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Like a tightening noose around an old habit, the Central Bank of Nigeria (CBN)’s crackdown on insider lending is beginning to reshape the corridors of power in the banking industry.
Insider lending is when a bank gives loans to people or businesses closely connected to the bank, such as its directors, executives, major shareholders or related companies.
It is not necessarily illegal. The problem arises when such loans are granted on favourable terms, without proper checks or without following the bank’s lending rules.
For example, a bank’s managing director arranges a N5 billion loan for a company he owns, with little scrutiny, weak collateral or an unusually low interest rate. If the company fails to repay, the bank could suffer heavy losses, putting depositors’ money at risk.
Poorly managed insider loans can weaken a bank’s financial health.
Already, some bank owners, shareholders and directors have quietly exited the system, as the apex bank recently revealed that it has shifted from warnings to consequences in its bid to rid banks of related-party credit abuses.
In the apex bank’s words, “Recapitalisation alone cannot guarantee a safe banking system without strong corporate governance, disciplined credit decisions and effective board oversight”.
For directors and major shareholders, the era of treating banks as extensions of personal business interests is facing its sternest test yet.
At the 38th Seminar for Finance Correspondents and Business Editors in Abuja, the CBN’s Director of Banking Supervision, Dr Olubukola Akinwunmi, warned that directors who persist in insider-credit breaches risk losing their board positions. He said the regulator would continue to enforce limits on lending to directors, major shareholders and their connected entities, describing governance as the bedrock of banking-sector resilience.
Although he did not name the affected individuals or institutions, his remarks at the seminar signaled a decisive shift in supervisory posture that insider lending is no longer being treated as a technical compliance issue, but as a threat to the stability of the financial system.
Akinwunmi’s comments came against the backdrop of a banking sector that has just completed a major recapitalisation exercise, raising about N4.65 trillion to meet higher minimum capital requirements.
Yet, the CBN insists that the new capital base is only a foundation, not a guarantee of safety. A bank can be well capitalised on paper and still collapse if its board tolerates weak controls, poor credit decisions and excessive lending to connected parties.
The insider-credit challenge
Insider credit refers to loans or credit facilities granted to individuals or entities closely connected to a bank. These include directors, senior executives, major shareholders and companies they own, control or are otherwise affiliated with.
In principle, such lending is not inherently illegal. Banks may extend credit to directors or related companies where the transactions are arm’s length, properly documented, adequately collateralised and within regulatory limits.
The danger arises when the borrower’s relationship with the bank weakens credit discipline: loans may be approved without rigorous due diligence, collateral may be overvalued, repayment terms may be relaxed, and problem exposures may be concealed from supervisors.
Furthermore, the consequences can be severe. Insider loans often become concentrated, opaque and difficult to recover. When they turn bad, they erode capital, weaken liquidity and undermine depositor confidence. In extreme cases, they have been central to banking distress and failures.
This is why the CBN views related-party lending as more than a governance footnote. It is a potential channel through which the interests of a few insiders can be placed ahead of depositors, minority shareholders and the broader financial system.
Akinnwunmi was blunt about the risk. He said bank failures are often preceded by governance weaknesses rather than capital deficiencies alone. Excessive risk-taking, insider abuses, poor board oversight, weak credit decisions and ineffective internal controls, he noted, remain major causes of financial distress. “If there is poor corporate governance, if insider credit pervades the industry, in a short time we will all live to see a repeat of the problem that we have battled or we have dealt with through recapitalisation,” he warned.
From circular to enforcement
In February 2025, the apex bank issued a circular titled “Compliance with Insider-Related Credit Limits,” requiring banks to address insider-related facilities that exceeded statutory limits.
The directive gave banks 180 days to regularise facilities breaching the limits prescribed under Section 19(5) of the Banks and Other Financial Institutions Act (BOFIA) 2020.
Under the rule, lending to an individual director is capped at five per cent of a bank’s paid-up capital, while aggregate insider-related facilities must not exceed 10 per cent.
Banks were also required to submit periodic reports detailing their insider-lending portfolios and the steps being taken to ensure compliance.
More significantly, the CBN directed that directors with non-performing insider-related facilities should step down from boards immediately. Banks were required to begin remediation of such loans through recovery of outstanding debts, collateral and, where necessary, shareholdings.
The circular also addressed a longstanding regulatory gap. Some banks had earlier obtained CBN approvals for insider facilities without clearly defined compliance timelines, creating room for regulatory arbitrage. The 2025 directive sought to close that loophole by requiring regularisation within a specific period.
At the time, the directive appeared largely procedural. Nearly two years later, Akinnwunmi’s disclosure suggests it has produced real consequences which has led to exits of bank owners, shareholders and directors from the system.
Governance as the new capital
The CBN’s position is that capital and governance must work together.
Recapitalisation has strengthened the industry’s capacity to absorb shocks. Higher capital provides a buffer against credit losses, operational failures and macroeconomic volatility.
But capital does not prevent bad decisions; it only determines how much loss a bank can absorb before it becomes insolvent.
Akinnwunmi argued that the quality of people occupying senior positions matters because their decisions can determine whether a bank remains viable.
Weak appointments, he said, can produce poor risk management, inappropriate lending and decisions capable of eroding shareholders’ and depositors’ funds.
This is the core of the CBN’s governance doctrine. Banks are not merely financial institutions with capital ratios; they are fiduciary institutions entrusted with public savings. Their boards must protect depositors, investors and other stakeholders by ensuring that credit is allocated on commercial merit rather than personal relationships.
The CBN’s 2023 Corporate Governance Guidelines for commercial, merchant, non-interest and payment service banks, as well as financial holding companies, provide the framework. This guideline which as been Ef
effective from August 1, 2023, cover board composition and independence, risk governance, internal controls, ethical conduct, accountability and the responsibilities of directors and senior management.
In practice, this means boards must be able to challenge management, approve credit within defined risk appetites, monitor related-party transactions and ensure that internal audit and risk functions are independent enough to flag abuses.
A board dominated by influential shareholders, or one that lacks the will to question management, may approve capital plans and still fail to prevent insider abuse. The CBN’s message is that such a board is itself a risk.
Risk-based capital raises the stakes
The crackdown on insider lending is also linked to the CBN’s new risk-based capital framework.
In March 2026, the central bank issued Guidelines on Risk-Based Capital Requirements, pursuant to Sections 13 and 63 of BOFIA 2020.
The framework moves the industry beyond a one-size-fits-all minimum capital model. Banks with higher risk profiles, including significant concentrations, foreign-exchange exposures, governance weaknesses or complex activities, are expected to hold more capital.
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Insider-related facilities are explicitly within the scope of the new regime. Banks must stress-test all on- and off-balance-sheet credit exposures, including insider-related facilities, over a 12-month horizon. Institutions with capital shortfalls must report the outcomes every six months, while others are assessed annually.
The implication is direct in that, a bank that persists in high insider exposure may face a higher capital requirement. In other words, related-party lending will no longer be only a governance issue; it will have a balance-sheet cost.
Akinnwunmi explained the logic: “What that means is that you require more capital when you engage more in insider credit, which may be a source of problem or has been the source of problem in the past.”
This approach changes the incentives for bank management. If insider lending increases regulatory capital needs, constrains lending capacity and attracts supervisory scrutiny, directors and shareholders have a stronger reason to clean up related-party exposures.
It also aligns capital regulation with risk. A bank funding a few connected borrowers through opaque facilities is inherently riskier than one with a diversified, well-documented loan book. Under the new framework, that risk must be reflected in capital.
Large exposures and concentration risk
Insider lending often overlaps with another supervisory concern: concentration risk.
A bank may not breach formal insider-lending limits in isolation, but still become dangerously exposed to a small group of connected borrowers.
The CBN has therefore strengthened its Regulation on Large Exposures and its Guidelines on Management of Credit Concentration Risk to limit excessive dependence on single borrowers, connected counterparties, sectors or economic activities.
Banks are expected to set internal exposure limits, conduct periodic stress tests and factor concentration risk into their Internal Capital Adequacy Assessment Process (ICAAP).
This is important because related-party lending rarely appears as a single large loan. It can be spread across several companies, guarantees, overdrafts, trade-finance facilities and off-balance-sheet exposures. Unless supervisors look through the structure, the true concentration may remain hidden.
The CBN’s tougher approach suggests it is increasingly focused on the substance of exposures, not merely their legal form. Connected-party lending will be assessed in aggregate, and banks will be expected to demonstrate that they understand, measure and control the risk.
What this means for boards or directors
For directors, the implications are profound.
First, board seats are no longer insulated from credit outcomes.
A director whose insider-related facility becomes non-performing may be required to leave the board immediately. Persistent insider-credit problems could also lead to broader board changes.
Secondly, directors face greater scrutiny of conflicts of interest. They must disclose related-party transactions, recuse themselves where necessary and ensure that credit approvals follow due process.
Thirdly, board accountability now extends beyond approving financial statements and dividends. Directors are expected to oversee credit quality, risk appetite, internal controls and compliance with prudential limits.
For bank owners and major shareholders, the message is equally clear: ownership does not confer immunity. A shareholder with influence over management cannot use that influence to direct credit to related businesses without exposing the bank, and potentially themselves to regulatory action.
The reported exits of some owners, shareholders and board members indicate that the CBN is willing to pursue that logic to its conclusion.
Implications for shareholders and the market
For minority shareholders, stricter enforcement of insider-lending rules should be welcome news. Related-party abuses can dilute the value of their investment by diverting credit to connected businesses, creating bad loans and weakening dividends.
Greater transparency on insider exposures may also improve market discipline. Investors will be better able to assess whether a bank’s loan book is genuinely diversified or quietly dependent on a few connected borrowers.
However, the transition may create short-term discomfort. Banks may need to restructure or recover insider facilities, recognise impairments, raise additional capital or adjust board composition. Such actions can affect earnings, asset quality and investor sentiment.
Over the longer term, though, a banking system with cleaner governance should command greater confidence. Lower related-party risk can support better credit ratings, cheaper funding and more sustainable profitability.
The broader reform agenda
The insider-credit enforcement is part of a wider post-recapitalisation agenda.
The CBN has said it is moving towards more proactive and risk-sensitive supervision. This includes the implementation of risk-based capital requirements, stronger governance standards, expanded stress testing, closer monitoring of asset quality and liquidity, and continued work on a harmonised regulatory rulebook.
CBN Deputy Governor, Corporate Services, Dr Muhammad Sani Abdullahi, reinforced the point at the same seminar. He said boards and management teams must demonstrate integrity, accountability and transparency, strengthen internal controls and guard against excessive risk-taking.
“Their decisions must protect the interests of depositors, investors and other stakeholders,” he said.
The central bank’s concern is that Nigeria’s banking sector should not merely become bigger or better capitalised; it should become safer, more transparent and more capable of financing the real economy without recurring episodes of distress.
That objective requires a cultural change as much as a regulatory one. Banks must move from compliance as a box-ticking exercise to governance as a core operating principle.
A test of regulatory resolve
The CBN’s latest stance will be judged by its consistency.
Insider lending is often politically and commercially sensitive because it touches powerful individuals and established business interests.
Enforcing limits requires not only technical supervision but also the willingness to act against influential actors.
Akinnwunmi’s disclosure that some bank owners, shareholders and directors have exited the system suggests that the regulator is prepared to do so. His warning that directors involved in persistent insider-credit abuses could lose their board positions reinforces that message.
Still, the real test will be sustained enforcement: timely disclosure of breaches, credible remediation of problem loans, recovery of collateral, and board accountability where governance fails.
Conclusion
The CBN’s crackdown on insider credit marks a shift from capital replenishment to institutional discipline. Recapitalisation has given Nigerian banks stronger buffers, but the CBN is making clear that those buffers must be protected by sound governance, responsible lending and effective oversight.
Related-party lending will remain a legitimate part of banking where properly structured and controlled. But the days of using banks as funding channels for insiders, with weak documentation and little accountability, appear to be numbered.
For bank boards, the choice is becoming stronger, strengthening governance or risk losing control. For shareholders, the message is that related-party credit is no longer a hidden risk, it is a supervisory priority and for the banking system, the CBN’s position is clear that capital may build resilience, but governance determines whether that resilience lasts.
