Think tank in Africa’s copper producer, the Economics Association of Zambia – EAZ has advised that Zambia’s sovereign posture is exacerbating credit risk in the financial markets. Speaking in an interview with HOT FM Business news segment, economist and strategist Mutisunge Zulu said credit risks clouds continued to hover over the Zambian market with international rating agencies hinting potential lowering of sovereign assessments in their last research note. Mutisunge Zulu who serves as National Secretary of the EAZ advised that other rating agencies such as Standard and Poor’s (S&P) are already in the country to conduct its annual review.
The EAZ National Secretary cited balance sheet vulnerabilities which rating agencies could be monitoring and if these credit risks do materialize, they could weigh credit risk appetite generally as lenders would then have to align internal ratings to the nations sovereign posture.
He further added that this had the potential to erode interest income lines for most Commercial Banks, though he did iterate that the banking industry remains fairly resilient in capitalization terms.
Zulu said the offshore non deliverable forward curve currently reflects a 200-300 basis point premium above the primary treasury bill yield curve offering latitude for government security pricing to adjust higher. This will then allow players such as pension funds and offshores to house their liquidity in 9 – month and 1 – year money at attractively priced yields of 24% and 25% in nominal terms, a skew he expects to see in today’s treasury bill auction where the central bank will be offering K950 million worth of treasury assets.