2004-06-02 | TED-AD-52-2004

Accepting Bank's Own Shares as Security for Credit Facilities

This circular from the Central Bank of Nigeria's Director of Banking Supervision highlights that accepting a bank's own shares as security for credit facilities and granting them to directors violates BOFIA (Banking and Other Financial Institutions Act) provisions. The practice is considered an instance of capital reduction by illicit means and constitutes insider abuse against good corporate governance practices. Accordingly, banks are advised not to accept their own shares as collateral unless they include it in their credit policy rules, adhere strictly to BOFIA's provisions, and do so under exceptional circumstances for directors.

Nigeria

Central Bank of Nigeria

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