CBN bars related banks from lending to each other without approval
By Aboki Forex —
The Central Bank of Nigeria has introduced new draft guidelines that stop closely linked financial institutions from lending to or guaranteeing each other without prior written approval from the regulator.
The move is part of the CBN's exposure draft on ring-fencing operations among related entities in the financial system. The central bank said the rules aim to reduce risks from interconnected operations and prevent problems in one entity from spreading to others in the same group.
The draft guidelines require each closely linked entity to operate as a separate and independent business. They must maintain adequate capital and liquidity without relying on affiliated companies. Each entity must also have its own board of directors, governance structure, risk management systems and internal controls.
The CBN warned that any institution that violates the rules could face monetary penalties, management changes or even licence revocation under the Bank and Other Financial Institutions Act 2020.
The regulator added that transactions between related entities must be conducted at arm's length and properly documented. The proposed framework also addresses concerns about mixing customer funds with those of related entities and strengthens the orderly resolution of distressed institutions.