Bank of Zambia warns on rising public worker loan defaults and orders stricter compliance with debt service and credit bureau rules

The Bank of Zambia has warned that non-performing loans among public workers have risen and linked the trend to growing risks in payroll-based lending, particularly where lenders or borrowers circumvent debt-service-ratio and affordability requirements. It directed regulated lending institutions to strictly comply with debt-service-ratio limits, affordability standards and responsible lending practices, and reminded institutions that consistent use of the Credit Reference Bureau is mandatory. The central bank said recent financial stability assessments found more cases of public workers taking off-payroll credit beyond permissible limits, often through misrepresentation, non-disclosure of existing obligations and multiple borrowing across institutions. It also identified weak or non-compliant underwriting practices at some lending institutions, including inconsistent use of Credit Reference Bureau data or disregard of such data altogether. Payroll administrators were told to strengthen payroll controls and recovery mechanisms and to take remedial or disciplinary action where payroll-based deduction arrangements are abused. The Bank of Zambia said it will continue monitoring compliance by regulated entities with the Banking and Financial Services Act Directive of 2020 on provision of credit data and use of credit reference services, as well as both off-payroll and payroll-based lending practices. It said it will take necessary measures to enforce compliance with applicable laws and prudential standards.