Under the directive, banks are required to treat insider loans as non-performing and make 100 per cent provision for the self-declared amounts within an 18-month window starting from the end of April 2026. Analysts warn that this strict approach could force some banks to record fresh impairment provisions running into billions of naira, potentially suspending dividend payments for several operators over the next two years.
Multiple sources told BrandIconImage that insider lending in certain banks could account for over 30 per cent of total loans and advances. Poor transparency and under-disclosure may mask the actual exposure, raising concerns about potential systemic risks. The CBN highlighted that extreme market conditions could lead to capital losses for lenders, especially since many insider loans are not adequately secured.
The regulator has previously ended a period of forbearance, compelling banks to make provisions amounting to hundreds of billions of naira in their 2025 financial statements, a move that resulted in some institutions declaring losses. These provisions, triggered by previous executive recklessness and lapses in board oversight, have often burdened small shareholders, who sacrificed dividends and capital gains.
Timing Ahead of Recapitalisation
The directive arrives three weeks before the March 31 deadline for the two-year recapitalisation exercise. According to the CBN, banks have so far raised over ₦4 trillion, with 30 institutions fully recapitalised. While details of the remaining three operators have not been publicly disclosed, market observers believe the sector has largely weathered the storm.
Despite this, the regulator remains “unsatisfied” with the asset quality in a number of banks, citing rising insider abuse as a significant concern. Additional regulations are reportedly being prepared to further tighten conditions for fresh insider lending, including stricter guarantees and indemnities. Insider-related approvals may soon fall under a more stringent risk framework, sources said.
Mandatory Stress Tests
In a related move, the CBN has instructed banks to stress-test their operations as part of its oversight framework, effective April 1, 2026. Banks are expected to simulate deterioration in asset quality, governance risks, and major changes in industry dynamics—such as commodity price drops, foreign exchange fluctuations, and shifts in obligor market conditions—over a 12-month horizon. Insider and politically exposed loans are to be treated as defaulted in these stress scenarios.
The directive, issued to bank CEOs, is a precautionary measure designed to monitor sector vulnerabilities and prevent a repeat of past crises, notably the post-2005 recapitalisation period. Back then, insider abuses contributed to a spike in non-performing loans (NPLs), prompting the creation of the Asset Management Corporation of Nigeria (AMCON), which purchased assets worth ₦1.8 trillion from 22 banks.
During the 2009 crisis, the NPL ratio surged to around 32 per cent, triggering a systemic crisis that affected even the most vibrant operators. Today, the sector’s NPL ratio is around seven per cent, slightly above the five per cent regulatory threshold. However, insiders claim that performance on insider-related loans is often “cooked”, giving a false impression of the true risk.
Currently, insider loans are disclosed only in routine operational reports submitted to the CBN, leaving many shareholders unaware of the full extent of exposure. Many banks are reported to hold hundreds of billions of naira in secured and unsecured insider loans, which, under the new regulation, must now attract 100 per cent provision following submissions due April 30, 2026.
Experts Weigh In
Godwin Owoh, professor of applied economics and former CBN consultant under Prof. Charles Soludo, applauded the move, emphasizing that shareholders should not continue to bear the cost of weak risk management. He noted that stress tests serve both as a risk-management tool and a mechanism to strengthen banks ahead of potential economic shocks. While not a system-wide recapitalisation, he said, the process could reshape the competitive structure of the sector and enhance preparedness for future challenges.
Owoh added that banks may consider recalling loans advanced to related parties, warning that excessive politicisation undermines shareholder value. He also highlighted the need to restrict ex-central bankers from taking up bank appointments, cautioning that their involvement can compromise professionalism and governance.
Chiwuike Uba, another economics professor, described the stress tests as primarily precautionary, ensuring resilience under extreme conditions, such as recessions, currency volatility, or sharp declines in commodity prices. He noted that while the system is currently stable, the timing of the directive—just before the recapitalisation deadline—signals the CBN’s focus on verifying that banks’ balance sheets can withstand potential shocks.
Uba cautioned that weaker banks may face another round of capital raising. Such measures could involve equity injections, rights issues, or strategic mergers, while stronger banks with adequate capital buffers are less likely to be affected.
Capital Requirements and Reporting
Under the new framework, all insider-related exposures will be treated as default under severe stress assumptions and fully provided for in stress scenarios. Following the stress tests, banks are required to report pre- and post-stress capital adequacy ratios (CAR) and any capital shortfall.
The CBN mandates that banks raise either 100 per cent of the reported stressed capital shortfall or 50 per cent of the shortfall computed from CBN’s stress analysis—whichever is higher—within 18 months. This raised capital will serve as the risk-based capital requirement until the next stress test cycle, scheduled six months after the capital raise to close any remaining shortfall.
Implications for Shareholders and the Sector
While these directives may extend the dividend drought for small shareholders, experts emphasize that the measures are necessary to safeguard the sector from governance failures, insider abuses, and future economic shocks. By enforcing full provisioning and rigorous stress testing, the CBN seeks to restore transparency and reinforce the resilience of Nigeria’s banking sector.
Ultimately, the regulator’s latest actions reflect a commitment to preventing a repeat of past crises, ensuring that insider lending abuses no longer compromise the stability of the financial system, and positioning banks to navigate future challenges more effectively.