The Central Bank of Nigeria (CBN) has stepped up its crackdown on insider lending, revealing that some bank owners, shareholders and board members have already exited the banking industry as stricter rules are enforced.
The apex bank also warned that directors could be forced to leave their board positions if banks continue to record persistent insider credit violations.
Insider credit refers to loans or credit facilities granted by a financial institution to people or businesses closely connected to it, including directors, senior executives, major shareholders or companies they own or control.
Speaking on the issue, CBN Director of Banking Supervision, Dr Olubukola Akinnwunmi, said the regulator had in some cases informed banks that directors linked to continued insider lending could no longer remain on their boards.
According to him, the action is part of the enforcement of the CBN’s February 2025 insider credit circular and broader efforts to strengthen corporate governance and prevent a repeat of the challenges that led to the banking sector recapitalisation.
“In addition to that, you are all aware of the insider credit circular that was released in February 2025. 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,” Akinnwunmi said.
He added: “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.”
CBN Warns Against Repeat of Banking Crisis
Akinnwunmi cautioned that unchecked insider lending and poor corporate governance could undermine the progress made through the recapitalisation exercise.
“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,” he said.
He said the CBN’s enforcement of prudential regulations has reached an unprecedented level, covering areas such as insider credit, large exposures and single-obligor limits.
According to him, the apex bank, under Governor Olayemi Cardoso, has made it clear that banks must comply strictly with the rules.
The CBN director said the tougher approach was designed to protect the stability and resilience of the banking sector.
Governance Seen as Key to Bank Stability
Akinnwunmi noted that lessons from banking crises around the world showed that having sufficient capital alone does not guarantee the survival of a financial institution.
While capital, liquidity and effective risk management remain important, he said the quality of corporate governance can determine whether a bank remains stable or eventually fails.
He identified excessive risk-taking, insider abuse, weak board supervision, poor lending decisions and ineffective internal controls among the factors that have historically contributed to financial distress.
As he put it, “Bank failures are often preceded by governance weaknesses rather than capital deficiencies alone.”
Riskier Banks to Face Higher Capital Requirements
The CBN is also introducing a risk-based capital framework under which banks with greater exposure to risk will be required to maintain more capital.
Akinnwunmi explained that although every bank must meet a minimum capital threshold, the amount of capital required will also depend on the risks associated with its business model and operations.
“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.
Insider credit, he added, would receive particular attention under the framework.
“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,” Akinnwunmi said.
He explained that the objective is not simply to ensure that banks meet a standard minimum capital requirement, but to make sure their capital matches the level of risks they choose to take.
“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.
The CBN’s approach signals a stronger emphasis on corporate governance and responsible lending as regulators seek to protect the banking sector from risks that could threaten its stability.
Source: CBN
