Financial institutions in Nigeria, including banks and other financial intermediaries, play a critical role in the economic development of the country.
They serve as conduits for savings mobilization, credit provision, and investment facilitation.
However, the sector has been plagued with a series of insider abuses that undermine its stability, efficiency, and reputation.
One major category of insider abuse involves the unauthorized or improper granting of loan facilities to staff members without adhering to the requisite due process.
This malpractice leads to a high rate of non-performing loans (NPLs), which compromises the institution’s financial health and erodes stakeholder confidence.
Typically, staff loans are supposed to be governed by clear policies that stipulate eligibility criteria, limits, repayment schedules, and approval procedures.
Yet, in many Nigerian financial institutions, these protocols are either ignored or circumvented by senior employees who wield excessive discretionary powers.
The practice of granting loans to staff without due process often results in bad debts that are difficult to recover.
Many loans are issued based on favoritism rather than merit or creditworthiness, with little or no collateral backing them.
When such loans go bad, they directly affect the institution’s liquidity and profitability, thereby weakening its ability to extend credit to genuine customers.
This abuse not only distorts the credit portfolio but also violates principles of risk management and financial prudence.
Moreover, it creates a culture of impunity where some employees enjoy financial privileges unavailable to others, breeding resentment and lowering morale among staff.
The failure to enforce accountability for such insider loans signals deeper governance lapses, including weak internal controls and oversight mechanisms.
Regulators and boards often struggle to detect or prevent such abuses due to opaque processes and collusion among senior managers.
Beyond financial misconduct related to loans, Nigerian financial institutions also grapple with abuses of power that manifest in toxic workplace environments.
Senior staff members frequently use their positions to intimidate, harass, or “witch-hunt” junior employees.
This could take the form of unwarranted disciplinary actions, exclusion from important projects, or unfair performance appraisals aimed at suppressing dissent or consolidating control.
Such behavior is symptomatic of poor leadership and lack of ethical standards in management.
The resulting fear and mistrust erode teamwork, reduce productivity, and increase staff turnover.
In many cases, junior staffers find themselves vulnerable to abuse with little recourse due to the absence of transparent grievance handling and protection mechanisms.
This toxic organizational culture diminishes employee engagement and can indirectly affect customer service quality, ultimately harming the institution’s reputation and competitive standing.
Underlying these insider abuses is a broader problem of poor corporate governance in Nigerian financial institutions.
Corporate governance refers to the systems, processes, and policies through which an organization is directed and controlled.
In an ideal financial institution, governance ensures accountability, transparency, and ethical conduct at all levels, especially concerning the handling of funds and human resources.
However, in many Nigerian banks and finance companies, governance structures are weak or compromised.
Board members may lack independence or relevant expertise, executive management may operate with little oversight, and audit committees might fail to rigorously scrutinize operations.
Such weaknesses allow conflicts of interest to fester, misappropriation of resources to occur, and critical risks to go unmanaged.
The absence of a robust governance framework not only facilitates insider abuse but also discourages external investment and undermines regulatory compliance.
To strengthen the Nigerian financial sector and mitigate insider abuse practices, several remedial measures are necessary.
Firstly, enforcing strict adherence to loan approval policies and due process is critical.
Financial institutions must develop and implement transparent loan policies for staff that include clear eligibility requirements, limits on loan amounts, documentation of approvals, and rigorous follow-up mechanisms.
Automated loan processing systems with audit trails should be deployed to minimize human interference and corruption.
Furthermore, internal audit and risk management units must be empowered to detect and report irregularities without fear of retaliation.
Regulators should increase supervisory scrutiny on staff loan portfolios, imposing sanctions on institutions or individuals that violate rules.
This approach will help reduce the incidence of non-performing insider loans and restore fiscal discipline.
Secondly, improving human resource management practices is essential to combat abuses of authority within financial institutions.
This includes establishing robust codes of conduct that clearly define acceptable workplace behavior and the consequences of harassment or intimidation.
Organisations should set up independent, confidential channels for reporting grievances and ensure protection for whistleblowers.
Training programs aimed at developing ethical leadership and conflict resolution skills among senior staff will foster a more respectful and inclusive work environment.
Regular staff engagement surveys can help management gauge workplace climate and identify emerging issues before they escalate.
By promoting fairness, transparency, and respect, institutions can improve employee morale, retention, and overall operational effectiveness.
Thirdly, corporate governance reforms are indispensable for long-term sectoral integrity and resilience.
Financial institutions need to strengthen their boards by appointing qualified, independent directors with expertise in finance, risk management, and compliance.
The roles and responsibilities of board members, particularly audit and risk committees, must be clearly defined and enforced.
Governance codes should mandate regular performance evaluations of senior management, conflict of interest disclosures, and adherence to ethical standards.
Regulators must also step up their enforcement efforts by conducting periodic governance audits and penalizing non-compliance.
Transparency initiatives, such as publishing governance reports and facilitating shareholder participation, can enhance accountability and stakeholder trust.
Strong governance not only curtails insider abuses but also enhances institutional credibility and attracts investment.
In addition to internal reforms, leveraging technology can significantly strengthen oversight and reduce insider abuse in Nigerian financial institutions.
The deployment of integrated enterprise resource planning (ERP) systems enables real-time monitoring of loan disbursements, staff transactions, and compliance checks.
Artificial intelligence and data analytics can identify unusual patterns indicative of insider fraud or favoritism.
Biometric authentication and blockchain technology can secure sensitive transactions and prevent unauthorized access or tampering.
Digital platforms for human resource management can automate personnel records, performance tracking, and grievance handling, reducing opportunities for manipulation.
Investing in robust cybersecurity measures protects institutions from external and internal threats, ensuring data integrity and operational continuity.
Finally, the regulatory environment itself must evolve to support these reforms.
Nigerian financial regulators, including the Central Bank of Nigeria (CBN) and Securities and Exchange Commission (SEC), should continuously update their supervisory frameworks to reflect emerging risks and industry best practices.
Strengthening regulatory collaboration and information-sharing among agencies will improve detection and response to insider abuses.
Penalties for violations should be commensurate with the damage caused, including fines, license revocation, and criminal prosecution where appropriate.
Moreover, regulators can incentivize good governance by recognizing institutions that demonstrate exemplary practices through awards or preferential treatment in licensing or government contracts.
Capacity building for regulatory staff, including specialized training in forensic audits and fraud investigations, will enhance enforcement effectiveness.
Insider abuse practices in Nigerian financial institutions—including unauthorized staff loans without due process, misuse of power to oppress junior staff, and poor corporate governance—pose significant challenges to sector stability, growth, and public confidence.
These practices undermine financial prudence, create toxic workplace environments, and erode institutional credibility.
To address these issues, a comprehensive approach is required that combines strict enforcement of loan policies, improved human resource management, strengthened corporate governance, technological innovation, and enhanced regulatory oversight.
By implementing these reforms, Nigerian financial institutions can safeguard their operations, protect stakeholders’ interests, and contribute more effectively to the country’s economic development.
Dr. Adeyemi Kayode Samuel is an accomplished professional with a Ph.D. in Business Administration and Management from Obafemi Awolowo University, with a research focus in Strategic Management, Corporate Governance, SMEs, Business Development, and Retail Growth and Expansion. With over 18 years of progressive experience in the banking sector, he has developed a strong reputation for driving growth, optimizing operations, and supporting businesses through innovative financial and strategic solutions. He is an Associate Member of Nigeria Institute Of Management, Nigeria Institute of Risk and Credit Management.
