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The Bank of Zambia (BoZ) has launched the first ever Financial Stability Report which will analyse past and current developments in the sector.
Using the Financial Stability Report (FSR), the Central Bank aims to manage potential speculative behaviour on the fiscal steadiness in the country while managing stakeholders’ expectations on the sector.
The Bank would have the opportunity to gauge market participants perception of risks and vulnerabilities and enhance its analysis of financial stability risks, according to the BoZ Governor, Denny Kalyalya, at the launch of the report in Lusaka.
Kalyalya pointed out that decisions of FSC would be data driven and risk based.
Additionally, he said, the Bank would start collecting qualitative data directly from financial intermediaries through the Financial Stability Survey.
“The Bank will be publishing the report, at least once a year. The aim being to share the FSC assessment of systemic risk developments over the previous six months and provide an outlook.
“It is our expectation that this will enhance transparency and strengthen the Bank’s accountability to stakeholders in its discharge of the financial stability function,” he said.
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At the launch, Kalyalya talked about the financial stability function and why it was important.
He cited the 2008/9 Global Financial Crisis (GFC) which demonstrated that instability in financial system could emerge even with robust micro prudential surveillance frameworks in place.
The Governor said among the key lessons drawn from the GFC was the demonstration that failure of individual financial institutions, markets, infrastructure or instruments could cause instability in the entire financial system.
He recalled that before the GFC, financial stability was not a subject of focus among financial sector regulators, especially as it related to macro prudential policy.
Kalyalya noted that factors that could compromise financial stability were multiple and some were outside the financial system itself. This, he stated, called for establishment of effective surveillance and risk management frameworks to monitor systemic risk from a 360 degrees perspective.
“As a central bank, we are, naturally, concerned about materialisation of systemic risks as they can cause financial instability.
“A collapse of the entire financial system is catastrophic for the economy as a whole, with implications for the global financial system as well, given the integrated world we live in nowadays.
“Financial instability would imply the inability for financial institutions to intermediate, facilitate payments, price assets, and redistribute risks in the financial system.
“Failure of the financial system would also imply failure of economic agents to pursue their activities and livelihoods,” Kalyalya said.
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