Over the past half-decade, a staggering N549 billion has circulated as loans among directors and upper management within Nigerian Deposit Money Banks. This substantial figure, drawn from the banks' pledges reported to the Nigerian Exchange Limited, presents a fascinating fiscal trajectory—both in terms of volume and regulation-induced alterations. Taking a closer look, while the period from 2019 to 2022 saw an upsurge in such financial activities, with values marking all the way up to N131.04 billion in a single year, 2023 took a different stride. Records indicate an abrupt descent to N52.40 billion among eight financial institutions, painting a remarkable 52.92% decline from the preceding year's N111.31 billion.
The tailspin in insider lending coincidentally aligns with the enactment of the Central Bank of Nigeria's (CBN) new corporate governance guidelines, applied from August 1, 2023. These guidelines overhaul previous codes and directives, embedding a robust framework intended to fortify procedural accountability and transparency. Under these rules, banks are mandated to formulate and publicize policies handling insider trading and related transactions involving the institution’s decision-makers. The subsequent adjustment observed within the banking sector's lending behavior to its directors could be symptomatic of these stringent regulatory reforms. Noteworthy among those toeing line is Fidelity Bank Plc, which saw its loans to related entities plummet from N92.31 billion at the end of 2022 to a mere N2.09 billion by the termination of the 2023 fiscal year.
In a broader spectrum prior to the trough in 2023, the practice of issuing loans to insiders has been prevalent among top-tier banks. This includes financial powerhouses such as Access Holdings, Zenith Bank Plc, and United Bank for Africa, to name a few. The drawn-out but escalating practice peaked in 2021 when loans to related parties tallied up to N139.16 billion, with Fidelity Bank and UBA at the forefront, clocking figures as high as N97.73 billion and N15.28 billion respectively.
Despite the optics of hefty insider borrowings, financial experts provide a nuanced view. Ambrose Omordion from InvestData Consulting remarks that, while insider loans have their uses, excessive or unregulated lending can usher in operational hazards. Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto&Co, underscores that there is no observed direct correlation between these loans and a rise in the banks’ Non-Performing Loans (NPLs). Meanwhile, Segun Aremu of Peculiar Innovative Consulting critiques the trend as indicative of deeper issues in corporate governance within the sector.
The recipient spectrum of these loans isn’t solely criticized; from the minority investor standpoint, as long as the loans are performing and are appropriately disclosed, no substantive concerns arise. This brings about a crucial dialogue revolving around balancing internal financial assistance and maintaining robust and transparent governance frameworks to foster both growth and accountability.
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