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Finance
Considerable growth has been witnessed in the
Zambian financial sector following its liberalization
in 1991. The establishment of the Lusaka Stock Ex-
change, and the repeal of the Exchange Control Act,
have all contributed to strengthening the Zambian
capital markets. The government-led Financial Sec-
tor Development Plan (FSDP), which has entered its
second phase of implementation, aims to achieve a
stable, sound, and market-based financial system.
Such a financial system will be able to support the
efficient mobilization and allocation of resources
necessary to achieve economic diversification, sus-
tainable growth, and poverty reduction.
The Zambian financial sector was not immediately
affected by the global credit crunch, as was reflected
by the continued stability of the banking sector. This
was due to the fact that the inter-bank market oper-
ated normally, and most banks had adequate levels
of capital. However, this success in light of global
financial problems derived from the sector’s limited
integration with the broader international financial
markets. Furthermore, the country’s financial sector
had no exposure to the toxic assets that led to the
crisis in most developed markets. Nevertheless, the
subsequent global economic recession did lower for-
eign capital inflows and bring about a loss of foreign
exchange reserves, driving up domestic inflation
as a result of the Zambian Kwacha’s depreciation
against other major currencies.
Broad money growth in 2009 is declined to 10.7 per-
cent, from the 21.8 percent recorded in 2008. This
is mainly due to a decline in domestic credit growth,
which slowed down to 12.3 percent from the 37.8
percent recorded in 2008. This is mainly attributed to
weaker domestic demand and much harsher lending
conditions now implemented by commercial banks.
During the first three quarters of 2009, interest rates
on government securities were generally stable.
The monthly average interest rate on treasury bills
decreased marginally to 16.8 percent by Septem-
ber 2009, compared with 17.1 percent recorded in
December 2008. The monthly average interest rate
on government bonds was at 19.5 percent in Sep-
tember 2009 compared with 17.6 percent in Decem-
ber 2008. However, the average commercial bank
lending rate, had risen to 29.6 percent in September
Overview
MONETARY AND FINANCIAL
SECTOR POLICIES
MONETARY & FINANCIAL
DEVELOPMENTS
2009 from the 26.8 percent recorded in December
2008.
Despite the global financial crisis and its adverse
impact on banking systems globally, the overall fi-
nancial condition of the banking sector (including
non-bank financial institutions) in Zambia at end-
September 2009 was satisfactory, and all banks
remained adequately capitalized and operational.
In addition, the performance of the Lusaka Stock
Exchange’s all-share index has shown strong signs
of recovery.
Yet, the quality of loan performance declined, with
the percentage of non-performing loans rising to 13
percent by the end of 2009, compared with 7.2 per-
cent in December 2008. This decline was somewhat
mitigated by the adequate capitalization of commer-
cial banks.
More positively, five new commercial banks have
been granted operating licences, namely: First Na-
tional Bank Zambia Ltd; United Bank for Africa Zam-
bia Ltd; Ecobank Zambia Ltd; International Commer-
cial Bank Zambia Ltd; and Access Bank Zambia Ltd.
This is a clear and decisive demonstration of con-
tinued foreign investor confidence in the Zambian
economy and government policies.
Monetary policy will continue to focus on sustaining
macroeconomic stability and maintaining the single-
digit inflation reached in 2009. In light of experiences
with the global economic crisis, it became evident that
the current framework, based on monetary aggregates,
provides little room for monetary policy to effectively
counter adverse cyclical conditions by way of lower in-
terest rates. In this regard, the Bank of Zambia (BoZ) is
Indo-Zambia Bank branch in business district, Lusaka