The growing call for sweeping sackings of bank directors may sound decisive, even cathartic, in the face of mounting bad loans and suspended dividends. But it is, at best, an oversimplification of a complex governance challenge and at worst, a dangerous distraction from where responsibility truly lies.
The impulse to shift blame entirely to the Central Bank of Nigeria, which is the apex regulator of the banking sector ignores both the legal framework governing banks and the shared responsibilities embedded in modern corporate governance. If Nigeria is to break the recurring cycle of bad debts, it must resist emotional fixes and embrace institutional accountability, starting with shareholders and boards.
Shareholders Are Not Innocent Bystanders
Under the Companies and Allied Matters Act 2020 (CAMA 2020), shareholders are not passive observers but the ultimate authority in corporate governance. Section 238 vests the powers of the company in the general meeting, while Sections 271–274 provide for the appointment, removal, and remuneration of directors.
Specifically, Section 238 of the CAMA 2020 stated that “A company may appoint a person as a director by ordinary resolution at a general meeting.
This reinforces shareholder control over the composition of the board. The person being appointed must be qualified and not disqualified under the Act.”
This means shareholders not only elect those who run the bank but also approve their compensation and, by extension, the incentives that shape their behavior.
Section 238 of the Companies and Allied Matters Act is more than a procedural rule, it is a cornerstone of corporate accountability and governance.
First, it anchors shareholder authority. By requiring that directors be appointed through an ordinary resolution at a general meeting, the law ensures that those who own the company ultimately decide who manages it. This prevents the board from becoming a self-perpetuating circle and keeps power from being concentrated in a few hands.
Second, it promotes transparency and legitimacy. When directors emerge from a formal, documented process, complete with consent and regulatory filing, it reduces the risk of hidden interests or backdoor appointments. Stakeholders, including regulators and investors, can clearly see who is in charge and how they got there.
Third, it strengthens accountability in decision-making because directors know they are appointed by shareholders and can be replaced by them. This creates a natural check on reckless or self-serving behavior, especially in critical matters like financial management, lending decisions, and corporate strategy.
Fourth, it supports regulatory oversight. The requirement to notify the regulators ensures that there is an official record of who is directing the company’s affairs. This becomes crucial in investigations, compliance monitoring, and enforcement actions.
Fifth, it has real consequences in times of crisis especially in cases like bank failures or corporate mismanagement. Section 238 makes it clear that directors are not accidental actors; they are deliberately chosen and entrusted with responsibility. Therefore, when things go wrong, attention must also turn to the shareholders who appointed them, not just external regulators.
The Act also reinforces the broader principle that corporate governance is a shared responsibility. Section 238 quietly but firmly distributes power and by extension, responsibility between shareholders and directors. That balance is essential for any company that aims to be stable, transparent, and resilient.
In practice, however, many shareholders reward aggressive loan growth and high returns during boom cycles, only to recoil when those risks materialize into non-performing loans. This cyclical amnesia creates a moral hazard: profits are privatized in good times, while losses are blamed on management or regulators in downturns. The law anticipates active ownership as shareholders are expected to interrogate financial statements, challenge risk exposures, and vote responsibly. When they fail to do so, governance weakens at its foundation.
Calling on the Central Bank of Nigeria to sack directors without acknowledging this statutory role amounts to an abdication of responsibility. Shareholder activism, not regulatory substitution is the first line of defence in any well-governed financial system.
Directors Already Bear Heavy Legal Duties
The notion that bank directors operate without accountability is not supported by law. CAMA 2020 is explicit on fiduciary obligations. Section 305 imposes a duty on directors to act in good faith in the best interests of the company, while Section 306 requires them to exercise reasonable care, skill, and diligence. Section 309 further prohibits conflicts of interest, particularly in transactions where directors may have personal stakes.
Section 305 of CAMA imposes a statutory duty of care, skill and diligence on directors; Section 306 requires directors to act in good faith and in the best interest of the company, not for personal gain or improper purposes, while
Section 309 reinforces accountability for breach, including consequences where directors act negligently, recklessly, or in conflict of interest.
Together, these sections define what it means to be a responsible director under Nigerian company law.
Beyond CAMA, the Banks and Other Financial Institutions Act 2020 (BOFIA 2020) imposes even stricter obligations on bank directors. Section 19 places a duty on directors and managers to ensure that loans are granted in accordance with sound banking principles, while Section 20 restricts insider-related lending and requires strict disclosure and approval processes. Violations can attract penalties, including removal, fines, and even criminal sanctions.
These provisions make it clear: the legal framework already provides for accountability and they have closed the “Blame the Regulator” gap. For instance, CAMA Sections 305, 306, and 309 make it clear that directors have personal fiduciary and statutory duties. So even though BOFIA Section 19 involves regulatory approval, that approval does not transfer responsibility to regulators.
A director approved under BOFIA is still fully bound by CAMA duties. If things go wrong, approval is not a shield against liability.
The issue is not the absence of powers to punish wrongdoing, but the need for evidence-based enforcement. Not every bad loan is the result of fraud or negligence; banking, by its nature, involves risk. To equate rising non-performing loans automatically with misconduct is to misunderstand both the law and the business of banking.
The CBN Is Already Acting Within Its Mandate
Critics who accuse the regulator of inaction overlook not only the existence of powers under the Banks and Other Financial Institutions Act (BOFIA 2020), but the deliberate way those powers are designed to be exercised. Regulation under BOFIA is not meant to be impulsive or punitive for its own sake; it is structured as a graduated, evidence-based framework of intervention.
Section 33 empowers the CBN to impose a range of regulatory measures, including restrictions on dividends, bonuses, and other capital distributions. This is not a symbolic provision, it is a frontline supervisory tool aimed at preserving the financial health of institutions at the first signs of stress. By limiting capital outflows, the CBN ensures that banks retain sufficient buffers to absorb losses, particularly in the face of rising non-performing loans.
Section 34, on the other hand, provides for the removal of directors and officers but crucially, this power is conditional, not arbitrary. It is triggered only upon clearly defined grounds such as unsafe or unsound practices, material regulatory breaches, or threats to solvency. This distinction is critical. The law does not empower the CBN to act on speculation, public sentiment, or media pressure; it requires demonstrable evidence and procedural fairness.
This sequencing is intentional. Section 33 represents preventive supervision, while Section 34 represents corrective enforcement. To leap prematurely to removals without exhausting preventive measures would not signal strength, it would represent a breakdown of regulatory discipline and expose the system to claims of arbitrariness.
The recent restrictions on dividend payments for banks with elevated non-performing loans should therefore be understood within this legal and prudential context. These measures are not signs of regulatory hesitation; they are prudential interventions. By compelling banks to conserve capital, the CBN is addressing risk at its root long before it escalates into insolvency or systemic distress.
This approach is fully aligned with global supervisory standards, particularly those promoted by the Basel Committee on Banking Supervision, which emphasize early intervention, capital adequacy, and proportional response. Around the world, responsible regulators prioritize financial system stability over short-term shareholder returns, especially in periods of heightened credit risk.
Moreover, calls for indiscriminate sackings ignore a fundamental principle embedded in both BOFIA and broader corporate governance under the Companies and Allied Matters Act. Acountability must be rule-based, not reactionary. Directors can only be removed within a framework that respects due process, evidentiary thresholds, and legal safeguards. Anything less would not only exceed the regulator’s mandate but also undermine investor confidence by introducing uncertainty and regulatory unpredictability.
In fact, arbitrary removals would create a dangerous precedent where regulatory actions are perceived as politically or emotionally driven, rather than grounded in law. That outcome would weaken, not strengthen, the financial system.
The real test of an effective regulator is not how loudly it acts, but how lawfully, proportionately, and consistently it applies its powers. In this regard, the CBN’s use of dividend restrictions and capital preservation measures reflects a measured, legally sound, and globally consistent approach to supervision.
Corporate Governance Is A Shared Ecosystem
Modern corporate governance has evolved far beyond a regulator-centric model. It is now a multi-layered system involving boards, shareholders, auditors, rating agencies, and internal control mechanisms. The Central Bank of Nigeria Code of Corporate Governance for Banks and Discount Houses reinforces this by assigning clear responsibilities to board committees, audit, risk management, and credit oversight.
Independent directors, in particular, are tasked with ensuring objective judgment in these processes. Their role is not ceremonial; it is designed to provide checks against excessive risk-taking and insider abuse. If these mechanisms fail, the solution is to strengthen them and not to bypass them with sweeping regulatory purges.
Over-reliance on the regulator creates a perverse incentive structure. Banks may become less vigilant internally, assuming that external intervention will always correct excesses. This weakens institutional discipline and perpetuates the very cycles the system is trying to avoid.
Systemic Risks Are Being Misread As Individual Failures
The current bad loan crisis reflects broader macroeconomic realities. Commodity price volatility, foreign exchange pressures, and structural weaknesses in the economy have all contributed to the deterioration of loan quality. When large obligors default, the impact is rarely confined to a single bank, it reverberates across the system.
BOFIA itself recognizes this systemic dimension, which is why it emphasizes risk management frameworks and capital adequacy rather than punitive measures alone. Section 13 mandates banks to maintain adequate capital and manage risks prudently, acknowledging that not all losses are avoidable.
To interpret sector-wide impairments purely as evidence of director complicity is to ignore these structural factors. It risks turning a complex economic issue into a simplistic governance narrative, leading to policy responses that address symptoms rather than causes.
There is an understandable public frustration when dividends are suspended and losses mount. But policy must be guided by long-term stability, not short-term appeasement. Blanket sackings, clawbacks, and punitive measures, if applied without rigorous standards could erode investor confidence and deter qualified professionals from serving on bank boards.
Both CAMA and BOFIA emphasize due process. Directors can be removed, but only under defined conditions and with proper investigation. This is not bureaucratic caution; it is a safeguard against arbitrariness. Financial systems thrive on predictability. Once regulatory actions become unpredictable, capital flight and governance deterioration often follow.
If the goal is to prevent future crises, the focus must shift from reactive punishment to proactive governance. This requires that shareholders must actively exercise their rights under CAMA questioning management, scrutinizing reports, and voting responsibly.
The boards must fully comply with fiduciary duties and strengthen internal controls, as mandated by both CAMA and BOFIA.
There must also be industry-wide commitment to self-regulation, peer accountability, and ethical lending practices while the regulator must continue to enforce rules firmly but within the boundaries of law and due process.
The instinct to blame the CBN for the banking sector’s bad loan crisis is misplaced. The legal and institutional framework already distributes responsibility across shareholders, directors, and management. Where there are breaches, the law provides clear remedies. But where risks materialize due to economic conditions, the response must be measured and systemic.
Nigeria’s banking sector does not need a cycle of scapegoating; it needs a culture of accountability that begins in the boardroom and extends to the shareholder base. Until that culture takes root, no amount of regulatory intervention, no matter how aggressive will deliver lasting reform.
-Onuba, a Chartered Accountant wrote from Abuja
Bad Loans Crisis: Responsibility Lies With Directors, Shareholders, Not CBN is first published on The Whistler Newspaper
