Regulatory Alerts2014-01-01
Bank of Zambia NB Circular No. 1/2014 – New Capital Adequacy Framework
The Bank of Zambia has revised its capital adequacy framework for non-bank financial institutions, significantly increasing minimum primary paid-up capital requirements across multiple categories. The updated framework mandates that at least eighty percent of capital consist of nominal common shares, while non-compliant institutions must submit a progressive recapitalization plan to meet the new thresholds by December 31, 2016. Implementation will be formalized through a Government Gazette publication, establishing clear milestones for capital buildup and ensuring institutions maintain sufficient high-quality regulatory capital to absorb losses on a going-concern basis.
[Logo: Bank of Zambia]
Bank of Zambia OFFICE OF THE DEPUTY GOVERNOR - OPERATIONS
January 9, 2014
NBFI Circular No: 01/2014
To : All Non-Bank Financial Institutions
NEW CAPITAL ADEQUACY FRAMEWORK
The Bank of Zambia has decided to review the capital adequacy framework for non-bank financial institutions (see Table 1). The revised capital framework is designed to ensure that NBFIs hold higher amounts of high-quality regulatory capital that is available to absorb losses on a going-concern basis. The revised framework emphasizes the importance of common equity tier 1 capital, which is the highest-quality, most loss-absorbing form of capital. It will primarily be composed of common stock.
TABLE 1: REVISED MINIMUM PAID-UP CAPITAL
| Category | Current (K) | Revised (K) |
|---|---|---|
| Financial Institutions | ||
| Housing Finance Institutions | 2,000,000 | 50,000,000 |
| Savings and Credit Institutions | 2,000,000 | 50,000,000 |
| Leasing Companies | 1,000,000 | 50,000,000 |
| Micro Finance Institutions | 250,000 | 2,500,000 |
| Financial Businesses | ||
| Development Finance Institutions | 7,500,000 | 750,000,000 |
| Leasing Companies | 500,000 | 5,000,000 |
| Microfinance Institutions | 25,000 | 100,000 |
| Bureaux de Change | 40,000 | 250,000 |
| Credit Reference Bureaus | 1,000,000 | 1,500,000 |
The minimum primary paid-up capital shall be made up of at least eighty percent in nominal paid-up common shares (nominal paid-up equity capital) and the balance may be held only in any one or more of the following;
(i) Share premium or contributed surplus as verified by an independent auditor; (ii) Retained income (retained earnings) as verified by an independent auditor; (iii) General Reserves as verified by an independent auditor; and (iv) Statutory reserves as verified by an independent auditor
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Bank Square, Cairo Road P.O. Box 30080, Lusaka, Zambia Tel: 260-211-226844, 228888 Fax:260-211-237070 E-mail:dgo@boz.zm Web: http://www.boz.zm
NBFI Circular No: 01/2014 - 2 - January 9, 2014
To facilitate the effective implementation of this measure, the Bank of Zambia will shortly cause to be published, in the Government Gazette, the revised minimum primary capital requirement.
Non-Bank Financial Institutions which do not meet the revised minimum capital requirements on the date of publication of the Government Gazette will have a transition period of up to 31 December 2016 to progressively build up their primary capital to the required amount on the condition that they submit a recapitalisation plan that complies with the minimum acceptable progressive recapitalisation plan set below:
- At least 30 percent of the required amount by 31 December 2014;
- An additional 30 percent to bring the cumulative amount to at least 60 percent of the required amount by 30 June 2015; and
- The balance of the entire required amount by 31 December 2016.
For any clarification relating to this circular you may contact:
The Acting Director Non-Bank Financial Institutions Supervision Department Bank of Zambia P O Box 30080 Bank Square, Cairo Road LUSAKA
[Signature] Bwalya K E Ngándu (Dr) DEPUTY GOVERNOR - OPERATIONS
Bank Square, Cairo Road P.O. Box 30080, Lusaka, Zambia Tel: +260-211-223307/225460/228888/9 Fax: +260-211-237070 Email: dgo@boz.zm. http://www.boz.zm