CBN Bans Banks, Fintechs, Others From Giving Loans to Related Companies Without Approval
- The CBN has barred closely linked financial institutions from lending to or guaranteeing each other without prior approval from the regulator
- The new draft guidelines require related entities to operate independently, maintain separate governance structures, and keep adequate capital and liquidity
- The CBN warned that institutions that violate the rules could face penalties, management changes, or licence revocation
Legit.ng journalist Victor Enengedi has over a decade's experience covering energy, MSMEs, technology, banking and the economy.
The Central Bank of Nigeria (CBN) has introduced fresh measures aimed at strengthening oversight within the financial sector, prohibiting closely related financial institutions from granting loans to one another or guaranteeing each other’s obligations without prior approval from the regulator.
The directive was contained in the apex bank’s Exposure Draft on the ring-fencing of operations among closely linked entities within Nigeria’s financial system.
Source: UGC
CBN tightens rules on related-party transactions
According to the draft guidelines, financial institutions with close ownership or operational ties must seek written approval from the CBN before extending credit facilities to affiliated entities or standing as guarantors for their financial commitments.
The apex bank stated:
“Except with the prior written approval of the CBN, no closely linked entity shall extend a loan to, or guarantee the obligations of another.”
The central bank said the move is designed to reduce risks arising from interconnected operations and prevent situations where the financial challenges of one entity could negatively affect another within the same group.
The proposed framework also seeks to address concerns related to different licence categories, prevent the mixing of customer funds with those of related entities, strengthen governance standards, and support the orderly resolution of distressed institutions.
Independent operations and stronger governance required
Under the new rules, closely linked entities will be required to function as separate and independent businesses, maintaining sufficient capital and liquidity to operate on their own without relying on affiliated companies.
The CBN stated that the board of each entity must ensure legal, structural, and operational independence from other related institutions.
In addition, every entity must establish its own governance structure, risk management systems, internal controls, and dedicated board of directors.
The regulator added:
“The boards of closely linked entities shall ensure that transactions between such entities are conducted at arm’s length and are properly documented.”
The apex bank warned that any institution found violating the proposed guidelines could face regulatory sanctions.
Source: UGC
These may include monetary penalties, replacement of management personnel, or the revocation of operating licences, in accordance with the provisions of the Bank and Other Financial Institutions Act (BOFIA) 2020 and other applicable regulations.
CBN launches Payment System Vision 2028
Meanwhile, Legit.ng earlier reported that the CBN launched Payment System Vision 2028 to increase financial inclusion to 95% of Nigerian adults by 2028.
The initiative aims to bring about 50 million more Nigerians into the formal financial system through improved digital payment services and infrastructure.
The CBN also plans to deploy over 10 million digital payment points nationwide and strengthen fraud prevention using artificial intelligence.
Source: Legit.ng
