leading to losses in output and employment that fed back into the deterioration in the loan book of commercial banks. nonperforming loans in the banking sector, for example, rose from around 6 % in june 2008 to 12. 6 % at the end of 2009. distinguished delegates, part of the reason for the resilience of zambia ’ s financial sector were the comprehensive financial sector reforms that have been systematically undertaken after the banking sector collapse in the second half of the 1990s. these reforms were promulgated under a financial sector development plan ( fsdp ) that was implemented to address weaknesses in the financial sector, identified in a financial sector assessment programme ( fsap ) conducted by the international monetary fund ( imf ) and the world bank in 2002. zambia ’ s reforms included the following : the increase in capital requirements for banks ; consolidation of the supervision of bank and non - bank financial institutions under the bank of zambia ; legislative reform that gave the bank of zambia powers to deal with failing institutions ; and the promulgation of corporate governance guidelines including the conduct of outreach programmes on good corporate governance practices for the financial sector and the introduction of credit reference services. the bank of zambia is continuing with its work to improve the financial sector and enhance the role of the financial sector in the development of the country through the implementation of the second phase of the financial sector development plan, fsdp ii. the fsdp ii will focus more narrowly on issues of competition within the financial sector and extending financial inclusion. however, the fallout from the crisis has brought to the fore the need to further enhance the regulatory framework by adopting and fortifying supervisory and regulatory practices which ensure prompt and effective policy responses to developments in the financial system. ladies and gentlemen, the introduction of credit reference services in zambia was necessitated by the poor credit culture, which was identified as one of the weaknesses in the financial sector, under the fsdp. bank of zambia licensed the first ever credit reference bureau, in 2006, following the introduction of the credit reference services ( licensing ) guidelines and credit data ( privacy code ) 2006. the substantive operations of the crb commenced in the fourth quarter of 2008 after a directive was issued by the bank of zambia on 10 december 2008 mandating all credit providers to use the services of a credit reference agency before issuing any loan and to provide credit data to a credit reference agency. however in spite of these efforts, the credit reference system still faces problems, largely relating to the coverage of sectors, as

i have just described have the potential to significantly minimize the probability of bank failure. they may also assist in reducing the extent to which strains on bank capital and liquidity result in an impaired ability to extend credit to the real economy. but the probability of bank failure cannot be reduced to zero. the system of bank regulation and supervision therefore needs to be buttressed by arrangements for deposit insurance ( for protecting depositors in the event of default ) and for bank resolution ( to ensure orderly wind up and avoid knock - on effects to the rest of the banking system ). in this regard, an effective deposit protection scheme becomes an important aspect of the financial safety net especially in crisis times. although zambia did not experience bank failures during the current global crisis, work on the establishment of the deposit protection scheme is currently in progress. quick bank resolution is also an essential element that inspires confidence in the financial system. in zambia, for instance, work on liquidations has been going on for some time in some cases. the establishment of an effective depositor protection scheme should assist in early bank resolutions while providing protection to the most vulnerable depositors. chairperson, although the bank of zambia has exercised the function of lender of last resort ( lolr ) in the past during the banking crisis in the 1990s, there was no clear lolr policy framework in place. there has been renewed concern that the economic slowdown, if prolonged, could create liquidity pressures in the banking system in zambia. past experiences and current global slowdown build a strong case for a clearly designed lolr framework in which the central bank can exercise this function. the challenge in the regulatory and supervisory arrangements is that of operationalising the lender of last resort. lender of last resort should be seen in light of its role in promoting wider public good and systemic financial stability and ultimately, the wider economic stability. it plays an important role in the economy to avoid the social cost of a bank failure. some bank failures may lead to contagion effect on other banks which has the potential to transmit to the entire economy. lender of last resort should be an essential element of the wider institutional framework for governments and central banks for dealing with banking crises in addition to prompt corrective action, bank resolution and deposit insurance among others. distinguished delegates, the speed with which the crisis spread across the globe highlights the global nature of financial markets and the importance of cross border supervision. the risk posed by cross - border operations by financial institutions is clearly significant if not properly