Financial Sector Overview

Zambia's financial sector is small and dominated by the banking sector. At the end of 2022, the banking sector consisted of 17 commercial banks, with five banks (Zanaco, Atlasmara, Absa, Indo-Zambia, and Stanbic) accounting for 65% of total sector assets and deposits (IMF, 2023). Apart from that, the financial industry comprises non-bank financial institutions (NBFIs), such as pension funds, insurance firms, building societies, and microfinance institutions. According to the Bank of Zambia, the industry is governed by three regulators. First is the Bank of Zambia (BoZ), which is the central bank responsible for regulating banks and other financial service organizations registered under the Banking and Financial Services Act. Second, the Securities and Exchange Commission (SEC) regulates Zambian capital markets by licensing, registering, and authorizing financial intermediaries, issuers of debt and equity instruments, and collective investment schemes. Finally, the Pensions and Insurance Authority (PIA) supervises the pension and insurance industries through prudential supervision to defend the interests of pension scheme participants and policyholders.

The total assets of the Zambia financial sector for the years ended December 2016 and 2022 respectively. Between 2016 and 2022, the financial sector's assets tripled in nominal size. This was driven by the strong growth in direct and indirect loans to the government, along with a significant increase in deposits. Currently, banking sector assets make up 41% of GDP, with the remainder of the financial industry accounting for another 18%.

Banking Sector

Ten of Zambia's 17 registered banks in 2022 were foreign bank subsidiaries, four were partially owned by the Government of the Republic of Zambia, and three were locally privately owned. Foreign bank subsidiaries dominated the sector in terms of total assets (67.4%), loans (60.1%), deposits (66.8%), and profit before taxes (60%) in 2022, whereby both government and local-privately owned banks contributed less than 50%.

Asset and the liability structure

Total assets have been increasing since 2020, from K137.4 billion (USD 7.6 billion) to K196.2 billion (USD 10.8 billion) in 2022, which increased by 25.1% (figure 2). The increase was mostly due to increasing investments in government securities, balances with the Bank of Zambia, net loans and advances, and balances with international financial institutions abroad. Investments in government securities accounted for the majority of total assets of K56.8 billion (USD 3.13 billion), followed by net loans and advances, of K50 billion (USD 2.75 billion). However, in terms of annual percentage growth, balances with the Bank of Zambia had grown by 39.6% more than other assets.

The liability structure of the banking sector also rose from 2020 to 2022. They rose by 24.8% to K174.1 billion (USD 9.58 billion) in 2022 essentially because of the surge in deposits as economic activity was recovering. However, Balances Due to Financial Institutions Abroad and Other Borrowed Funds liabilities decreased by 9.3% and 21.4% in 2022 respectively. Customer deposits also continued to be the principal source of funding for banks, accounting for 74.9% of total assets growth in 2022. Nonetheless, the growth of deposits fell to 72% in 2021 from 76.6% in 2020 due to the country's economic shocks such as the global monetary tightening and spillovers from Russia’s invasion of Ukraine.

Domestic credit to the private sector

Domestic credit to the private sector as a percentage of GDP in Zambia remained between 15% and 15.7% from 2018 to 2020. However, domestic credit to the private sector deteriorated to 11.4% in 2021 due to the country's economic activities, then picked up to 13% in 2022. The domestic credit to the private sector by banks followed the same trend as it remained between 11.6% to 12.5% from 2018 to 2020, then fell to 8.5% in 2021. It also surged in 2022 to 10.2% respectively.

Banking sector Soundness

The banking industry's overall financial performance and state were deemed adequate as of the end of December 2022. This was brought about by positive conditions for liquidity, asset quality, earnings performance, and capital sufficiency. The industry was properly capitalized, with primary and total regulatory capital adequacy ratios of 22% and 22.8% in 2022, which were higher than the minimal regulatory norms of 5.0% and 10.0%. The non-performing loans to total gross loans (NPL ratio) by the end of December 2022, was 5%, down from 5.8% in December 2021. This is significantly lower than the sensible benchmark of 10%. The decrease in the NPL percentage was primarily attributable to a 17.8% increase in gross loans and advances to K52.5 billion (USD 2.9 billion). The NPL coverage ratio decreased to 93.4% in 2022 from 102.8% in 2021 due to the allowance for credit losses but exceeded the prudential criterion of 80%. The sector remained profitable despite decreased return on assets (ROA) and return on equity (ROE) ratios to 5% and 29.3% in 2022, respectively, from 5.2% and 35.1% in 2021. However, the ratios still exceeded 4% and 20% prudential norms. The ROA and ROE ratios decreased when total assets and equity increased faster than profits. The sector had sufficient liquid assets in 2022, the liquidity ratio was 52.2%, higher than the prudential benchmark of 25%. The loan-to-deposit ratio fell to 35.7% in 2022 from 39.4% in 2021, indicating more liquid assets.

Banking Sector Regulation

The Bank of Zambia (BoZ) regulates and supervises financial service companies using a combination of remote monitoring and on-site inspections. The tests aimed to validate banks' risk management systems' financial position, risk profile, and quality. Additionally, the examinations assessed the banks' compliance with laws and regulations. The BoZ also reviews and updates anti-money laundering rules to meet international standards and reflect regional and global changes.

Financial Inclusion

The government of Zambia established the National Financial Inclusion Strategy (NFIS) (2017 – 2022) to strengthen Zambia's commitment to financial inclusion. Zambia's NFIS objective is to provide universal access to high-quality, affordable financial goods and services. The vision was for all Zambians to benefit from financial inclusion, including access to savings, credit, payment, insurance, and investment services to manage risks, plan for the future, and achieve goals. Firms especially (micro, small, and medium enterprises) MSMEs also have access to affordable financing to promote innovation and growth, leading to job creation. The financial inclusion (supply side) indicators according to the Bank of Zambia. According to the table, the number of deposits and mobile banking accounts per 10,000 adults has increased from 2017 to 2022. The number of Internet banking per 10,000 adults has also been increasing since 2017 but reduced to 474.2 in 2022 from 507 in 2021.

Zambia has made efforts to promote overall financial inclusion including women’s access to finance. Account ownership for people aged 15+ has increased by 3 percentage points from 46% in 2017 to 49% in 2021. The country's statutory gender gap has been lowered from 9.9% in 2015 to 5.8% by 2020. The number of women having mobile money accounts increased from 26% in 2017 to 39% in 2021, while the number of women making or receiving digital payments increased from 35% in 2017 to 44% in 2021, according to the 2021 Findex. Even though women have been significantly included in finance, the gender gap still exists as more males made or received digital payments and had more mobile accounts than females in 2021.

According to the Bank of Zambia (2022), in 2022, the Bank collaborated with financial sector regulators and Cooperating Partners to promote financial inclusion by implementing the following initiatives: Financial Literacy Week (FLW), World Savings Day, Essay Writing Competitions on financial inclusion, Scaling-Up of Digital Financial Services (DFS) Radio Drama (Bank Yako Yako), Household-based Micro, Small and Medium Enterprise (MSME) Finance Survey, Mentorship Program and Handbook for MSMEs, and the launch of the Women Entrepreneurs Finance Initiative (WE-FI) Programme.

SMEs Financing

Another Zambia's NFIS objective was to increase cheap financing options for SMEs, smallholder farmers, and agricultural enterprises to reduce the proportion of SMEs experiencing financial constraints. According to the Zambia MSMEs Finance Survey conducted in June 2022, MSMEs acquired 97% of their initial capital from their own money, while 3% came from commercial banks, microfinance institutions, government, NGOs, and community-based financial institutions like savings organizations. The significant challenges they face in accessing inexpensive credit are due to low income and lack of collateral. Therefore, the Bank of Zambia has announced a partnership with the German Savings Banks Foundation for International Cooperation (DSIK) and the National Advisory Board on Impact Investment (NABII) to establish a credit guarantee scheme (CGS) in 2023, which would provide state support for Micro, Small, and Medium Enterprises (MSME) in accessing funding. Furthermore, the survey revealed that MSME owners were unaware of the available financial infrastructure and products tailored to their businesses, such as warehouse receipting, credit guarantee schemes, moveable collateral registry systems, sustainable (social or green) bonds or loans, venture capital, overdraft facility, insurance, and development finance.

The Bank of Zambia financial inclusion for SMEs statistics showed that the proportions of business loans disbursed to SMEs and outstanding loans owed by SMEs decreased from 2020 to 2019, then increased in 2020 and 2021. In 2022 the proportions fell to 5.4 and 15.3 respectively. That is when the survey found that SMEs lack credit and their funding is mostly from the owners.

Trade Finance

Zambia approved the African Continent Free Trade Area in February 2021 to promote trade among African countries. The African Continental Free Trade Area (AfCFTA) aims to enhance intra-Africa trade and investment, aligning with this vision. In 2022, the Bank of Zambia collaborated with the African Export-Import Bank (Afreximbank) and signed a deal to enable Zambian commercial banks to enter the Pan African Payment and Settlement System (PAPSS). Afreximbank operates the PAPSS, a centralized financial market infrastructure that allows for fast cross-border payments among AfCFTA member nations.

According to the Zambia trade report, total export earnings in the fourth quarter of 2023 were US$2.4 billion, down by 13.3% from the same period in 2022. This was primarily due to a 16.7% reduction in copper earnings to US$1.4 billion as a result of lower export volumes caused by low ore grades and ongoing operational issues at some sites. However, non-traditional exports (NTEs) increased by 9.4% to US$937.9 million, owing mostly to increasing exports of tobacco, power, maize and maize seed, iron and steel, and sulfur.

Comparing the fourth quarter of 2023 to the same period in 2022, merchandise imports increased by 2.6% to US$2.5 billion. The broad increase reflected improved domestic economic activity, as demonstrated by growing imports of petroleum products, cars, and fertilizer. Imports from the top five source nations amounted to 62.5%, with South Africa being the most significant contributor (26.5%).

Insurance

In the year that ended December 2022, the Zambian insurance sector consisted of 33 licensed insurance firms, including 23 non-life and 10 life companies, with four reinsurance companies, four reinsurance brokers, 45 insurance brokers, and 242 insurance agents. The licensed players comprised 8 assessors, 3 claims agents, 2 risk surveyors, and 6 loss adjusters. In 2022, the industry recorded total gross written premiums of K6.033 billion (USD 332 million), up by 13% from K5.344 billion (USD 319.6 million) in 2021. The non-life insurance companies mainly contributed to the total gross written premiums as they consisted of more premiums than life insurance companies since 2020. In 2022, non-life insurance premiums increased by 10% (18% in 2021) while life insurance premiums increased by 18% (15% in 2021). The overall insurance industry rose by 13% in 2022, compared to 17% in 2021. The lower rise in gross written premiums in 2022 resulted from the appreciation of Kwacha against major currencies (15% to K16.91 per USD).

Between 2021 and 2022, the total assets and liabilities of the insurance sector grew by 30%, reaching K7.42 billion (USD 408.36 million) from K5.69 billion (USD 340.3 million) and K5.96 billion (USD 328 million) from K4.57 billion (USD 273.3 million). In 2022, net assets climbed by 31% to K1.47 billion (USD 80.9 million), up from K1.12 billion (USD 66.98 million) in 2021.

The Capital Market

There were 22 listed companies in the domestic stock market of Zambia. The stock market continued to perform well, with listed corporations reporting strong financial results as commercial activity improved. The energy, tourism, manufacturing, and banking industries contributed significantly to the total index increase.  In 2022, the Lusaka All-Share Index (LASI) increased by 21.1% to 7,337.8 from the end of 2021. The market capitalization climbed from 2020 until 2022, rising by 7.8% to K72.4 billion (USD 4.04 billion) in 2022. However, it dropped to K 62.01 billion (USD 3.46 billion) in 2023.

The capital market in Zambia has a low turnover ratio, showing a low level of liquidity. The share turnover velocity, as a proportion of market capitalization has been below 1% except for the year 2021. And compared to the other neighbouring countries, the capital market of Zambia had the lowest turnover ratio in 2023.

Social Security

The Zambian pensions sector in 2022 comprised eight pension fund managers, compared to 9 in 2021. The pension fund managers are in charge of investing in pension scheme assets. The drop of one fund manager in 2022 was due to a non-renewal of the license. The sector also consisted of six pension fund administrators in 2022, who were responsible for administering the pension system, including updating records, paying benefits, filing reports, and issuing member benefit statements. As of 31 December 2022, there were 246 registered pension systems with the total number of registered pension program participants increasing to 141,267, from 118,131 in 2021. Membership increased by 19.59% due to new employers and members joining existing pension systems, active membership rose to 120,906 from 96,261 in 2021. This represents a 25.6% rise (compared to 6.61% in 2021). The rise was due to new members joining two existing pension plans.

The Zambian pension sector assets (% GDP) continued to be low as they have been decreasing from 3.35% in 2020 to 2.89% in 2022. As compared to the neighbouring countries in the Southern African region, Zambia's pension funds’ penetration remained very little.

Contact Details Information of Banks Operating in Zambia - 2018