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The Financial Stability Committee (FSC) of the Bank of Zambia says near-term risks to the country’s financial stability have increased, largely due to escalating geopolitical tensions that have triggered a global oil shock.
In its Financial Stability Report for April 2026, the Committee also flagged growing threats from global economic policy uncertainty and increased cyber-attacks, noting that the financial system remains a top target for cyber criminals. Risk managers’ own assessments were broadly aligned with the FSC’s outlook.
The Committee highlighted several vulnerabilities within the domestic financial system, including high loan and deposit concentration levels, elevated dollarisation, and the re-emergence of the sovereign–bank nexus—described as the most significant concern.
“If left unaddressed, these vulnerabilities could amplify shocks to the financial system should the identified risks materialise,” the report warned.
Despite the heightened external risks, the FSC said overall financial stability pressures had eased compared to the October 2025 report, supported by a healthier banking sector and reduced macroeconomic risks.
Declining inflation and a stronger international reserve position helped reinforce external resilience and cushion the system against weaker economic growth and sluggish private sector credit.
Bank of Zambia Governor, Dr. Denny Kalyalya, noted that commercial banks continued to maintain strong buffers of high-quality capital, enabling them to withstand potential shocks.
Credit risk also improved, with the non-performing loans ratio continuing its downward trend.
However, Kalyalya observed a slight increase in financial market stress linked to currency volatility as the kwacha appreciated rapidly.
“Stress levels nonetheless remained low as higher currency risk was partly moderated by easing interest rate conditions,” he said.
Short-term interest rates continued to fall in line with reductions in the policy rate, while yields on longer-dated government securities also declined on improved market liquidity.
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Equities posted further gains, though at a slower pace, with the governor cautioning that investor uncertainty could rise ahead of the August general elections.
The FSC also identified risks in the household and non-bank financial institution (NBFI) segments.
It said default risks among public sector workers remain elevated due to high indebtedness.
Microfinance institutions face challenges from loan concentration, while insurers and pension funds remain exposed to geopolitical-driven market risks because of the structure of their balance sheets.
Given banks’ strong capital buffers, continued improvement in non performing loans (NPLs), and the weak private sector credit environment, the FSC decided to keep the countercyclical capital buffer at 0.0 percent.
Tightening macroprudential measures now, the Committee said, could further constrain credit and worsen the already sluggish economic growth.
To address existing vulnerabilities, the FSC called for intensified supervisory action.
“To curb public workers’ loan delinquencies, enforcement of debt service ratio requirements must be strengthened and lenders’ underwriting standards improved, among other measures,” it said.
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