By Francis Maingaila
LUSAKA, Zambia – Banks in Zambia are under pressure in a challenging economy.
The Zambian economy is expected to slow to about 5 percent growth in 2015 from close to 7 percent in the previous year, according to the World Bank.
“Our banks are under immense pressure from many sides,” the Banker Association of Zambia (BAZ) chairman Clergy Simatyaba told Anadolu Agency in an interview on Monday.
Pressure from the manufacturing slowdown in Zambia is one such factor, Simatyaba said.
As growth has slowed in Zambia, many manufacturers are putting production on hold. “As manufacturers downsize production, there will be less income and this will also mean less revenue for deposit in banks,” Simatyaba explained.
Workers in those companıes, temporarily out of jobs, also have no income to deposit in banks,” he added.
Banks face limited funding risks since loan-to-deposit ratios remain low at 60-65 percent and their dependence on wholesale funding is limited, the International Monetary Fund said in its most recent report on Zambia released in 2015.
Another factor pressuring Zambian banks ıs increased regulation.
Zambian banks are now obliged to increase capital reserves, due to financial reforms introduced by the government and the central bank.
The banks are obliged to place 18 percent of each deposit they receive with the central bank to assure their ability to meet external shocks, Simatyaba saıd.
And banks are under pressure from the recent hike in interest rates by the central bank on Nov. 3 to 15.5 percent from 12.5 percent.
Already, Simatyaba said, some banks have hiked their lending rates to reflect the Bank of Zambia’s upward adjustment.
But the increase in rates makes loans and financial products more expensive to consumers, and business is slowing down, according to Simatyaba.
Stıill more pressure is placed on banks as the challenging Zambian economy forces more and more companıes into losses or bankruptcy.
“This will reduce loan portfolio growth and could also affect asset quality” Simatyaba added.
Banks’ total credit to the private sector was low at 14 percent of GDP in 2014, below the sub-Saharan regional average (21 percent), according to the IMF report.