7 hours Ago By Oluwakemi Abimbola
Industry watchers have raised concerns that some manipulation of financial reports may happen following the directive of the Central Bank of Nigeria to banks on insider loans. In exclusive chats with The PUNCH, these stakeholders said the regulator’s notice would likely allow the banks to move funds around and cover their tracks. In a circular issued last week and signed by the Acting Director of Banking Supervision, Adetona Adedeji, the apex bank mandated compliance with insider-related credit limits as stipulated in Section 19 of the Banking and Other Financial Institutions Act, 2020.
It directed banks 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 regularise all insider-related facilities that exceed the statutory limits within 180 days. Under the new compliance rule, insider-related loans must be brought within the prescribed five per cent limit of a bank’s paid-up capital for individual directors.
In comparison, total aggregate insider facilities for a bank must not exceed 10 per cent of its paid-up capital. The circular read, “Directors with non-performing insider-related facilities are required to step down immediately from the board, while the bank should commence immediate remediation of the loans through the recovery of the collaterals, including the shareholdings of the affected directors.” The CBN noted that any insider-related facility previously approved without a specific timeline must now be adjusted within the given period.
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. An economic and financial analyst, Rotimi Fakayejo, noted that while there may be compliance with some directors stepping down, book juggling was also a possibility.
“The only option is that the affected directors will have to step down, and maybe the banks will find a way to get back the bad loans, but we know full well also that while there may be compliance in the bank directors stepping down, there will also be some book juggling whereby they will make the book say that the person has complied. Definitely, some directors will have to go,” he opined. Speaking further, Fakayejo maintained that before the apex regulator would issue the director, it had seen some reports.
He said, “The book juggling is to avoid some consequences. These directors are at risk of being blacklisted on the credit bureau going forward. The banks may come to their aid if the amount is not exceedingly high to find a way where they may credit those accounts by moving the funds around.
It’s still the fund of the bank. Related News ‘CBN’s ATM charges will worsen hardship for low-income earners’ Judge rejects request to withdraw from Emefiele’s trial Senate accuses CBN of frustrating N30tn Ways and Means probe “We know full well that most bank failures have more to do with insider-related credit. With this happening, the CBN is definitely on the right path.
Even inside the CBN, we do hear that this CBN regime is not taking it easy at all. The regulation now is stricter. The banks know; those in the financial services sector regulated by the CBN know.
It is good for the health of the economy and for people to be able to have more confidence in the system.” The analyst said that taking over the shares of the affected directors may be easier than liquidating other assets and that those shares can easily be snapped up without causing a glut. “Concerning the shares, I don’t think it is going to create any glut in the market.
There will be people willing to take up the interest of the affected directors. So, it won’t affect the liquidity in the shares of the bank,” he affirmed. An insider at a tier-1 bank who spoke on the condition of anonymity said, “Most of them are very smart; they are the owners of the books; they are the owners of the software.
With this information, they can quickly do some things. CBN under Cardoso wants to face commercial banks. They come to our branches every day on cash availability, ATMs, and so many issues.
” The source added that this directive requires quick actions on the part of the CBN. He said, “This kind of directive, you don’t sit on it; you go to the banks’ books immediately. They are very sharp; they can quickly erase things.
They report the bad loans that they can manage. My worry is that insider loans are dangerous and can collapse many banks. Perhaps the CBN has gone through their books and seen that these banks are heavy with insider loans to MDs, founders, etc.
They will tell staff, ‘Face your work, don’t do anything else,’ but they are financing a lot of business. “They borrow money at 11, 12 per cent and invest it at 22 per cent and every month, they enjoy the 10 per cent differential. It is for the CBN to act.
” The CBN circular stated that all banks must implement the directives with immediate effect. Meanwhile, some shareholder groups have expressed support for the move, saying it will curb insider abuse and safeguard their investments..
