Bank of Zambia projects K122.7 billion decline in bank deposits by 2026 due to climate shocks

The Bank of Zambia (BoZ) has projected a decline in the banking sector deposits of K122.7 billion by the first quarter of 2026 due to climate change shocks impacting domestic credit.

Governor, Denny Kalyalya, announced this during his presentation on “The Role of Central Banks in Promoting Sustainable Economic Transformation and Climate Change Adaptation” at the Economics Association of Zambia (EAZ) 2024 National Economic Summit.

Kalyalya noted that under stressed conditions resulting from climate shocks, deposits are expected to fall by 30 percent to K122.7 billion.

He also projected a contraction in credit supply by 11 percent, closing at K62.0 billion during the same period.

“Banking sector profitability would decline due to increases in provisions, impairments and reduced interest income.

“Bank capital buffers would fall, but the sector would remain resilient, staying well above the prudential threshold of 10 percent,” Kalyalya said.

He emphasized the significant impact of climate change on the economy, particularly through the financial system.

Currently, Zambia faces its worst drought on record, necessitating a financing requirement of K23.5 billion (US$940 million) to mitigate its effects.

“Domestic credit is another variable adversely affected by climate change shocks. Financial institutions take extra precautions when lending to highly exposed sectors, resulting in lower credit to the private sector. Consequently, credit to the government becomes a key driver of domestic credit growth, limiting sustainable economic growth,” Kalyalya added.

To address these challenges, BoZ is formulating a Green Finance Framework and Green Loans Guidelines to promote sustainability.

The framework aims to bridge policy gaps in green finance, foster an enabling regulatory environment, and provide guidance on capacity building, training, and policy support.

“The objective is to signal BoZ’s intention to foster an enabling regulatory environment for financial services providers to adopt green finance and to guide the workstreams of the Bank and financial services providers,” Kalyalya concluded.

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