REMARKS BY THE GOVERNOR
ON THE LAUNCH OF THE 2023 BANKING
INDUSTRY SURVEY REPORT BY PwC
August 2024
Introduction
State of the Local Economy
Liquidity risk
Cybersecurity
Financial performance and condition of the sector
▪ The Survey is a very useful tool to many stakeholders, including
ourselves.
▪
The 2023 Report is the Eighth edition. We commend Pwc for this
initiative and we appreciate the cooperation of the respondents.
▪ The 2023 Survey Report raises a lot of important issues. However, will
focus our brief comments on three top issues raised by respondents:
State of the local economy;
o
Liquidity risk; and
o
Cybersecurity
o
STATE OF THE LOCAL ECONOMY
▪ Will look at the state of the local economy through the lens of our recent Monetary
Policy Committee meeting.
▪ The MPC maintained the Monetary Policy Rate at 13.5 percent. While actual and
projected inflation remain elevated relative to the 6-8 percent target band, the
Committee judged that the current monetary policy stance is appropriate.
▪ Inflationary pressures have persisted, with inflation rising to an average of 14.6
percent in the second quarter of 2024 from 13.5 percent in the first quarter.
▪ Persistent depreciation of the Kwacha against major currencies and rising prices of
food (maize grain, maize products, and vegetables) and energy, particularly fuel,
due to constrained supply continued to drive inflation up.
▪ These factors remain key risks to the inflation outlook, exacerbated by extended
hours of electricity load management, continued geopolitical conflicts and tight
global financial conditions.
▪
Inflation is, however, forecast to moderate to 12.7 percent in 2025, albeit higher
than the 9.8 percent reported in the May 2024 Monetary Policy Report.
▪
In the first half of 2026, inflation is expected to average 10.8 percent.
▪
The MPC decision further considered the impact of the drought
and that of the past successive increases in PR, increases in SRR, and
the recent reforms in fx market.
▪ In maintaining the PR as opposed to raising it, the Committee also
considered the impact on financial stability and growth, particularly in
2024, in the wake of the drought.
▪ Continued implementation of fiscal consolidation measures and
structural reforms remains critical to lowering inflation, maintaining
financial stability, and creating growth enabling environment and
resilience of the economy against shocks.
▪ To safeguard macroeconomic stability needs concerted efforts and
strengthened collaboration among all stakeholders.
▪ Prospects in the medium to long-term are very positive. Need to
continue with the reform process can hardly be overemphasised.
Status of debt service
▪ In quarter 1 of 2024 debt service was only to multilateral and
plurilateral institutions .
▪ In the second quarter, there was a sharp upward jump following the
conclusion of restructuring of the Commercial (Eurobond Holders)
as broader debt service resumed (see chart below).
LIQUIDITY RISK
Secondly, the industry's concerns on liquidity risk is noted. However, it is
important to fully appreciate the context that informed BoZ actions.
▪ The environment has for sometime now been characterized by strong underlying
inflationary pressures, stemming not only from the debilitating drought shock of
2023/24 agricultural season, but also the persistent exchange depreciation.
▪ Managing such pressures points to the need to implement relatively tight
monetary policy to contain the inflationary pressures.
▪ We are the first to admit that the Policy Rate, on its own, is not sufficient to
manage exchange rate pressures. The Bank has had to complement the policy rate
changes with upward adjustments in the Statutory Reserve Ratio. In this regard, in
early February 2024 we raised the SRR to 26% from 17% on 5 February 2024.
▪
At the same same time it was deemed necessary that the Government transfers its
unutilised deposits from commercial banks to the BoZ. Thus, on 29 January 2024,
commercial banks were instructed to transfer such deposits to BoZ.
▪ The increased Statutory Reserve Ratio resulted in a net withdrawal of K8.1 billion
of excess liquidity. With respect to Government deposit transfers, between
endJanuary 2024 and July 2024 K3.4 billion had been transferred to BoZ -far much
7
less than the projected K12 billion.
▪ The less-than-satisfactory performance of the Government
deposit transfers meant that the impact was not fully achieved.
With this development another way of achieving the intended
objective had to be found. The Bank turned to making Overnight
Lending Facility (OLF) as the main source of commercial banks'
liquidity as opposed to use of regular Open Market Operations (OMO).
▪ Upon observing relative stability in the foreign exchange market
conditions since June 2024, the Bank started to provide commercial
banks liquidity relief through the much cheaper OMO facility
compared with the OLF (OMO loans currently cost 13.5% whereas
OLF is at 30%).
▪ Further relief came by way of restructuring how statutory reserve
ratio compliance is to be achieved. This measure was taken within the
context of safeguarding financial stability.
▪
In June this year, the Bank invited commercial banks to participate in a limited auction of Government bonds
up to 40.0 percent of their respective minimum kwacha statutory reserve requirement.
▪ The Government bonds purchased in this particular auction are eligible for statutory reserve requirement
purposes. This measure has, so far, moderated the cost of complying with the statutory reserve
requirements. But more importantly, risks to financial stability have been contained by safeguarding an
orderly functioning of the Government securities market, especially in the face of large maturities that came
due mid-year
▪ Overall, the Bank maintained tight liquidity conditions for the most part of the year-to-date to support the
foreign exchange market and tame inflation.
Cybersecurity has remained a concern for the sector, at least for
the past three banking surveys, as product offerings from the sector
continue to evolve at a rapid pace towards digital solutions.
▪ At the back of the increased reliance on digital channels for
product offerings and services, is the heightened risk of
cyberattacks.
▪ Banks are taking deliberate measures to strengthen their cyber
defence mechanisms by investing in relevant infrastructure as well
as enhancing customer and staff awareness programmes.
▪ The Bank of Zambia launched its 2024-2027 Strategic Plan with a
theme 'Promoting Inclusive and Sustainable Development in a
Digitalised World'.
▪ The strategy, seeks to respond to new challenges and emerging
risks, and focuses on four main areas namely: Price Stability,
Financial Stability, Financial Inclusion and Organisational
Resilience and Growth.
▪
One of the initiatives in our strategic plan is Strengthening Cyber
Resilience and Fraud Mitigation in the Financial Sector by
establishing the Financial Sector Cyber Incident Response Team
(FINCIRT);
▪ This is being done in partnership with the Bankers Association of
Zambia.
▪ The initiative will benefit the financial sector as it will provide a
platform for information sharing which will promote safety and
resilience of the sector
▪ As part of the Bank's efforts to enhance cyber resilience in our
institutions and address cyber risk in the financial sector, in 2023
the Bank issued Cyber and Information Risk Management
Guidelines for Regulated Entities.
▪
Further, the Bank has commenced Cyber security examinations
across the industry, following the issuance of Guidelines in 2023.
FINANCIAL PERFORMANCE AND CONDITION OF THE
SECTOR
Was adequately capitalised with capital adequacy ratios
Despite
remaining well above the minimum requirements.
these
challenges,
the
The sector continued to generate sufficient income to cover
banking
operating costs, fund growth and augment capital.
sector
remained
Resilient.
Liquidity conditions varied across banks and the Bank of
Zambia instituted relevant support measures to the sector as
alluded to earlier.
Asset quality was satisfactory, however, continued to be a
source of concern, and the Bank will continue to assess the
situation and will institute appropriate measures to minimise
disruption to the financial system.
THANK YOU