Shareholders back CBN on bank directors’ non-performing loans

Some experts and shareholders in the banking industry are in support of the Central Bank of Nigeria, which ordered bank directors with non-performing insider-related loans to immediately resign from their positions to strengthen corporate governance and reduce credit risk exposure.

They lent their support during an exclusive chat with The PUNCH.

In a circular on Monday, which was signed by the Acting Director of Banking Supervision, Dr Adetona Adedeji, the apex bank mandated compliance with insider-related credit limits as stipulated in Section 19 of the Banking and Other Financial Institutions Act, 2020. It directed banks to ensure that directors with non-performing loans step down immediately while initiating recovery efforts on outstanding debts, including seizing collaterals and liquidating the shareholdings of affected directors.

The circular read, “Directors with non-performing insider-related facilities are required to step down immediately from the board, while the bank should commence immediate remediation of the loans through the recovery of the collaterals, including the shareholdings of the affected directors.”

The directive also requires banks to regularise all insider-related facilities that exceed the statutory limits within 180 days. Under the new compliance rule, insider-related loans must be brought within the prescribed five per cent limit of a bank’s paid-up capital for individual directors. In comparison, total aggregate insider facilities for a bank must not exceed 10 per cent of its paid-up capital.

The CBN noted that any insider-related facility previously approved without a specific timeline must now be adjusted within the given period. For insider-related loans approved by the CBN with specific timelines, banks have been instructed to ensure full adherence to the permitted deadlines. Any failure to comply with the set timelines will be considered a breach of regulatory requirements and may attract further sanctions.

The circular stated that all banks must implement the directives with immediate effect.

Speaking on the directive, the former chief economist at Zenith Bank, Marcel Okeke, lamented that insider loans had become an issue needing resolution.

He said, “Insider abuse is a serious problem; they take advantage of being a director and mess up the whole internal process, so this is a good thing. As long as it is something that would sanitise the system and deal with abuse of position, it is in the interest of the system. It will be for the good of the banking system even with the ongoing recapitalisation.

“The stepping down doesn’t necessarily mean that they won’t hold the shares that they have after all; all the banks have gone far in terms of strategies and plans for recapitalisation. If such directors step down, I don’t think it will create much of a problem for the banks.”

Former President of the Chartered Institute of Bankers of Nigeria, Professor Segun Ajibola, in a chat with The PUNCH, also expressed similar sentiments. He said, “As a bank practitioner and former executive director of a bank for many years before I retired and who has also served as a director on the board of three microfinance banks, once as a director and twice as a chairman of the board of directors, the problem is the abuse.

“Ordinarily, as a director who is into business, the rule used to be full disclosure when you are taking a loan from a financial institution where you serve as a director. You must disclose your interest, even when it involves your relatives on the board of the company seeking the loan. Even at board meetings where such matters are to be discussed, such a director can be excused so that others can look at the proposal based on standard terms and conditions and ensure your preferential treatment, with no compromises, but over the years, we have seen cases of abuse putting such banks and financial institutions into severely distressing situations. So, I think that is why the regulator is coming on strong.”

Ajibola, who is currently a professor of economics at Babcock University, however, expressed concerns that directors who have been faithful in servicing their loans would be tarred with the same brush as the defaulters.

He said, “I would have thought that it wouldn’t be a generic directive. Maybe the directive should have been that for any loan given to a director where the director has a vested interest and the loan is not performing, then the director should step down, but if their directors with loans that are performing have met all conditions and are untainted in procuring, servicing, and repaying the loans, and there is no evidence of any untoward favour towards that director, why should they be punished alongside those who are compromising their position and taking undue advantage of their directorship?”

The National Coordinator of the Independent Shareholders Association of Nigeria, Moses Igbrude, also welcomed the development, saying it was timely for the apex bank to take up the enforcement of this portion of the BOFIA.

He said, “This directive from CBN is a timely and proactive oversight function to avoid repeating the mistake of the last post-consolidation era. Where insider-related loans were abused by owners, directors, and management of banks. CBN should not only stop here but should be on continuous monitoring and sanctioning anyone finds wanting.

“The minority shareholders are happy and pleased with this directive, and we commend CBN for having the boldness to implement and enforce this part of the BOFIA act.”

The President of the Pragmatic Shareholders Association of Nigeria, Bisi Bakare, said, “It’s a welcome development that is aimed at checking the effect of insider-related loans, which has brought some banks to their knees. It will, in the long run, reduce non-performing loans, enhance the financial health of the banks, and ensure the financial stability of the banking sector.

“So, for minority shareholders, it’s a welcome development as it will guarantee the safety of our investment and avoid liquidation of the bank.”