Tukiya Kankasa-Mabula: Bank of Zambia's key policy initiatives
Speech by Dr Tukiya Kankasa-Mabula, Deputy Governor (Administration) of the Bank of
Zambia, at the Bankers Association of Zambia Bankers Annual Ball, Lusaka,
14 September 2012.
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The Chairperson, Bankers Association of Zambia, Mr Friday Ndhlovu,
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Managing Directors and Chief Executive Officers of Member Banks,
• Managing Directors and Chief Executive Officers of Various Institutions
& Associations,
• Management and Staff of Member Banks,
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Distinguished Invited Guests,
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Members of the Press,
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Ladies and Gentlemen.
Good evening,
Before I deliver my speech this evening, I would like us to observe a minute of silence in
honour of the Late Mrs Margaret Ndhlovu, wife of Mr Friday Ndhlovu who passed on late last
month. As the saying goes, behind every successful man, there is a woman. Our prayers and
thoughts go out to the Ndhlovu family as they come to terms with the loss.
Distinguished invited guests, it is my honour and privilege to officiate at this year's
Bankers Annual Ball for the Bankers Association of Zambia. It is also my pleasure to warmly
welcome Mr Friday Ndhlovu, the Managing Director of Investrust Bank Plc and the In-coming
Chairperson of the Association who is taking over from Ms Charity Lumpa who will be
assuming a new role within the Ecobank Group in Lome, Togo. Join me in wishing
Mr Ndhlovu well in his new role and I have every confidence that he will perform to
distinction. I wish to take this opportunity to thank Ms Lumpa for her able stewardship of the
Association and wish her well in her new appointment. I have every confidence that she will
excel.
Ladies and gentlemen, the banking industry plays an important role in any economy,
particularly the role of intermediating funds between savers and borrowers. It also plays an
equally important role in providing payment system platform where economic agents can
settle their transactions.
You will also note that the performance of these functions also attracts numerous risks which
have potential to compromise the stability and the efficient operations of the banking
industry. The regulatory environment therefore requires adjusting appropriately in response
to developments in the financial system.
Chairperson, you will note that the Bank of Zambia has, in the most recent past, introduced
a number of measures aimed at enhancing stability of the banking industry in Zambia as well
as to enhance the transparency and efficiency in the allocation of resource in the economy.
Allow me to briefly highlight some of the key policy initiatives that the Bank of Zambia has
recently introduced:
1) Reduction of statutory reserve ratios: in the fourth quarter of 2011, the Bank of
Zambia reduced both the statutory and core liquid asset ratios by 3 percentage
points to 5.0% and 6.0% respectively. The policy measure was intended to loosen
liquidity for commercial banks to enable them increase their lending to productive
sectors of the economy. The measure was also aimed at influencing the pricing of
the loans especially in light of high lending rates prevailing in the economy;
2) Increase in capital: a robust banking industry is indispensable for supporting
investments in the economy. A lower capital base entails limited participation in the
financing of investments in addition to increased vulnerability of the banking
industry. From the last quarter of 2011, the banking sector saw significant regulatory
reform as the capital thresholds for banks were increased. Local owned banks are
now required to have a capital base of K104 billion whilst foreign owned banks are
required to have a minimum capital base of K520 billion. The revised thresholds are
aimed at ensuring that we have the best possible environment in which banks can
carry out these key functions. As I stated earlier, banks are specialised institutions
and they are fundamental to the working of the economy and linked to all parts of
the financial system. But the consequence is that if banks fail, the external effects
can have an adverse impact on the financial system and the economy. That is why
banks are required to maintain a certain level of minimum capital. In this regard, the
central bank provides oversight through prudential supervision.
Therefore, the measures to revise the capital adequacy framework for Zambia
enhances the resilience of the sector to both internal and external shocks by
improving the quality and quantity of the capital available for commercial banks;
3) Introduction of the policy rate: the policy rate was introduced in order to provide a
benchmark rate for the banking industry on which pricing for lending products can
be based. It also promotes transparency in the price discovery mechanisms in the
banking sector while minimizing information asymmetry particularly that associated
with the credit markets;
4) Statutory Instrument No. 33 on Bank of Zambia currency regulations: This
measure was introduced with a view to reinforcing the use of the Zambian Kwacha
as the legal tender in the Republic of Zambia. The increased use of foreign currency
cash in our economy has implications for the effectiveness of the conduct of
monetary policy given that foreign currency cash is outside the control of the central
bank; and
5) Currency rebasing: Since 2006, (except in 2008 when there were challenges
arising from the global financial crisis) Zambia has enjoyed positive economic
variables. For instance, overall inflation has been single digit and the country has
continued to record favourable balance of payments surplus. During the recent past,
inflation has declined to single digit levels such that in December 2011 it closed at
7.2%. This low level of inflation, coupled with favorable macroeconomic conditions,
provided an opportune time to rebase the Zambian currency. Given the improved
economic performance, it has become necessary to re-align and configure our
currency in line with macroeconomic fundamentals. The currency rebasing exercise
will have implications on businesses in the economy including changes to
accounting software, tax aspects, ATMs, cash registers, etc. The success of the
currency rebasing exercise will largely depend on our partnership with the
commercial banks.
Ladies and gentlemen, as you will note all these measures are aimed at improving
efficiency conduct of business in our economy and commercial banks have a very crucial
role to play in all these. The expectation is that all of you represented here will support the
central bank to ensure that collectively, we build a financial sector that is modern and
responsive to the needs of our economy.
as a central bank, we will continue to foster an environment where dialogue
Chairperson,
between all key stakeholders can be promoted both at individual bank level as well as at
Industry level. Despite the policy changes embarked on, there remains a lot to be done in the
areas of financial inclusion, financial education and consumer protection in the banking
industry. In this regard, the Bank of Zambia has developed branchless banking frameworks
and a national strategy for financial education in partnership with other stakeholders. As a
regulator, we are committed to ensure an open and competitive banking environment. This
is, in my view, the best way to allow banks to play their full role in the economy and ensure a
fair deal for businesses and consumers.
Recently, we have signed an MOU with the Competition and Consumer Protection
Commission aimed at enhancing the competition arrangements in the banking sector. We
hope to strengthen capacity to tackle anti-competitive behaviour in the sector.
I would therefore, like to encourage you to start viewing these areas as an intricate part of
your overall business strategies in order to enable us as an industry to consolidate the gains
so far achieved.
let me acknowledge the commitments that the Bankers Association
Ladies and gentlemen,
has made in the revised Code of Banking Practice relating to the provision of "No Frills
Account" to certain segments of our population. As the central bank we will be interested to
receive information on how you are performing in this important area for financial inclusion.
On our part, we have issued a "Practice Note" to assist commercial banks overcome some of
the Know Your Customer challenges faced with when dealing with some segments of our
society.
Chairperson, let me conclude by reiterating the important role that a healthy and stable
financial system plays in an economy. This objective cannot be achieved by the Bank of
Zambia alone but through collective efforts including the Government and yourselves. My
expectations are that although the role of Chairperson has changed, the Association will
remain true and steadfast to its values and objectives. We look forward to continuing working
with the Association on many issues that still require attention and on-going dialogue.
I Thank You.