caleb m fundanga : improved financial services in zambia speech by dr caleb m fundanga, governor of the bank of zambia, at the official opening of the barclays bank zambia plc, chilenje branch, chilenje, 9 january 2008. * * * • mr fritz seegers – barclays global retail and commercial banking chiefexecutive • mr j j sikazwe – barclays bank zambia plc chairman • mr ahmed khan – barclays grcb emerging markets chief executive officer • mr michael miebach – barclays sub - sahara africa managing director • mr zafar masud – incoming barclays bank zambia managing director • mr danie nel – outgoing barclays bank zambia managing director • invited guests • ladies and gentlemen i am delighted to be the guest of honour at the official opening of the barclays bank zambia plc chilenje branch. my appreciation of this opening is because it reflects a fundamental change in strategy by barclays bank zambia over the last few years. i recall that only a few years ago, barclays bank zambia closed a number of its branches in several towns and locations. we were greatly concerned because it meant that even the few that were serviced by commercial banks would have greater problems in accessing financial services. barclays bank zambia obviously had its reasons for taking such an action and we cannot fault them for attempting to curb their costs. however, it is now evident that there is a turnaround in the situation. i am reliably informed that the number of branches has increased from 17 at the beginning of april last year to 55 at the end of november 2007. what is even more impressive is that these branches are found in areas which were previously not serviced by commercial banks. this indeed is a bold move and for this we must commend barclays bank zambia. i am aware that the expansion programme is backed by a capital injection of approximately k40. 0 billion which will make it possible for barclays bank zambia to increase its services in the country, particularly to the smes sector. ladies and gentlemen, the 2005 finscope survey undertaken by finmark trust confirmed that levels of access to financial services in zambia are low. fewer than 15 % of adult zambians are reported to have had access to commercial banks. the reasons given for this low accessibility varied but some of the critical reasons included the distance to banks, the time spent getting to a bank and the cost of getting a bank service. with barclays bank zambia opening branches closer to the

##ges bank estimated that a 40 % fall in house prices would reduce the eligible cover pool by around 20 %. in such an extreme scenario, refinancing costs may rise for covered bonds. however, the rise in costs would probably be somewhat limited compared with the rise in refinancing costs for unsecured funding. thus, even under extreme market conditions, covered bonds would remain attractive, at least in relative terms. 1 / 3 bis central bankers'speeches role in balance sheet of banks while covered bonds provide investors with a broad range of options to the investment opportunity set and contribute to deep and liquid markets, they also impact banks ’ balance sheets. when banks use covered bonds as a source of funding, a proportion of the banks ’ assets become pledged to covered bond creditors. one issue that arises is what effect this may have on the quality of the balance sheet of banks. at the outset, a banking group ’ s liquidity and credit risk will rise since covered bonds reduce the volume of encumber - able assets available to the bank. in addition, banks are often both significant issuers and holders of covered bonds. such interconnection may increase systemic risk. however, market participants may assume that resolution rules and liquidity and capital requirements nonetheless limit the risk. for example, all banks are subject to regulation of their core equity – notably through the basel iii standard of the basel committee, implemented in europe through the crd4 / crr regulation. this is the primary insurance for tax payers and investors against the potential failure of large banks. sufficient equity and a resilient banking system will always be the main instruments to ensure stability in the financial system as a whole. this is why senior bonds are also considered a relatively safe asset. impact on the supply of credit and capital allocation how do covered bonds impact the supply of credit and capital allocation? capital requirements under basel ii and iii incentivise banks to supply residential mortgage lending. the introduction of irb models for calculation of capital requirements have resulted in low risk weights for residential mortgages. this may encourage leveraging. some countries where large shares of covered bonds are backed by residential mortgages, have experienced relatively strong growth in residential mortgage lending and brisk house price growth. the availability of a large and liquid covered bond market may have facilitated this development. one would expect that the emergence of a vibrant residential covered bond market would generally deepen fixed income markets through larger volumes and better liquidity. the cheaper financing of residential