The central bank in Africa’s copper producer, in a memo to commercial banks signed by the Deputy Governor Operations Dr. Francis Chipimo on 07 Apr, issued more relaxed classification and provisioning credit risk rules. These measures were necessitated by deepening credit and liquidity risks as a consequence of COVID19 pandemic effects that is forecast to adversely impact counterparty credit quality.
Zambia’s business pulse will in the immediate to medium term bear the brunt of a deterioration of macroeconomic factors exacerbated by disease pandemic such as currency weakness and a steep decline in aggregate demand. March Purchasing Managers Index (PMI) headlined 44.7 from 48.5 (February) as business conditions deteriorate. (Readings below 50 signal contraction in business activity while those above 50 reflect expansionary pulse).
The Bank of Zambia on 03 April announced broad measures to address various financial risks in the pandemic period whose detailed provisions for each measure would be provided to the market in the week. These directives replace the previous provisions supported by Statutory Instrument Number 142 of 1996 which provided for stricter treatment of classification and provisioning of credit which hampered most financial institutions from lending optimally. Relaxation of the credit rules will provide for a greater booking of deals by commercial banks.
COVID19 is projected to erode business momentum which would require liquidity cushioning through lending capacity to be provided by commercial banks. In the pandemic period ideally banks would worry about credit provisioning reflecting credit risk which the central bank has eased pressure through relaxed impairment classification rules backed by providing liquidity to banks in a Medium Term Emergency Facility of K10billion ($540million) that may require to onward lend, restructure and refinance credit in this period of distress.
The Kwacha Arbitrageur