Directors and important company leaders of Deposit Money Banks borrowed around N549 billion from their own banks in five years.
The PUNCH examined the yearly reports of the banks filed with the Nigerian Exchange Limited between 2019 and 2023 to find this information.
However, loans and advances to some directors and key management personnel dropped significantly in 2023.
These transactions decreased to N52.40 billion for eight financial institutions from N111.31 billion in 2022, showing a 52.92% decline in one year.
The 2023 review included 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 decrease happened after the Central Bank of Nigeria released new corporate governance guidelines that became effective on August 1, 2023.
The guidelines, which impose responsibilities on the bank board and executive compliance officers, override previous codes, circulars, and directives, according to the apex bank.
The CBN guidelines on related party transactions stated that banks must create a policy regarding insider trading and related party transactions and publish it on their website. The policy should have suitable standards and procedures to ensure its effective implementation. In addition, there should be an internal review conducted by the bank's internal audit function to evaluate the compliance and effectiveness of the policy.
The guidelines also mention that any director whose loan or that of their related interests remains nonperforming in any financial institution for over a year will be removed from the bank's board and blacklisted from sitting on the board of any other financial institution under the CBN's purview. Loans to directors and interest thereon cannot be written off without the CBN's prior approval.
Fidelity Bank Plc saw the biggest drop in loans to related parties and entities controlled by key management personnel, decreasing from N92.31 billion at the end of December 2022 to N2.09 billion at the end of last year.
However, the bank noted in footnotes that some related parties like A-Z Petroleum Limited, Dangote Group, and Genesis Group had exited the related party relationship after the 2022 financial year to comply with CBN requirement.
In 2022, the total 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 was the top lender for the year, followed by Unity Bank at N17.32 billion and UBA at N13.74 billion.
In 2021, the loans to related parties of these financial institutions increased to N139.16 billion with Fidelity Bank and UBA leading at N97.73 billion and N15.28 billion, respectively. GTCO followed in third place with N6.859 billion.
Between 2019 and 2020, a total of N226.6 billion was given out as loans. In 2019, eleven banks lent its key management personnel a total sum of N29.65 billion. The figure also includes loans to companies related to the directors.
An analysis indicated that GTCO lent N155 million, Zenith Bank (N1.76 billion), UBA borrowed its directors N297 million, Wema Bank (N5.2 billion), Stanbic IBTC (N95 million), FCMB (N4.8 billion), Unity Bank (N7.14 billion), Sterling Bank (N10.12 billion) to related parties.
In 2020, the figure rose by 564 percent or N167.32 billion to N196.97 billion.
Checks revealed that Access Bank lent the highest with a total of N174 billion to its directors and companies related to them. This was followed by Unity Bank with N7.55 billion. Third on the list was Sterling Bank with N6.01 billion.
Other banks including Fidelity borrowed its directors N986.2 million, GTBank (N67.9 million), Zenith Bank (N1.797 billion), UBA (N206 million), Wema Bank (N2.82 billion), Stanbic IBTC (N332 million), FCMB (N3.2 billion), Unity Bank (N7.55 billion), Sterling Bank (N6.01 billion).
Discussing the trend, the Chief Research Officer at InvestData Consulting, Ambrose Omordion stated “In my language, they say, it is the yam that you know that you use to make pounded yam. If an organisation feels that the insider or director can pay the loans given to them, then there is no issue. It is when they do not pay that is where there would be issues.
“Like what is happening now in the economy, banks are not giving loans to ordinary companies unless those with names because of economic headwinds. If they give loans to the public and they are unable to repay, Non-Performing Loans will rise. If the banks offer to insiders that would pay, it is better for them.”
Adding a word of caution, Omordion said, that when done in excess and without due process, then it is bad.
“It is when it is done in excess that it is wrong. Even banks know how to safeguard depositors’ money, which is the most important thing.
“Now, that it (insider loans) is reducing, that’s a good thing for the industry and it is a good thing for regulators too.”
The Head, Financial Institutions Ratings – Agusto&Co, Ayokunle Olubunmi, pointed out that there was no correlation between insider loans and an increase in banks’ NPLs.
“Although it is not a crime to give a loan to someone within the organisation, there is a rule and it may not be at what we call arms length. Having said that, there is no correlation that when you give an insider a loan, it goes bad. There are some banks with insider loans which have been fully paid. However, the risk is there that they may not have done full diligence. Some banks are more stringent when it comes to insider-related loans.
“Mainly because of the CBN corporate governance, you must disclose the amount, the collateral, and the account’s performance. This is why you will see it in the accounts of banks, so that any analysts, investor will see it and if it is non-performing, then it is a red flag.
A financial analyst and Chief Responsibility Officer, Segun Aremu from Peculiar Innovative Consulting, expressed sorrow about how common insider loans are in Nigerian banks. He explained that this has been happening for a long time and indicates a lack of corporate governance which does not encourage investors.
He also mentioned that this situation makes banks more likely to have high NPLs and lower profits. He believes that banks should focus on their role in financial intermediation and lending to individuals who truly need it, such as manufacturers and employers, to drive the economy forward.
The minority investor community's overall opinion was that if the loans were performing well and disclosed, then there was no need for concern.
Chairman of the Ibadan Zone Shareholders Association, Eric Akinduro, told The PUNCH, “As long as the loans are performing and there is disclosure, we are fine with it. However, if these factors are not present, then we have problems.
When a loan is not performing, it will result in a higher rate of non-performing loans. Ultimately, this is not just a concern for the shareholders alone, as it also has a negative impact on the business. Non-performing loans can seriously harm the business.
The National Coordinator of the Pragmatic Shareholders Association of Nigeria, Bisi Bakare, mentioned, “If the loans are being used and they are performing well, it means that there won’t be growth in Non-Performing Loans.
She did, however, urge the regulators to guarantee that insider loans are not forgiven.
She emphasized that “The regulators need to take the lead and ensure that these NPLs are not forgiven.”
