Nine Banks Report N226.12bn Insider Loans to Directors, Related Entities

Nume Ekeghe
Nine deposit money banks in Nigeria granted a sum of N226.12billion loans and advances to entities controlled by key management personnel and related parties in 2021, analysis of the banks’ 2021 financial accounts has revealed.

This is an increase of 11.5 per cent from N202.73billion loans and advances granted by the nine banks to key management personnel and related parties in 2020.
The banks are Unity Bank Plc, Wema Bank Plc, Access Holdings Plc, United Bank for Africa (UBA) Plc, Zenith Bank Plc, Guaranty Trust Hold Plc (GTCO), FCMB Group Plc, Fidelity Bank Plc and Sterling Bank Plc.

Analysts believe Nigerian banks might be giving out loans to key management personnel at below-market interest rates.

Banks are required to report inside loans and advances in compliance with the provisions of Central Bank of Nigeria (CBN) Circular BSD/1/2004 dated February 18, 2004 on ‘Disclosure of insider related credits in the financial statements of banks.’

In the year under review, Sterling Bank grew its secured loans and advances transactions with key management personnel to N600million, an increase of 60.4 per cent from N374million in 2021 while Zenith Bank reported N1.69 billion loans & advances on insider-related transactions, an increase of 3.5 percent from N1.63billion in 2020.

Fidelity Bank in its 2021 financial statement disclosed N194.33billion loans and advances from related parties, representing an increase of 20.7 percent from N194.33billion reported in 2020.

The breakdown revealed that loans granted to entity controlled by key management personnel rose by 20.7 per cent to N96.6billion in 2021 from N80.02billion reported in 2020, while loans granted to related parties rose by 20.6 per cent to N97.73billion in 2021 from N81.01billion reported in 2020 financial year.

As these three banks grew lending to insider parties in 2021 financial year, the likes of Unity Bank, Wema Bank, Access bank, FCMB group, UBA, GTCO, Stanbic IBTC Holdings cut their exposure, following the adoption of Banks and Other Financial Institutions Act (BOFIA) 2020, among other banking related matters.

The BOFIA Act 2020 bars a bank from lending more than five per cent of its paid-up share capital to any one of its directors or significant shareholders.

Furthermore, a bank’s aggregate exposure in lending to its directors and significant shareholders must not exceed 10per cent of its paid-up share capital.
The Act also provides that credit extended by a bank to any of its directors or significant shareholders must be on the same terms and conditions as those prevailing at the time for comparable transactions by the bank with persons who are not directors or shareholders of the bank.

According to the 2021 financial statement of Unity Bank, it reported a 29 percent drop in loans & advances to N5.35billion in 2021 from N7.55billion in 2020.
Access Bank’s inside party transactions dropped significantly by 88 per cent to a sum of N268.2million in 2021 from N2.23 trillion reported in 2020, while Wema Bank reported N589million insider related loans & advances in 2021 from N2.02billion reported in 2020.
Stanbic IBTC Holdings and FCMB Group also reported a 50.4 percent and 56 percent decline in directors and staff-related loans & advances to N39.86billion and N1.15billion in 2021, respectively.

In addition, UBA reported a sum of N15.28l billion loans and advances to key management personnel/Related parties and insider-related credits in 2021 from N17.4 billion in 2020, while GTCO reported 13 percent drop in its insider-related loans to N6.86 billion in 2021 from N7.86 billion in 2020.

GTCO in its audited financial statement stated: “During the year the Group granted various credit facilities to companies whose directors are also directors of Company (Director Related) ‘or related to a Key Management Personnel (Insider Related) at rates and terms comparable to other facilities in the Bank’s portfolio.

“An aggregate of N6,853,722,000 (31 December 2020: N7,864,207,000) was outstanding on these facilities at the end of the year. The bank earned a sum of N10,258,000 (December 2020: N10,157,000) on insider-related facilities during the Year.”

During the public hearing on the bill to amend the BOFIA, the Nigerian Deposit Insurance Corporation (NDIC) had submitted a memorandum to the Senate Committee on Banking, Insurance and other Financial Institutions, seeking the express prohibition of insider loans in the banking industry.

In the memorandum, NDIC proposed criminalisation of insider lending by directors of a bank, making it an offense punishable with both imprisonment and fines. The proposal was obviously rejected, as BOFIA 2020 permits insider lending.