BREAKING: CBN orders Nigerian Banks to cut Insider Loans within Six Months 

In a letter to banks, the Central Bank of Nigeria (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. 

Crackdown on Insider Lending 

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. 

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. 

What this means for Banks 

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. 

“There’s no doubt that some banks will be forced to unwind large insider positions or seek creative refinancing solutions to meet the deadline,” said a senior banking executive who asked not to be named. “The days of unchecked insider lending are clearly over.” 

The directive could also prompt banks to reassess their risk management frameworks, particularly in related-party transactions. 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 Bigger Picture 

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. 

“Limiting insider-related credit exposure is a fundamental step towards entrenching discipline and accountability in the banking sector,” said a Lagos-based financial analyst. “The CBN’s latest directive signals a shift toward tighter oversight at a time when the industry is preparing for the next phase of growth.” 

“Limiting insider-related credit exposure is a fundamental step towards entrenching discipline and accountability in the banking sector,” said a Lagos-based financial analyst. “The CBN’s latest directive signals a shift toward tighter oversight at a time when the industry is preparing for the next phase of growth.” 

One of the biggest implications of the CBN’s directive is its potential effect on bank directors who hold significant ownership stakes.  

This could lead to a wave of boardroom shakeups, particularly in banks where influential shareholders also serve as executive or non-executive directors. 

What Happens Next? 

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. 

Bottom Line 

The CBN’s stance is clear: banks must curb insider lending or face the consequences. As the deadline looms, Nigeria’s financial institutions are now racing to adjust, reinforcing the regulator’s commitment to a more transparent, resilient banking sector.