Experts urge CBN to prosecute Bank Directors with bad loans

Financial experts have called on the Central Bank of Nigeria (CBN) to take stricter measures against bank directors with non-performing loans by prosecuting them rather than merely asking them to resign.

This call follows concerns over insider abuses in the banking sector and the need for stronger corporate governance.

Dr. Uju Ogubunka, former Executive Secretary of the Chartered Institute of Bankers of Nigeria (CIBN), emphasized that prosecuting directors responsible for bad loans would serve as a deterrent and enforce accountability in the industry.

“We expect the regulators to prosecute them in court and hope for justice, as a deterrent measure to other erring bank staff. This is a more innovative approach in tackling bad loans than just asking the directors to resign without facing the consequences of their actions,” Ogubunka said.

He stressed that such measures would enhance credibility in the banking system and contribute to economic stability.

Boniface Okezie, President of the Progressive Shareholders Association of Nigeria, also supported the CBN’s directive on bad loans. He noted that while bank directors are allowed to secure loans to advance their business interests, they must ensure such facilities do not become non-performing loans.

“This directive will lead to sanity in the banking sector. This punitive measure from the regulator will ameliorate insider abuse and restore trust in the system,” Okezie said.

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Last week, the CBN ordered bank directors with non-performing insider-related loans to immediately resign from their positions as part of efforts to strengthen corporate governance and reduce credit risk exposure in the banking sector.

The directive was issued in a circular signed by the Acting Director of Banking Supervision, Dr. Adetona Adedeji, mandating compliance with insider-related credit limits as stipulated in Section 19 of the Banking and Other Financial Institutions Act, 2020.

Banks were instructed 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 directive also requires banks to regularize all insider-related facilities that exceed statutory limits within 180 days.

Under the new compliance rule, insider-related loans must be brought within the prescribed 5% limit of a bank’s paid-up capital for individual directors, while total aggregate insider facilities for a bank must not exceed 10% of its paid-up capital.

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.

The CBN emphasized that these measures are necessary to enforce sound corporate governance practices, curb reckless lending to insiders, and protect depositors’ funds.