The birth of self-regulation in the Nigerian banking system and the dangers lurking ahead

• By Chibueze Onah

Banking is one of the few businesses in which failure rarely affects only the owners of the business. When a bank gets into trouble, depositors, employees, businesses, investors and, ultimately, the wider economy can pay the price.

That is why banks are regulated.

The current debate around the limits of regulatory intervention in Nigeria’s banking industry should therefore concern everyone with an interest in the stability of the financial system. Recent court decisions challenging actions taken by the Central Bank of Nigeria (CBN) raise an important question: how much authority should a financial regulator have to intervene when it believes a regulated institution is breaching established rules or threatening financial stability?

The question is not new.

Nigeria’s banking history offers several reminders of what can happen when weaknesses within the system are allowed to persist for too long.

The banking distress of the 1990s left depositors counting losses as institutions failed under the weight of poor governance, weak risk management, inadequate capital and other structural problems.

The 2004–2005 banking consolidation exercise represented another major regulatory response. The CBN raised minimum capital requirements, compelling banks to recapitalise, merge or leave the market. Whatever one's views about the process, it fundamentally reshaped Nigerian banking and reinforced the regulator’s role in establishing minimum standards for participation in the industry.

Then came the 2009 banking crisis.

Following special examinations of banks, the CBN intervened in several institutions after identifying significant weaknesses, including poor corporate governance, inadequate capitalisation and excessive risk exposures. Management changes, capital injections and other corrective measures followed.

Each episode was different, but the underlying principle was the same: banking cannot safely operate on the assumption that institutions should be left entirely to correct themselves.

This is because regulators are expected to act before distress becomes collapse.

The alternative would be rather curious. Should a regulator that identifies serious governance, liquidity or capital concerns wait until depositors begin losing money before acting? Should intervention occur only after the damage has been done?

That would turn prudential regulation into post-mortem regulation.

It is against this historical background that more recent interventions by the CBN should be considered.

In January 2024, the CBN dissolved the boards and managements of Union Bank, Keystone Bank and Polaris Bank, citing regulatory and corporate governance concerns and relying on powers available to it under the Banks and Other Financial Institutions Act (BOFIA).

New boards and management teams were subsequently appointed.

One of those interventions — involving Union Bank — later became the subject of litigation, culminating in a Federal High Court judgment in March 2026 concerning the CBN’s exercise of its regulatory powers.

The legal questions raised by that case are for the courts to determine. But the case illustrates a much wider policy issue: where should the boundary lie between legitimate regulatory intervention and the right of regulated institutions and their owners to seek judicial protection?

That distinction matters.

A regulator cannot be above the law merely because it is a regulator. Decisions affecting institutions and their stakeholders must remain grounded in the law and subject to appropriate judicial scrutiny.

But neither should judicial review unintentionally make effective banking supervision impossible.

The regulator’s job is inherently preventive. It must often make decisions before the consequences of an identified risk have fully materialised.

This becomes particularly important where complex acquisitions, related financial obligations, liquidity exposures or corporate governance questions are involved.

The Union Bank matter provides one recent illustration.

Titan Trust Bank, which was licensed in 2018, subsequently acquired a controlling interest in Union Bank. Questions later emerged about the financing structure surrounding that acquisition.

According to concerns attributed to the regulator and reported in the media, Titan Trust Bank partly financed the transaction through foreign currency borrowing, including a $300 million Afreximbank facility. The regulator subsequently raised questions about how obligations associated with the facility were being serviced and whether some of those obligations had effectively migrated to the acquired institution.

Further reported regulatory and forensic findings raised allegations concerning foreign currency exposures, revaluation losses, interest and fees, swap transactions and the use of funds associated with the institution.

These remain serious and contested matters and should be treated as such. The parties affected are entitled to challenge regulatory findings, and the courts are entitled to determine the legality of actions taken.

But the wider regulatory question survives regardless of who ultimately prevails in that particular dispute.

What should a regulator do when the information before it suggests that the financial structure or governance of a regulated institution could expose depositors or the financial system to material risk?

The answer cannot simply be: wait.

Neither can the answer be: intervene without restraint.

That is precisely why banking regulation and judicial oversight must coexist.

There is also an important distinction between protecting an institution and protecting its owners.

Banks can change shareholders. They can change boards. They can merge, recapitalise or restructure. But the deposits they hold, the businesses they finance and the payment systems they support continue to matter regardless of who owns them.

The first responsibility of a sound regulatory system must therefore be to protect the integrity of the financial system and the legitimate interests of depositors, while respecting the legal rights of shareholders and other parties.

This is not peculiar to one institution.

Every Nigerian bank operates under the same fundamental compact: private institutions are permitted to take deposits from the public and deploy those funds commercially, but in return they submit themselves to prudential regulation.

That relationship cannot work if either side becomes absolute.

If operators can routinely disregard regulatory directives and then use prolonged litigation simply to prevent corrective action, regulatory authority risks becoming ineffective.

At the same time, regulatory intervention must remain firmly grounded in law, established processes and the overarching responsibility to protect depositors and financial stability.

The real question arising from recent developments is therefore whether Nigeria’s legal and regulatory architecture is sufficiently clear about when intervention is justified, what evidentiary threshold should apply, what rights affected parties should enjoy and how disputes can be resolved without exposing depositors or institutions to prolonged uncertainty.

That conversation is bigger than the CBN.

It is bigger than Union Bank, Keystone Bank, Polaris Bank or any individual shareholder.

It is about whether Nigeria can maintain a banking system in which regulators are powerful enough to prevent avoidable crises while remaining accountable enough to exercise those powers responsibly.

The history of banking distress in Nigeria suggests that weak regulation carries a heavy price.

But strong regulation and respect for the rule of law are not mutually exclusive.

The judiciary protects legal rights and ensures that public authorities act within the law. The regulator protects depositors and the stability of the financial system. Neither function should have to diminish the other for the system to work.

The objective should therefore not be regulatory supremacy or judicial supremacy.

It should be regulatory effectiveness within the rule of law.

Otherwise, Nigeria risks drifting towards a form of banking self-regulation in which supervisory rules exist on paper but become increasingly difficult to enforce in practice.

That would not be in the interest of regulators.

It would not be in the interest of banks.

And, most importantly, it would not be in the interest of the millions of Nigerians whose savings, businesses and livelihoods depend on a stable and well-regulated financial system.

Onah, a business facilitation consultant, writes from Abuja