BoZ should handle increase in minimum capital carefully

By Chiwoyu Sinyangwe.
 BOZ should carefully handle the increase in minimum capital for commercial banks to avoid lenders engaging in reckless lending that might plunge domestic financial sector into chaos, says Standard Chartered Bank.

And Standard Chartered Bank has complained that the slow pace with which courts in Zambia disposed of commercial litigations was worsening the high risk profile.

The Bank of Zambia announced that it is this year increasing minimum capital for commercial banks from K12 billion to US $20 million (K104 billion) for locally owned banks, and US $100 million (K500 billion) for foreign banks would help strengthen the domestic financial sector.

The increase in minimum capital for commercial banks was expected to boost lenders' capacity to extend credit to most key sectors with a specific focus on small and emerging local entrepreneurs.

Standard Chartered Bank's Africa Regional Head of Research Razia Khan said there was need for BoZ to adopt a "a phased approach" to the recapitalisation to ensure that banks did not engage in imprudent lending to cushion the pressure on their capital portfolio.

Khan cited Nigeria which undertook a banking sector capital recapitalisation exercise at the end of 2005, but the exercise saw a surge in a "lot of reckless lending" which ended up causing a lot of problems for the Nigerian banks.

The Nigerian banking sector which is one of the top two biggest financial sectors in Africa is still reeling from the crisis epitomised in 2009.

"There is absolutely nothing wrong with more highly capitalised sectors over time," Khan said recently. "The only thing we would caution given our experience…The lesson for Zambia is definitely to think about the overall policy environment, perhaps opt for a phased approach to the recapitalization to ensure that it doesn't repeat the mistakes that we have seen in other countries."

And Standard Chartered Bank Zambia managing director Mizinga Melu said there is need to address the slow-pace of the courts in disposing of commercial cases.

Melu, who is also Bankers Association of Zambia chairperson, further said increasing minimum capital for commercial banks would result in a more capitalised and inclusive economy.

"Having said that, there is a lot more debate that is going on between the central bank and the commercial banks," said Melu.

"However, there is a lot more other areas that we need to look at especially the judiciary because they need to dispose of the cases in a much faster rate than is happening now because that really determines…"