Deposit Money Banks (DMBs) directors and key management personnel have borrowed approximately N549 billion from their respective financial institutions over five years, as revealed by foxiz Nigeria’s analysis of the bank’s annual reports filed with the Nigerian Exchange Limited between 2019 and 2023.
However, there has been a significant reduction in the loans and advances extended to some directors and key management personnel, as well as related party transactions, notably in 2023. These transactions dwindled to N52.40 billion across eight financial institutions, compared to N111.31 billion in 2022, marking a substantial 52.92 percent decline within a year.
The 2023 analysis reviewed the financial institutions Access Holdings, Guaranty Trust Holding Company Plc, Zenith Bank Plc, United Bank for Africa, Fidelity Bank, Wema Bank, Stanbic IBTC Holding Plc, and the FCMB Group. This decline coincides with the Central Bank of Nigeria implementing new corporate governance guidelines, effective August 1, 2023. According to a circular dated July 13, 2023, signed by the Director of the Financial Policy and Regulation Department, Chibuzo Efobi, these guidelines impose responsibilities on bank boards and executive compliance officers, superseding previous codes, circulars, and directives.
The CBN’s guidelines on related party transactions stipulate that banks must establish policies regarding insider trading and related party transactions by directors, senior executives, and employees. These policies or summaries must be published on their websites and include appropriate standards and procedures for effective implementation. The bank’s internal audit function must also conduct an internal review mechanism to assess compliance and effectiveness.
Furthermore, directors whose facilities, or those of their related interests, remain nonperforming in any financial institution for over a year will be removed from the bank’s board and blacklisted from serving on the boards of any other financial institution under the CBN’s purview. Any write-off of director-related loans or interest requires prior approval from the CBN.
Fidelity Bank Plc experienced the most significant decline in loans to related parties and entities controlled by key management personnel, plummeting from N92.31 billion at the end of December 2022 to N2.09 billion by the end of the following year. However, the bank noted in footnotes that some related parties, such as A-Z Petroleum Limited, Dangote Group, and Genesis Group, had ceased their related party relationships post-2022 in compliance with CBN requirements.
Between 2019 and 2022, the total value of insider loans for 10 banks, including Access Holdings, Guaranty Trust Holding Company Plc, Zenith Bank Plc, United Bank for Africa, Fidelity Bank, Wema Bank, Stanbic IBTC Holding Plc, FCMB Group, Unity Bank, and Sterling Bank, amounted to N131.04 billion.
Fidelity Bank led with the highest insider loans, followed by Unity Bank and UBA. In 2021, the loans to related parties of these financial institutions rose to N139.16 billion, with Fidelity Bank and UBA taking the lead. From 2019 to 2020, N226.6 billion was disbursed as loans, with various banks lending to their directors and related parties.
In 2020, the figure surged by 564 percent to N196.97 billion. Access Bank topped the list by lending the highest amount to its directors and related companies, followed by Unity Bank and Sterling Bank. Commenting on this trend, Ambrose Omordion, Chief Research Officer at InvestData Consulting, emphasized the importance of loan repayment and its impact on the banking sector amidst economic challenges. He stated that while lending to insiders who can repay is beneficial, excessive lending without due process is problematic.
Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto&Co, highlighted the lack of correlation between insider loans and increased banks’ Non-Performing Loans (NPLs). He stressed the necessity of full disclosure in compliance with CBN corporate governance regulations.
Segun Aremu, a financial analyst and Chief Responsibility Officer at Peculiar Innovative Consulting, expressed concern over the prevalence of insider loans in the Nigerian banking sector, citing governance issues and the potential impact on bank profitability. From the perspective of minority investors, Eric Akinduro, Chairman of Ibadan Zone Shareholders Association, emphasized the importance of loan performance and disclosure. He warned against nonperforming loans, which could adversely affect businesses and shareholders. Bisi Bakare, National Coordinator of the Pragmatic Shareholders Association of Nigeria, called on regulators to ensure transparency and accountability in handling insider loans, advocating against the write-off of Non-Performing Loans.
