Monday, October 07, 2013

BoZ explains lack of new commercial banks
By Chiwoyu Sinyangwe
Fri 13 Sep. 2013, 14:00 CAT

LACK of new commercial banks coming into the market has nothing to do with recently increased minimum capital requirements for commercial banks, says BoZ acting director for bank supervision Wilson Kalumba.
Kalumba said fierce competition in the local banking sector was discouraging some foreign commercial banks from opening their operations in the country.

He said the decision by the Bank of Zambia to raise minimum capital requirement for setting up of a commercial bank in the country to US$100 million for a foreign-owned bank and US$20 million for a local bank would not discourage would-be "serious investors" in the sector.
Since the Patriotic Front came into power, the local banking sector has not seen the entry of a new commercial bank.

"We had closures of banks in the late 90s, we never saw any entrants and so, even when capital levels were low, we only started seeing new entrants from 2007 coming upwards when we had these 'big' West African banks coming. At the time when we had low capital levels, we had no influx of banks. So...the fact that we are not receiving applications for new banking licences has got nothing to do with the minimum capital requirements," Kalumba said.

He said competition in the local banking sector was becoming stiff.

"I think also it has to do with the competition that is there," Kalumba said.

"We have 19 commercial banks and like in many other jurisdictions, you find that five banks take maybe 70 per cent of the market and the rest are struggling in the 30 per cent. So, it's a very competitive environment. I guess from the business perspective, there isn't as much attraction now. Banking is a business. It has to make business sense. Even before we increased the minimum capital requirement significantly, and I would expect that maybe a US$100 million means somebody is seriously considering to do banking."

He said the increase in minimum capital requirements for commercial bank would instead increase financial inclusion in the country with the BoZ's target of ensuring 50 per cent of the population have access to banking facilities by 2015.

And Kalumba said capping of interest rates by commercial banks and micro-financial institution would aid to hedge local borrowers from exploitation by regulating lending institutions.

He said there was no evidence that financial institutions had cut back on lending due to a cap in their lending rates.

"There was a lot of exploitation through these high interest loans and generally when interest rates are high, it constrains lending because people can't afford," said Kalumba.

"Banks are still lending and we hope that even the microfinance sector should be able to either find cheaper sources of finance so that they can lend at the cheaper rates than the current levels."

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