BANK of ZAMBIA
FINANCIAL ACCESS AND SUSTAINABILITY OF
FINANCIAL SERVICES IN ZAMBIA
Paper Presented
By the
Deputy Governor – Operations, Bank of Zambia
Dr. Denny H Kalyalya
At
The Zambia Institute of Chartered Accountants Annual
Business Conference
August 7-8, 2008
Livingstone
OUTLINE

INTRODUCTION

FINANCIAL SECTOR IN ZAMBIA

ACCESS TO FINANCIAL SERVICES

SUSTAINABILITY OF FINANCIAL SERVICES

CONCLUSION
2
INTRODUCTION

The financial sector plays a critical role in the
mobilization of finance and stimulation of economic
growth;

Attainment and maintenance of high rates of
economic growth requires an efficient and broadbased financial sector;

Banks and NBFIs enable efficient allocation of
savings and investment; and

Enable financial transactions to take place at
minimum cost.
3
FINANCIAL SECTOR IN ZAMBIA

The financial sector in Zambia comprises banks and
non-bank financial institutions (NBFIs);

These are regulated and supervised by three
agencies, namely, the BoZ, PIA, and SEC).

Presentation will focus on fin sector under the BoZ.

The mission statement of the Bank of Zambia is to
“formulate and implement monetary and supervisory
policies that achieve and maintain price stability and
promote financial system stability in Zambia.”
4
FINANCIAL SECTOR IN ZAMBIA



In line with this mission statement, the BoZ is
responsible for regulating and supervising banks and
the following types of NBFIs:
– Leasing and finance companies;
– Housing financial institutions (building societies);
– Savings and credit institutions;
– Development finance institutions;
– Microfinance institutions; and
– Bureaux de change.
As at June 30, 2008 there were 14 commercial banks
and 71 NBFIs .
Currently, commercial banks dominate Zambia’s
financial system.
5
FINANCIAL SECTOR IN ZAMBIA




There is a common understanding that financial
exclusion has negative economic and social effects
on society.
In the recent past, competition and the tightening of
regulation has led to the growth of the fin. sector.
However, like in many other developing countries
the financial sector in Zambia still faces a number of
challenges.
FSAP Report of 2002 highlighted a number of these
including limited access to financial services.
6
FINANCIAL SECTOR IN ZAMBIA

In light of FSAP findings, GRZ developed and
launched the FSDP in 2004.

The FSDP is a comprehensive five year strategy to
build and strengthen the financial sector.

In addition, and in furtherance of the objectives of
the FSDP, the BoZ Strategic Plan for 2008 – 2011
has made financial inclusion as one of its key
strategic objectives.
7
ACCESS TO FINANCIAL SERVICES

Two surveys under the FSDP completed:
– The FinScope™ Survey of 2005 – Demand side;
and
– The FinScope™ Survey of 2007 – Supply side.

These have augmented the earlier findings of the
FSAP on developmental challenges for the financial
sector in Zambia.
8
ACCESS TO FINANCIAL SERVICES

Key findings of the 2005 FinScope™ Survey include:
– Only 34% of the population were “financially
served”, i.e., whilst 66% had no access;
– The barriers to accessing financial services
include cost, distance, time and transport; and
– MFIs although used by only 5% of the adult
population play an important role in increasing
levels of access to financial services;
9
ACCESS TO FINANCIAL SERVICES

The majority with no access to fin. services
are the rural poor and women.

These are categories for whom support has
been prioritized in the FNDP and under CEA.

Thus a platform to address above challenges
already exist.
10
ACCESS TO FINANCIAL SERVICES

During the 1st half of 2007, the Supply Side Study was
undertaken. The Study revealed opportunities as well
as challenges:
– Macroeconomic policy and financial sector
regulation no longer viewed as a problem;
– The enabling environment to expand access exist
(i.e. developments in the payment system and the
greater sharing of information);
– Key constraint related to the focus and strategies of
FSPs with limited geographical coverage at a high
cost; and
– NBFIs have not offered effective competition.
11
Comparison of Net Interest Margin
and Profitability
Measure
Zambia
Namibia
3.2%
Mauritius South
Africa
1.7%
1.4%
RoA
RoE
37.2%
21.2%
22.0%
15.7%
NIM
13.3%
3.0%
2.7%
5.0%
ER
64.0%
41.2%
60.1%
66.3%
1.5%
12
ACCESS TO FINANCIAL SERVICES





Banks and NBFIs are re-positioning themselves.
The number of MFIs has increased overtime e.g.
MFIs licensed by BoZ, increased to 15 as at June 30,
2008 from 3 in 2006.
Change due to the strong fiscal position and the drop
in annual inflation to single digit levels.
Domestic credit to the private sector as a percentage
of GDP rose to 43.0% at end-2007 from 18.7% at the
end-2005.
These statistics indicate improving access to financial
services.
13
SUSTAINABILITY OF FINANCIAL
SERVICES

Regulatory Framework:
– Ratio Analysis based on On-site
inspections and off-site surveillance;
–
–
–
Capital Adequacy Regulations of 1995;
2005 amendments to the BSA, DBZ, NSCBA
and the BFSA, to enhance the supervisory
oversight of the BoZ; and
Bank of Zambia Act is also being reviewed to
enhance operational independence of BoZ.
14
Key Ratios
2002
2003
2004
2005
0226
2007
Tier 1
24.8
21.3
19.6
26.2
18.0
15.9
Total
Regulatory
Capital
28.0
23.7
22.2
28.4
20.4
18.6
11.4
5.3
7.6
8.9
11.3
8.8
Capital
Adequacy
Asset Quality
NPLs/Total
Loans
Earnings
ROA
7.4
5.4
3.1
6.5
5.1
4.7
15
SUSTAINABILITY OF FINANCIAL
SERVICES
–
–
–
–
–
MF Regulations, 2006 provide set standards for
the industry.
PPML Act 2001 criminalized ML and provides for
the forfeiture of property by offenders.
BoZ AML Directives complement PPML.
BoZ has also developed a supervisory framework
aimed at ensuring banks and NBFIs are
complying with the AML legislation and directives.
All these are aimed at ensuring that the potential
threats posed by money launderers are limited.
16
SUSTAINABILITY OF FINANCIAL
SERVICES

The microfinance regulations were issued in 2006
to set standards for the MFIs so that they could
operate and grow in a safe, sound and sustainable
manner.

The Capital Adequacy Regulations of 1995 were
amended in 2006 to provide for a tiered capital
structure to encourage entrants into the financial
sector.
17
Revised Minimum Regulatory Capital
CATEGORY
Amount (K)
Banks
12,000 m
Deposit-taking Leasing Companies
1,500 m
Non-deposit taking Leasing Co.
500 m
Building Societies
2,000 m
Savings and Credit Institutions
2,000 m
Development Finance Institutions
7,500 m
Deposit Taking MFIs
250 m
Non-deposit taking MFIs
25 m
Bureaux de Change
40 m
18
SUSTAINABILITY OF FINANCIAL
SERVICES



Establishment of a Credit Reference Bureau
– To improve the credit culture in the country
– Credit Data (Privacy) Code and the Credit
Reference Services (Licensing) Guidelines were
issued in January 2006.
– Credit Reference Bureau Africa Limited licensed
in June 2006.
The main task of a CRB is to provide lenders with
information upon which they can base their lending
decision.
CRB promotes responsible use of credit and helps
lenders in identifying good payers from defaulters.
19
SUSTAINABILITY OF FINANCIAL
SERVICES





Zambian banking industry has one of the highest
operating costs when compared to other
countries in Sub-Saharan Africa.
The challenge is to develop ways of providing
banking services at affordable costs.
BoZ is addressing this challenge through the
following:
Consumer awareness - quarterly publication of
bank charges; and
the Cost of Borrowing Regulations of 1995.
20
SUSTAINABILITY OF FINANCIAL
SERVICES

Corporate Governance
– Under the Companies Act, directors are
liable for breaches of fiduciary duties
and obligations.
– The BFSA complements the provisions
of the Companies Act by placing more
duties and obligations on directors of
banks and financial institutions.
– BoZ issued Corporate Governance
Guidelines in November 2006.
21
SUSTAINABILITY OF FINANCIAL
SERVICES

Sovereign Credit Rating for Zambia
– The process of obtaining a credit rating for
Zambia has reached an advance stage.
– Sovereign credit rate is expected to reduce the
cost of credit and increase access to finance.
– With an increase in access particularly to rural
areas, the number of excluded people is likely to
decline from the levels of 66% recorded in 2005.
22
CONCLUSION




Encouraging signs in the range and reach of financial services.
Still a lot remains to be done. Challenges ahead including the
following:
–
Developments in the external sector and the rise in food
prices threaten macroeconomic stability.
–
fiscal prudence and coordination - strengthening and staying
the course.
–
The provision of infrastructure, particularly in rural areas.
–
Innovation - the need to invest in new technology and human
resources.
–
Consumer awareness and responsible lending.
Strengthening of financial Sector is necessary to further
economic development.
FSDP provides a framework.
23
THANK YOU
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