Nigeria’s banking regulator has directed commercial banks to comply with stricter insider lending limits or risk sanctions.
In a letter to banks, the Central Bank of Nigeria (CBN) gave financial institutions 180 days to regularize insider-related credit facilities that exceed limits under the Banking and Other Financial Institutions Act (BOFIA) 2020. The goal is to curb governance lapses and limit exposure to politically connected insiders.
Insider lending—where banks extend credit to directors, top shareholders, or affiliates—has long been a governance risk. The CBN now insists banks must align all insider-related exposures within regulatory limits within six months.
BOFIA 2020 caps insider lending at a percentage of a bank’s loan book. Some banks previously received CBN approvals without clear timelines for compliance. The new directive removes this loophole, requiring immediate adherence. Banks must also submit regular reports on their insider lending portfolios.
For top-tier banks, compliance may not be difficult as they have strengthened governance over the years. However, smaller banks, where insider lending is more common, may struggle to meet the deadline.
“There’s no doubt that some banks will need to unwind large insider positions or find refinancing solutions,” said a senior banking executive. “The days of unchecked insider lending are over.”
Non-compliance could lead to regulatory scrutiny, capital adequacy concerns, and penalties, adding pressure in an already challenging economic environment.
This directive comes as Nigeria’s banking sector undergoes major transformation, with a recapitalization drive expected to reshape the industry. The CBN aims to ensure banks have stronger governance ahead of anticipated consolidation. The crackdown aligns with broader financial reforms. The 2009 banking crisis, caused partly by reckless insider lending, remains a cautionary tale.
“Limiting insider lending is key to discipline and accountability in the banking sector,” said a Lagos-based financial analyst. “The CBN’s directive signals tighter oversight as the industry prepares for growth.”
The directive has major implications for directors with significant ownership stakes. BOFIA 2020 imposes strict caps on insider loans, meaning directors who secured large credit facilities may face pressure to comply.
They must restructure their loans, pay them down, or step aside from board positions to maintain credit access. This could lead to boardroom shakeups, especially in banks where influential shareholders also serve as executives.
With the 180-day deadline in place, banks must act fast. The coming months could see loan restructuring, debt sales, or equity injections to reduce insider exposure. For some, the impact will go beyond compliance, affecting lending policies, risk appetite, and strategic planning. While the policy poses short-term challenges, it is a necessary step toward a more resilient banking sector.
The CBN’s message is clear: insider lending must be curbed, or banks will face consequences.
