Worried by the quality of bank assets, the Central Bank of Nigeria (CBN) has given banks a matching order on de-risking of insider lending, with tight regulations on provisioning, indemnity, guarantee and fresh approval underway.

The new directive requires banks to treat insider credits as bad loans and make 100 per cent provision for the self-declared sum in an 18-month window beginning from the end of April.

The strict rule will see some banks making fresh impairment provisions running into multiple billions of naira. This could potentially halt dividend payments by many operators in the next two years.

Multiple sources told The Guardian yesterday that in some banks, insider lending could account for over 30 per cent of the total loans and advances. Poor transparency and under-disclosure may mask the true amount each of the banks is sitting on as insider debt.

The CBN assumes that extreme market conditions could see lenders losing the capital, which is not adequately secured in most cases, hence the new prudential requirement.

The CBN had previously ended its years of forbearance, compelling many banks to make provisions in hundreds of billions of naira in their 2025 financial statements and ultimately declaring losses.

The new rule could extend the dividend drought. The charges, triggered by previous executive recklessness and malfeasances in connivance with weak board oversight, have become a burden on small shareholders who have had to sacrifice their dividends and capital gains.

The new regulations come three weeks ahead of the March 31 deadline of the two-year recapitalisation, where the banks are said to have raised over N4 trillion.

So far, 30 banks, the CBN said, have been fully recapitalised, putting to rest any apprehension over possible liquidation of a significant entity.

Whereas the apex bank has not disclosed detailed information on the outstanding three operators, there seems to be an understanding in the market that the sector has weathered the storm.

Still, the regulator is said to be “unsatisfied” with the quality of a reasonable number of the operators, even as rising insider abuse is considered a major source of concern.

The apex is also said to be working on more regulations to tighten fresh insider lending conditions. They could include strict guarantees and indemnities, The Guardian was informed last night. The new rules could subject approvals of insider-related credits to a tighter risk framework.

At the weekend, online reports indicate that the CBN has directed the banks to stress-test their operation as part of its commitment to monitoring the sector’s vulnerabilities in a new regulation that is to take effect on April 1.

Banks are expected to stress the resilience of their credit portfolio over 12 months by simulating deterioration in asset quality, governance risk and significant change in industry dynamics such as a fall in commodity prices, foreign exchange rate movement, structural shift in obligor operating market dynamics and portfolio variables, the report said.

According to the report, banks are directed to treat insider loans as non-performing and make 100 per cent for the facilities – a directive that could cause the operators several billions in impairment.

The Guardian confirmed that the circular was issued to bank CEOs. Multiple sources told our correspondent that the CBN has been extremely concerned about the sharp rise in insider lending abuses in recent times and their consequences for asset quality.

A source said the CBN Governor, Yemi Cardoso, has raised the concerns at different fora and warned that he would not sit back while insider-related abuses threatened the stability of the sector.

The circular could be the first regulatory move in series of action plans lined up to prevent a repeat of the post 2005 recapitlisation when insider abuses caused a spike in the non-performing loan (NPLs), triggered an industry-wide crisis and birthed the creation of the Asset Management Corporation of Nigeria (AMCON), which bought assets for a purchase price of N1.8 trillion from 22 eligible banks.

In the wake of the 2009 crisis, the NPL ratio soared to about 32 per cent, triggering a systemic crisis that cost the sector some of its most vibrant operators.

After nearly two decades of relative restraint, the banking sector, sources said, the regulator is quietly battling to starve off a repeat of the crisis that undermined the 2004/2005 capital raising.

At about seven per cent, the industry’s NPL is manageable though slightly above the five per cent regulatory threshold. But a source with extensive knowledge about how the NPL portfolio is manipulated hinted that most of the performances of insider-related loans are ‘cooked’, giving a false statement on the banks’ NPLs.

Today, the details of insider loans are only contained in banks’ routine operational reports filed at the CBN, leaving many shareholders with limited knowledge about the extent of exposure of many banks.

Banks are sitting on several hundreds of billions of naira of secure and unsecured insider loans, which the CBN said, henceforth, make 100 per cent provision after the report that would be submitted on or before April 30, 2026.

Findings suggested the apex bank would need to dig much deeper to unravel the true extent of exposure to insider lending abuses. Bank chiefs regularly guarantee facilities granted under concessional terms. Most of such loans, which may not be declared as insider credits, are not strictly secured.

To truly wean the banks from the impact of insider abuses, such facilities would need to be classified as insider loans under the new regulation, as most banks have no securities to fall back on should the debtors refuse to pay.

Godwin Owoh, a professor of applied economics who consulted for the CBN during Prof. Charles Soludo’s management, hailed the decision to bring insider lending under strict rule, saying the shareholders cannot continue to bear the brunt of weak risk management.

The stress tests serve as both a risk-management tool and a mechanism to strengthen banks in anticipation of potential economic shocks. While not a system-wide recapitalisation, it could reshape the competitive structure of the banking sector and ensure that banks are better prepared for future economic challenges.

Owoh said banks would pursue options of recalling existing loans advanced to related persons. He said excessive ‘politicisation’ was a disservice to shareholders and that institutions could not afford to continue to mobilise capital that would be frittered away by reckless executives and directors.

Ultimately, he advised, the breakthrough in the fight against abuse is preventing ex-central bankers from taking up banking appointments. Retired central bankers would continue to undermine professionalism and fair play in the banking sector.

Also, Chiwuike Uba, another professor of economics, said the stress test is primarily a precautionary measure to ensure the banking system remains resilient under extreme economic conditions, such as recessions, currency fluctuations, or a sharp fall in commodity prices.

“While the CBN has stated that the system is stable, the timing of this directive, just before the recapitalisation deadline, indicates a focus on verifying that banks’ balance sheets can withstand potential shocks.

“By requiring banks to treat insider and politically exposed loans as default in severe stress conditions, the CBN is signalling ongoing vigilance over governance risks that have historically threatened financial stability in Nigeria,” he said.

Uba admitted the directive could lead to another round of capital raise. This, he said, would be targeted at banks whose capital adequacy falls short under the stress scenarios. Stronger banks are less likely to be affected. At the same time, mid-tier or smaller institutions with higher risk exposures may need to raise additional capital through equity, rights issues or strategic mergers, he noted.

“To appropriately address governance and insider-related risks, all insider-related exposures shall be treated under a severe stress assumption and assumed to be in default. These shall be fully provided for in the banks’ stress scenarios.

“Following the conclusion of stress testing, banks are expected to report: pre-stress CAR, post-stress CAR, and capital shortfall (if any). It is pertinent to note that banks shall be required to raise 100 per cent of their reported stressed capital shortfall or 50 per cent of the shortfall computed from CBN stress analysis of the banks (whichever is higher), within 18 months.

“Once communicated, this level of capital shall become the risk-based capital requirement of the bank until the next cycle of stress testing, which would take place 6 months after the end of the capital raise to close the shortfall in stressed CAR,” the CBN was quoted.

Worried by the quality of bank assets, the Central Bank of Nigeria (CBN) has given banks a matching order on de-risking of insider lending, with tight regulations on provisioning, indemnity, guarantee and fresh approval underway.

The new directive requires banks to treat insider credits as bad loans and make 100 per cent provision for the self-declared sum in an 18-month window beginning from the end of April.

The strict rule will see some banks making fresh impairment provisions running into multiple billions of naira. This could potentially halt dividend payments by many operators in the next two years.

Multiple sources told The Guardian yesterday that in some banks, insider lending could account for over 30 per cent of the total loans and advances. Poor transparency and under-disclosure may mask the true amount each of the banks is sitting on as insider debt.

The CBN assumes that extreme market conditions could see lenders losing the capital, which is not adequately secured in most cases, hence the new prudential requirement.

The CBN had previously ended its years of forbearance, compelling many banks to make provisions in hundreds of billions of naira in their 2025 financial statements and ultimately declaring losses.

The new rule could extend the dividend drought.

The charges, triggered by previous executive recklessness and malfeasances in connivance with weak board oversight, have become a burden on small shareholders who have had to sacrifice their dividends and capital gains.

The new regulations come three weeks ahead of the March 31 deadline of the two-year recapitalisation, where the banks are said to have raised over N4 trillion.

So far, 30 banks, the CBN said, have been fully recapitalised, putting to rest any apprehension over possible liquidation of a significant entity.

Whereas the apex bank has not disclosed detailed information on the outstanding three operators, there seems to be an understanding in the market that the sector has weathered the storm.

Still, the regulator is said to be “unsatisfied” with the quality of a reasonable number of the operators, even as rising insider abuse is considered a major source of concern.

Apex is also said to be working on more regulations to tighten fresh insider lending conditions. They could include strict guarantees and indemnities, The Guardian was informed last night. The new rules could subject approvals of insider-related credits to a tighter risk framework.