The Central Bank of Nigeria (CBN) has directed all Nigerian banks to reduce their insider loans within the next six months as part of measures to enhance financial stability and promote prudent lending practices within the banking sector.
The directive shows the apex bank’s resolve to curb excessive insider lending and address potential risks that could undermine the integrity of the financial system.
According to the CBN, the mandate aligns with its broader objective of ensuring transparency and accountability in banking operations.
“This directive is part of efforts to enhance financial stability and ensure prudent lending practices within the banking sector,” the CBN stated.
Insider loans are credit facilities extended to directors, shareholders and related entities within a bank.
Insider loans have long been a source of concern due to their potential to create conflicts of interest and increase non-performing loans (NPLs) if not properly managed.
The CBN’s directive requires banks to reassess their exposure to such loans, reduce existing facilities and ensure that any insider lending strictly adheres to regulatory limits and risk management standards.
The apex bank has also warned that failure to comply with the six-month deadline could result in sanctions.
Financial analysts view the move as a proactive step toward safeguarding the banking sector from systemic risks.
“This is a necessary measure to protect depositors and strengthen confidence in the banking system. Insider loans, if left unchecked, can lead to significant losses and threaten financial stability,” said Dr. Ahmed Yusuf, a financial analyst.
The directive is expected to compel banks to tighten their credit policies, reduce preferential lending to related parties and improve risk management practices.
As part of its oversight, the CBN will conduct regular audits to monitor compliance and ensure that banks adhere to the stipulated timeline.
The measure comes as the CBN intensifies reforms to address vulnerabilities within the financial sector.
Stakeholders believe the directive will not only reduce exposure to high-risk insider loans but also channel more credit to productive sectors of the economy.
