The Central Bank of Nigeria (CBN) has proposed strict limits on loans, guarantees, asset transfers, and other financial exposures between banks and their affiliated companies as part of a new regulatory framework designed to prevent financial distress from spreading across corporate groups.
The proposal is contained in the CBN’s Exposure Draft Guidelines on Ring-Fencing Operations of Closely Linked Entities, signed by the Director of Financial Policy and Regulation, Dr. Rita I. Sike, and circulated to stakeholders for consultation.
Under the draft guidelines, all transactions between banks and closely linked entities—including fintech subsidiaries, microfinance institutions, and holding companies—must be conducted on arm’s-length terms, properly documented, and fully disclosed to the regulator.
The apex bank explained that the framework is intended to ensure that financial difficulties in one entity do not threaten the stability of other institutions within the same corporate group, particularly deposit-taking banks.
It added that intra-group funding arrangements, guarantees, and cross-collateralisation will now be subject to defined limits in order to protect depositors’ funds from risks originating within affiliated businesses.
“Closely linked entities must operate independently, maintain adequate capital and liquidity, and segregate customer funds from group operations,” the regulator stated.
The move comes amid the rapid expansion of Nigerian financial institutions into fintech, payments, digital services, and other non-banking sectors, increasing the level of interconnectedness within financial groups.
While acknowledging that such structures support innovation and financial inclusion, the CBN warned that excessive interdependence could allow losses in one subsidiary to spill over into regulated banking operations, potentially threatening systemic stability.
The draft guidelines also require boards of directors to establish formal ring-fencing policies and ensure that conflicts of interest are properly identified, documented, and disclosed.
To strengthen governance, the CBN proposed limiting cross-directorships among affiliated entities to 20%, while mandating that all intra-group transactions be conducted at market rates and reported to the regulator on a quarterly basis.
The framework further prohibits affiliated entities from granting loans or guarantees to one another without prior regulatory approval.
In addition, customers must provide explicit consent before being onboarded into products or services offered by related entities, with full disclosure of the identity of the service provider.
Industry stakeholders are expected to review the draft guidelines as part of ongoing consultations before final adoption.
