Zambia's Kalyalya: Capital, currency reforms key to stability
Dr Denny H Kalyalya, Governor of the Bank of Zambia, highlighted the critical role of capital adequacy rules and currency reforms for the resilience and stability of Zambia's financial system. He delivered his keynote speech at the Stanbic Bank 4th Banking Industry Symposium in Lusaka on May 22, 2026.
Zambia's sovereign-bank nexus: A third of assets
Governor Kalyalya underscored the substantial interconnectedness between Zambia's banking sector and the sovereign.
Approximately one-third of total banking sector assets are exposed to sovereign holdings, as noted in the April 2026 Financial Stability Report.
This sovereign-bank nexus creates structural vulnerabilities, partly due to the regulatory treatment of government securities.
These instruments serve as eligible collateral and provide regulatory relief for loan provisioning, potentially overstating banks' effective capital strength and reinforcing weak private sector credit intermediation.
A deterioration in sovereign creditworthiness, as experienced during the COVID-19 period, can directly impact the banking system and the broader economy.
Kalyalya stressed the importance of maintaining macroeconomic stability through sound fiscal management, credible monetary policy, and effective macroprudential oversight.
The Bank of Zambia's cautious adjustments to the Policy Rate over the past two quarters reflect this balance, remaining mindful of geopolitical and global economic uncertainties.
Revised capital rules for resilience
Capital adequacy rules are crucial for facilitating cross-border financial flows and international investment, enhancing confidence in banks' resilience and solvency.
The Basel capital framework largely supports these objectives.
The Bank of Zambia issued revised Capital Adequacy Rules in September 2025 to strengthen the banking sector's resilience and stability by enhancing regulatory capital.
The framework emphasizes Common Equity Tier 1 (CET1) capital, capital conservation buffers, countercyclical capital buffers, and the leverage ratio.
These new rules also improve risk measurement and management, requiring financial institutions to adopt more risk-sensitive methodologies for assessing credit, market, and operational risks.
Kwacha's primacy, not isolation
The Bank of Zambia's December 2025 currency reforms were a necessary step to counter significant dollarisation, which had weakened the Kwacha's role and monetary policy effectiveness.
While reinforcing the primacy of the domestic currency, the directives wisely maintain flexibility for key sectors with legitimate foreign currency needs.
This balanced approach is crucial for safeguarding monetary sovereignty without hindering essential international transactions.