Banking on the future
Between 1995 and 2001, nine banks closed their doors in Zambia. This caused enough concern for the BoZ to step in and look at the situation.
The banks failed, according to Fundanga, because of their poor management and corporate
governance, weak entry requirements, outdated banking legislation.
In addressing the problems which led to bank failures, the Government enacted the Banking and Financial Services Act in 1994 and amended it in 2000, to strengthen the power of the BoZ to expeditiously deal with erring financial institutions.
The Act has also given powers to the BoZ to remove, if necessary, any bank management or bank manager that is not qualified to manage a bank.
Following the strengthening of the supervisory function of the BoZ, Fundanga expect the banking sector performance to improve.
But, he warns that it is impossible to rule out the possibility of more banks going under in the future.
"You can never have tight enough regulations to guarantee that more bank failures won't happen."
Apart from the United Bank of Zambia, which was taken over by BoZ in 2002, the 14 banks currently operating in Zambia are performing satisfactorily.
The ministry of finance's economic report for 2002 says the banking sector "maintained adequate capital and reserves relative to their risk profiles, and asset quality, earnings performance and liquidity remained satisfactory".
Of the 14 banks operating in Zambia, six are foreign-owned. The foreign owned banks dominate the industry with a total market share of 64.1 percent in terms of asset size.
Although it seems as if Zambian banks are on the right track, there is a concern about the high interest rates some of them charge - up to 47 percent on commercial borrowing.
The relatively high current interest rates are, without doubt undesirable and act as a barrier to economic growth and development.
"The Bank of Zambia has recognised this problem, and it has set up a National Task Force that will work closely with the World Bank technical assistance team in developing a Financial Sector Development plan.
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