CBN Bars Banks From Dismissing Loans Granted To Directors

The Central Bank of Nigeria (CBN) has issued a directive prohibiting banks from canceling loans extended to their directors and associates without its permission.

Corporate Governance Guidelines for commercial, Merchant, non-interest, and payment service banks contain the directive.

This is in response to shareholders’ repeated complaints about the continuous increase of insider-related loans to directors. The new guidelines, which went into effect on 1 August 2023, stipulated that any director whose facility or that of his related interests underperforms for more than a year must resign from the board and be barred from serving on the boards of banks or other financial institutions supervised by the central bank.

The CBN also instructed banks to develop a Code of Business Conduct and Ethics containing the necessary information and procedures to bolster their integrity. According to the central bank, the code should also consider the legal obligations and reasonable expectations of their stakeholders, as well as the responsibility and accountability of those reporting unethical practices. The CBN stated that the code should be reviewed at least every three years and directed banks to establish a policy on insider trading and transactions with related parties by directors, senior executives, and employees.

“The policy must be posted on the websites of the institutions. In addition, the internal audits of the institutions shall conduct an internal review mechanism for the purpose of determining the policy’s compliance and efficacy. “The policy must contain the appropriate standards and procedures to ensure its successful implementation,” the document states.

Your Comment: