In remarks at the 4th Banking Industry Symposium, the Bank of Zambia highlighted the scale of the sovereign-bank nexus in Zambia and linked it to the need for stronger prudential and currency frameworks. The central bank said sovereign assets account for about one-third of total banking sector assets, leaving banks exposed to fiscal stress and sovereign credit deterioration. In that context, it pointed to its revised Capital Adequacy Rules issued in September 2025 and Currency Directives issued in December 2025 as key measures to strengthen banking sector resilience, improve risk sensitivity in capital requirements and reinforce the primacy of the kwacha in domestic transactions without blocking legitimate cross-border finance. The speech said the regulatory treatment of government securities can lower risk-weighted assets and provide provisioning relief for certain corporate exposures, which may embed risk, overstate banks' effective capital strength and weaken private sector credit intermediation. Under the revised capital framework, banks must place greater emphasis on Common Equity Tier 1 capital, capital conservation buffers, countercyclical capital buffers and the leverage ratio, while adopting more risk-sensitive approaches to credit, market and operational risk. The currency directives were framed as a response to dollarisation and were described as preserving flexibility for sectors with legitimate foreign currency needs, including mining, tourism and imports, while also allowing specified foreign currency transactions, external borrowing and foreign currency-denominated debt instruments. The measures also strengthen the Electronic Balance of Payments reporting framework, and the Bank said some major corporates have already shifted domestic supplier payments into kwacha while banks are upgrading systems for real-time currency conversion and reporting. The Bank of Zambia said it will continue to monitor developments and refine regulatory tools where necessary so the framework remains responsive to domestic and global conditions.
Bank of Zambia2026-05-22
Bank of Zambia highlights sovereign exposure risks equal to one third of banking assets and points to capital and currency reforms
In symposium remarks, the Bank of Zambia said sovereign assets make up about one-third of banking sector assets and highlighted the resulting need for stronger capital and currency measures. It pointed to the revised Capital Adequacy Rules and 2025 Currency Directives as the main response, combining tighter risk-sensitive capital standards with rules to reinforce kwacha use in domestic transactions while preserving legitimate cross-border financing. The central bank said it will keep monitoring implementation and adjust its tools where needed.