The Nigeria Deposit Insurance Corporation (NDIC), an independent government agency, is concerned about an "increasing wave" of non-performing insider loans on the country's banks, it said on Friday.
The agency said Managing Director Alhaji Ibrahim was concerned about the consequences of the loans on the stability of the nation's banking system. The loans are paid by banks to their directors and shareholders.
"He called for strict compliance with the existing code of conduct and a review of the existing laws and regulations to provide stiffer penalties for directors who take advantage of their positions and failed to pay back their loans", the NDIC said in a statement.
Ibrahim met officials from the Chartered Institute of Bankers of Nigeria (CIBN) at NDIC's office in the capital Abuja on Friday.
Earlier this month the central bank replaced the board of Skye Bank after it failed to meet minimum capital ratios, saying the bank's non-performing loan ratio had been above the regulatory limit for some time.
Days later the central bank, which has the authority to remove bank executives just as it did during the 2007-09 global financial crisis when it sacked nine banks CEOs, said it was monitoring one or two commercial lenders for liquidity.