The Bank of Zambia (BoZ) has expressed concern over the rising ratio of non-performing loans among public service workers.
Deputy Governor for Operations Francis Chipimo warned that the trend poses significant risks to lending institutions and the country’s financial sector.
Dr Chipimo said this in a public notice and obtained by the media in Lavushimanda today.
He said the recent financial stability assessments have revealed growing challenges associated with payroll-based lending, particularly in cases where prescribed Debt Service Ratio (DSR) and affordability requirements are deliberately circumvented.
He noted that some public workers are increasingly accessing credit outside the payroll system, commonly referred to as off-payroll credit, often borrowing amounts that exceed permissible limits.
According to Dr Chipimo, some borrowers have been obtaining additional loans through misrepresentation of their financial positions, failure to disclose existing loan obligations and borrowing from multiple institutions simultaneously.
He said these practices have contributed to an increase in loan defaults, putting pressure on lending institutions and heightening risks to the overall financial system.
The Deputy Governor further observed the weaknesses in credit underwriting practices among some lending institutions, noting that certain lenders have not consistently utilized information provided by the Credit Reference Bureau (CRB) when assessing loan applications.
He added that some financial institutions have, in certain instances, disregarded CRB data altogether, thereby undermining responsible lending practices and effective risk management.
Dr Chipimo stressed that compliance with DSR and affordability requirements remains mandatory for all regulated lending institutions, employees and payroll administrators, as these standards serve as important safeguards for consumer protection, prudent credit underwriting, responsible borrowing and financial stability.
In response to the growing concerns, the Bank of Zambia has since directed all regulated lending institutions to strictly adhere to debt service ratio limits and strengthen responsible lending practices.
He also urged payroll administrators to reinforce internal payroll controls, improve recovery mechanisms and take appropriate remedial or disciplinary action where abuse of payroll-based deduction arrangements is identified.
Meanwhile, Dr Chipimo said the Bank of Zambia will continue to monitor compliance with the Banking and Financial Services Act (Provision of Credit Data and Utilisation of Credit Reference Services) Directive of 2020 by all regulated entities.
He added that the central bank will closely monitor both off-payroll and payroll-based lending practices and take all necessary measures to ensure compliance with applicable laws, regulations and prudential standards aimed at safeguarding financial stability and promoting responsible lending in the country.
Its only you who is surprised and as usual nothing will be done
The root cause is a combination of inadequate disposable income among public servants and weaknesses in the lending system. Rising living costs create demand for credit, while poor lending practices and inadequate use of credit information enable excessive borrowing. The result is over-indebtedness and increasing loan defaults.
Addressing the problem will require more than stricter regulations. It will also require:
Improved salaries and purchasing power for workers.
Stronger enforcement of lending rules.
Mandatory use of Credit Reference Bureau data.
Better financial literacy among borrowers.
Tighter controls on off-payroll lending.
More responsible credit underwriting by financial institutions.
In essence, people are borrowing because they need money, and the financial system has allowed many of them to borrow more than they can realistically repay.