CBN limits borrowing by bank’s directors to 1%

Central Bank of Nigeria (CBN) has limit the amount a director or a “significant shareholder” in a bank can borrow from the bank to 1 percent.

This was contained in the new guidelines titled “Prudential guidelines for deposit money banks in Nigeria” and posted in the website of CBN yesterday.

The affected directors or shareholders can only borrow more than the above amount with the prior approval of the Central Bank of Nigeria (CBN).

The guideline defined a significant shareholding as a holding of at least 5 percent (individually or in aggregate) of bank’s equity.

It said that the maximum credit to all insiders should not exceed 10 percent of share capital. The share capital shall be made up of paid up share capital and share premium.

According to the guidelines, insiders include directors, significant shareholders and employees. The term “director” includes director’s wife, husband, father, mother, brother, sister, son, daughter and their spouses.

It said that the provisions of this section supersede the provisions of circular BSD/9/2004 on large exposure and connected lending.

The guidelines also said that insider-related credits include transactions involving shareholders, employees, directors and their related interests.

Banks are required to present their disclosure in the financial statements by disclosing the aggregate amount of insider-related loans.

It said that advances and leases outstanding as at the financial year end should be separately stated in a note to the accounts and the non-performing component further analyzed by security, maturity, performance, provision, interest-in suspense and name of borrowers.

There are other provisions in the new guidelines.

CBN Director of Banking Supervision Samuel Oni said: “These prudential guidelines should be regarded as minimum requirements and licensed banks are encouraged to implement more stringent policies and practices to enhance mitigation of risks.”