against insider lending in the banking sector, warning that directors and board members involved in persistent breaches could lose their positions.

The CBN Director of Banking Supervision, Dr Olubukola Akinnwunmi, disclosed this while explaining the apex bank’s tougher enforcement of prudential and corporate governance rules.

Akinnwunmi said the CBN had, in some cases, directed banks to remove directors whose involvement in insider credit continued despite regulatory intervention.

He said the development followed the CBN’s February 2025 circular on insider credit and was part of measures aimed at strengthening corporate governance and preventing a repeat of past banking sector problems.

He also disclosed that some bank owners, shareholders and board members had exited the industry amid stricter monitoring of insider lending.

“We have had occasions where we had to point out to banks, 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,” Akinnwunmi said.

Insider credit refers to loans or other credit facilities granted by a financial institution to persons closely connected to it, including directors, senior executives, major shareholders or entities controlled by them.

The CBN director warned that unchecked insider lending could undermine the gains made through the recent recapitalisation of the banking sector.

“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 recapitalisation,” he said.

According to him, the CBN’s enforcement of prudential requirements had reached a new level, covering areas such as insider credit, large exposures and single-obligor limits.

He said the apex bank, under its Governor, Olayemi Cardoso, had made it clear that banks must comply with the rules.

“Bank failures are often preceded by governance weaknesses rather than capital deficiencies alone,” Akinnwunmi said, identifying excessive risk-taking, insider abuses, weak board oversight, poor credit decisions and ineffective internal controls as major contributors to financial distress.

He stressed that adequate capital alone could not guarantee the survival of a bank, noting that liquidity, risk management and sound corporate governance were equally critical to financial stability.

Akinnwunmi also linked the tougher approach to the CBN’s risk-based capital framework, under which banks with higher risk exposures would be required to maintain more capital.

“There is a minimum capital requirement for all banks, but there is also a risk based minimum capital requirement that is dependent on the type of risk and the level of risk that you are exposed to as a result of your business model, as a result of your corporate governance,” he said.

He explained that banks engaging more heavily in insider credit could face higher capital requirements because of the risks associated with such exposures.

“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, with respect to the resilience of our Nigerian banks,” he said.

The CBN director said the objective was to ensure that banks maintained capital proportionate to the risks arising from their business models and lending decisions, rather than merely meeting a uniform minimum capital threshold.

“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,” he said.