Insider loans are those given to a bank's own executives, directors, employees, major shareholders, or their close associates.
This order came in a circular signed by the Acting Director of Banking Supervision, Adetona Adedeji, on Monday.
The CBN stated that this move is meant to boost corporate governance and enhance risk management within the banking industry.
To reduce financial risks, the central bank has directed banks to act by recovering debts through collateral enforcement and taking over the shares of the directors involved.
“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 circular reads.
The Central Bank of Nigeria (CBN) mandated all banks to adhere to Section 19 of the Banking and Other Financial Institutions Act 2020, thereby ensuring the appropriate regulation of loans extended to insiders.
“Insider-related facilities approved by the CBN without specific timelines: Banks are required to regularise within 180 days all insider-related facilities above the limits prescribed in Section 19(5) of BOFIA 2020, which were approved by the CBN without specific timelines.
“Accordingly, all affected individual director-related facilities should be brought within the prescribed limit of 5 per cent of the bank’s paid-up capital, while the aggregate insider facilities for the bank should not exceed the 10 per cent paid-up capital limit,” it added.
Paid-up capital represents the aggregate sum received by a company from shareholders in return for issued shares.
Concerning insider-related loans with defined repayment schedules, the Central Bank of Nigeria mandates the regularization of all outstanding loans within the stipulated timeframe.