Sunday, April 21, 2024

Zambian banks under high stress-IMF


The International Monetary Fund has charged that Nonperforming loans (NPLs) among Zambian banks have risen and private sector credit growth has turned negative, due to the severe pressures of 2015–16.

In its Financial System Stability Assessment Country Report for Zambia, the IMF says the pressures included slower economic growth, sharply lower copper prices, electricity shortages, a very tight monetary policy, and mounting fiscal arrears and severe fiscal funding pressures.

According to the stress tests carried out by the IMF, as of December 2016, total loans amounted to 36.0 percent of total system assets and the NPL ratio was 9.7 percent of gross loans.

It showed that loan-loss reserves were high, at about 71.5 percent of NPLs and loan growth had reversed to 11.1 percent.

The Fund stated that monetary policy had contributed to the financial stress by very tight liquidity and use of administrative measures that shifted costs and risks to the banking system.

The IMF however noted that the pressures have eased considerably in recent months.

“Most of the administrative monetary measures were unwound in November 2016 and monetary policy has been considerably eased since March 2017. Recent good rainfall has eased electricity shortages and a bumper crop harvest is expected. Fiscal funding pressures have only been partly addressed,” the report said.

Looking ahead, the IMF said the Zambian the financial system faces considerable risks, owing to high dependence on copper exports, rising public debt and funding pressures, and an uncertain monetary policy regime.

It feared that a sharper-than-expected global slowdown may lead to copper price declines and additional pressures on government finance and the exchange rate.

The Fund says a lack of fiscal adjustment may worsen government payments arrears, further impacting asset quality.

“Portfolio capital inflows have recovered following the elections and expectations of a major fiscal adjustment. An outdated legal and regulatory framework has become an increasing handicap to the financial sector. Stress tests suggest that banks are resilient to credit and liquidity stress,” it said.

“In the scenario stress tests, where NPL ratios increased to about 24 percent, total capital adequacy ratios only fell to about 16 percent. However, the tests show that foreign-owned banks—which comprise some 80 percent of banking sector assets—place significant liquidity abroad (largely with their parent banks), which leaves them vulnerable to liquidity concentration risks.”

It added, “A 10 percent 5-day aggregate deposit outflow undermined the liquidity of 11 banks (79 percent of banking system assets), if funds placed with foreign banks are not immediately available due to home country ring fencing or bail-in rules.”

The IMF charged that financial supervision is not fully effective due to an increasingly out-of-date legal and regulatory framework, data limitations, and a severely under-resourced supervisor.

It also observed that staffing shortages at the Bank of Zambia (BoZ) have led to large gaps in timely onsite inspections at banks and deposit-taking nonbanks.

“These issues are now being addressed. Offsite supervision requires greater analytical content to inform risk assessment and guide onsite inspections. Further, there is insufficiently broad monitoring of concentration risk, especially as regards country and transfer risks of liquidity placed abroad by banks,” it said.


  1. You can not trust these IMF people. Just read what they are saying. They’re trashing every hard work that Mutati and his team have done. They keep shifting goals. Their agenda is to keep you poor. They don’t want to see progress in African countries. Doing away with them is a better alternative. Everything they said is negative. Nothing to commend the government for what it’s done. After working so hard, they come and tell you this is not working, that is not working. No Country in the world has developed with loans from these Illuminati people.

  2. @Lombe. You are true to some extent. But the great issue worth reflecting on are the leadership qualities in Zambia to recognize the points you mention. Right now Zambia has a president who has zero grasp of economic policy or even any policy for that matter. I mean zip, zero, naught. It facilitates a right context for IMF to do what it needs to do…promote its own agenda without any pushback. Sad, especially if one considers that what we have for a “president” is a joke of a fying absent “leader”.

    • Lombe has put his argument forward based on the topic at hand. He has spoken of the IMF and the relevant ministry and minister who manages the economy. You come on and the first thing you base your argument on is Lungu??? The president this, the president that…how do you expect the president to handle everything??? Why then should we have 2 ministries to overlook the economy when you expect the president to be
      omnipresent in all sectors of the economy??? Just as the IMF have put it: “due to the severe pressures of 2015–16, included slower economic growth, sharply lower copper prices, electricity shortages, a very tight monetary policy, and mounting fiscal arrears and severe fiscal funding pressures.”-WHY DON’T YOU PUT YOUR POINTS BASED ON THE ISSUES RAISED??? NOT ILLITERATE PERSONAL…

  3. Lombe get the stone out ofvyour eye, with anMA you would be aware that zambia is a member of the IMF and its aim is to assist struggling nations, but it has to do due diligence, if you and other zambians keep thinking wjites are against us we will never get anywhere, where are we now be honest, we are on our wayvto zimbabwe,
    The only pipo that benefit in any form of socialism are the ruling clique and therir avolytes. Tell the whites tell the IMF tell the world bank we dont wznt tbem , but dont accept any aid either,go back to living in skins biwing to a chief,
    With ypur alleged education you shpuld be more informed, Google beneficiaries of IMF it is us that f….k up
    When will we accept responsibility for our greed and corruption that stymies advancement

  4. This assessment was done between 2015-December 2016. From that period a few things have taken place such as the adjustment in lending rates by Boz (twice if not mistaken). Other monitory policies were adjusted accordingly etc. For me I would like to see an updated report from IMF not this outdated data am seeing. Thank you bloggers as we continue to educate one another.

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