Nigeria: Accountability Must Extend Beyond the CBN – Bad Loans

Growing calls for mass sackings of bank directors over rising non-performing loans and suspended dividend payments may appear decisive, but they risk oversimplifying a far more complex governance challenge within Nigeria’s financial system.

While public frustration over deteriorating asset quality is understandable, governance experts argue that responsibility for bad loans cannot be placed solely on the shoulders of the Central Bank of Nigeria. Instead, accountability is shared among shareholders, directors, management teams, and regulators within the country’s corporate governance framework.

At the centre of the debate is the question of where responsibility truly lies when banks accumulate risky loans or face capital pressures.

Under the Companies and Allied Matters Act (CAMA 2020), shareholders are not merely passive investors but key participants in corporate governance. The law grants shareholders authority over the appointment, removal, and remuneration of directors, making them central to board oversight and strategic direction.

Legal analysts note that shareholders often support aggressive growth strategies and high returns during profitable periods, but shift blame entirely to management or regulators when those risks later materialise into bad debts.

According to governance experts, effective corporate governance requires shareholders to actively scrutinise financial reports, question risk exposures, and hold boards accountable for lending decisions rather than relying solely on regulatory intervention after problems emerge.

The law also imposes significant fiduciary responsibilities on directors. Under CAMA, directors are required to act in good faith, exercise reasonable care and diligence, and avoid conflicts of interest in corporate transactions.

Beyond general corporate governance rules, the Banks and Other Financial Institutions Act (BOFIA 2020) places stricter obligations on bank directors and executives, particularly in relation to credit approvals, insider lending, and risk management.

Industry observers argue that these provisions already establish a strong framework for accountability. However, they caution that not every bad loan automatically indicates fraud, negligence, or misconduct, given that banking inherently involves credit risk and exposure to broader economic conditions.

Analysts also note that Nigeria’s recent rise in non-performing loans has been influenced by wider macroeconomic pressures, including foreign exchange volatility, inflation, commodity price fluctuations, and structural weaknesses across key sectors of the economy.

Against this backdrop, critics who accuse the CBN of regulatory inaction may be overlooking the legal structure guiding supervisory intervention.

Under BOFIA, the apex bank is empowered to impose graduated regulatory measures ranging from restrictions on dividend payments and capital distributions to the removal of directors in cases involving unsafe banking practices or significant regulatory breaches.

Recent restrictions placed on dividend payments by banks with elevated non-performing loans are therefore being viewed by some experts as preventive supervisory measures aimed at preserving capital buffers rather than signs of regulatory weakness.

According to analysts, the sequencing of these interventions reflects global banking standards promoted by institutions such as the Basel Committee on Banking Supervision, which encourage early intervention, capital preservation, and proportionate enforcement before systemic risks escalate.

They warn that arbitrary or reactionary removal of directors without due process could undermine investor confidence, weaken regulatory credibility, and create uncertainty within the financial system.

Corporate governance specialists further stress that modern banking oversight extends beyond regulators alone. Internal control systems, board committees, auditors, risk managers, rating agencies, and independent directors all form part of the governance ecosystem designed to prevent excessive risk-taking and improve accountability.

The Central Bank of Nigeria’s corporate governance code for banks also assigns responsibilities across audit, credit, compliance, and risk management structures, reinforcing the principle that accountability must be shared institutionally.

According to governance experts, over-reliance on regulatory intervention can weaken internal discipline within banks if institutions begin to assume that external authorities will always absorb the burden of correcting governance failures.

They argue that Nigeria’s financial sector requires a stronger culture of proactive governance, where shareholders actively engage management, boards strengthen oversight structures, and institutions adopt more responsible lending practices.

While acknowledging the importance of regulatory enforcement, analysts maintain that long-term financial stability depends more on institutional accountability and governance discipline than on reactive punitive measures.

They add that sustainable reform in the banking sector will require a balance between strict regulation, due process, shareholder responsibility, and stronger internal governance mechanisms capable of addressing risks before they evolve into systemic crises.