The Central Bank of Nigeria has stepped up enforcement of corporate governance rules, including a 10 per cent limit on banks’ investments in foreign subsidiaries, to protect depositors and ensure the benefits of recapitalisation are not undermined by excessive risk-taking.
The Central Bank of Nigeria (CBN) has tightened its oversight of banks, warning lenders against excessive investments in foreign subsidiaries as it seeks to safeguard gains from the ongoing banking sector recapitalisation.
The apex bank said banks must demonstrate that additional capital raised under the recapitalisation programme is being managed responsibly through prudent lending, effective risk controls and investments that do not expose depositors’ funds to unnecessary risks.
The Director of Banking Supervision at the CBN, Olubukola Akinwunmi, disclosed this at the regulator’s annual workshop for members of the Finance Correspondents Association of Nigeria and business editors.
Akinwunmi said the restriction on banks’ investments in offshore subsidiaries was an existing legal requirement that the regulator was now enforcing more strictly.
Under the Banks and Other Financial Institutions Act (BOFIA) 2020, banks are prohibited from investing more than 10 per cent of their shareholders’ funds in offshore subsidiaries.
He said stricter enforcement was necessary to prevent lenders from committing excessive resources to foreign operations at the expense of their financial strength in Nigeria.
The development comes as banks strengthen their capital bases to meet the CBN’s revised minimum capital requirements, with some lenders seeking opportunities to expand into other African markets.
While overseas expansion can create growth opportunities, the regulator is concerned that poorly managed foreign investments could expose Nigerian banks to losses and weaken the benefits of recapitalisation.
Akinwunmi said additional capital alone could not guarantee banking sector stability without effective board supervision, prudent business decisions and adequate risk management.
He identified excessive risk-taking, abuse of insider positions, weak board oversight, poor lending decisions and ineffective internal controls as governance failures capable of undermining banks’ financial health.
The CBN is strengthening enforcement of its corporate governance framework to ensure that financial institutions operate responsibly and protect depositors and the wider financial system.
The framework covers commercial banks, merchant banks, non-interest banks, payment service banks and financial holding companies operating in Nigeria.
The CBN’s Corporate Governance Guidelines, which took effect on August 1, 2023, establish standards for board oversight, accountability, transparency, ethical conduct and risk management. The guidelines were issued under the CBN Act 2007 and BOFIA 2020 and align with the Nigerian Code of Corporate Governance 2018.
The regulator has also established a Compliance Department to oversee corporate governance and other regulatory matters, including anti-money laundering and counter-terrorism financing.
Akinwunmi said the move was intended to strengthen the CBN’s ability to identify regulatory breaches, improve compliance and address weaknesses that could expose banks to financial and operational risks.
The apex bank is also paying closer attention to the qualifications, competence and integrity of executives appointed to senior positions, noting that poor management decisions can have consequences beyond individual institutions.
Under the framework, banks are expected to maintain governance structures that ensure effective supervision of lending and investment activities, identify potential risks and hold responsible officers accountable.
Akinwunmi said the 10 per cent ceiling on offshore investments had existed for years but had not always been enforced consistently. Banks must now pay closer attention to the amount of shareholders’ funds committed to foreign subsidiaries and ensure their investments remain within the statutory limit.
The CBN maintained that recapitalisation should strengthen banks’ capacity to absorb losses, support lending and finance economic activity, rather than encourage uncontrolled expansion or excessive risk-taking.
The regulator said stronger corporate governance forms part of broader measures to build a more resilient banking system, alongside recapitalisation, improved risk management, stress testing and risk-based capital requirements.
Stress testing allows banks and regulators to assess how financial institutions might perform under difficult economic conditions, including rising loan defaults and market disruptions. Risk-based capital requirements, meanwhile, link the amount of capital a bank needs to the risks it assumes.
The CBN said banks must combine stronger balance sheets with responsible leadership, effective supervision and disciplined use of capital to sustain growth and protect financial stability.