In a press release dated 03 Apr, the central bank in Africa’s red metal hot spot Zambia announced a set of measures to curb COVID19 related credit risks. The Bank of Zambia will open credit lines to the tune of K10billion ($540million) in a Medium Term Refinancing Facility (MTRF) to commercial banks to allow for liquidity provision to its clients. This measure will be targeted towards banks.
To Curb Currency Volatility. The central bank also stated in its release that it will review the interbank foreign exchange rules to address to curb volatility in the currency market. The Zambian Kwacha is trading at an all time low of 18.5 for a unit of dollar which has seen the copper currency compete with the South African Rand in loss streaking over the last month.
Relaxation of Credit Provisioning Rules. The central bank will relax provisioning rules for commercial banks while simultaneously easing capital requirements for non-bank financial institutions allowing them access to capital instruments for tier 1 and 2 purposes. This will allow for credit extension by these NBFI’s.
Extension of Day1 impact of IFRS9. The Bank of Zambia has extended the period with which banks will absorb day 1 impact of International Financial Reporting Standard (IFRS-9) from 31 Dec 2022 from 2020. The central bank will relax provisioning rules to provide stimulus to commercial banks to onward ease pressure on its distressed clients. Commercial banks have delayed passing loan holidays to clients on account of no motivation and guidance from the regulator. It is expected the body representing banks will provide a position on the offering commercial banks will offer to clients.
Fee Waivers and Higher E-Money Limits. Earlier in the week the banking regulator increased limits for usage of electronic money to encourage usage of digital platforms by both retail and corporate clients. The central bank memo cited a slash in transaction fees on Zambia Interbank Payment Settlement System (ZIPSS) to encourage the usage of Real Time Gross Settlement System (RTGS).
Operational Resilience. The central bank note prescribed for operational resilience protocols to allow for continuity in service provision in the COVID pandemic time.
Intervention Adequacy. Analysts view this intervention as being 3 weeks late and reactive. Zambian businesses have borne the brunt of a steep currency slide which the central bank memo is vague about. The Bank of Zambia grapples with curbing a currency slide, rising inflation and stimulating growth in a feeble environment. The copper producer is faced with the steepest currency slide in decades as its inflationary environment heightens. Pre COVID19 Zambia faced rising energy risks as climate change effects precipitated receding dam levels that strained power generation to a deficit of 810MW while grappling with balance sheet vulnerabilities fuelled by rising debt. COVID19 effects will provide additional strains on the macros that will exacerbate credit risks that if not managed will widen downgrade risks with the international rating agencies. Bold implementation of proposed measures will determine the resilience of the economy.
The Kwacha Arbitrageur
