Banking and Financial Services (Capital Adequacy) Rules, 2025

# GOVERNMENT OF ZAMBIA
## STATUTORY INSTRUMENT NO. 62 of 2025

### The Banking and Financial Services Act, 2017
(Act No. 7 of 2017)

### The Banking and Financial Services (Capital Adequacy) Rules, 2025

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## ARRANGEMENT OF RULES

### Rule

#### PART I
##### PRELIMINARY PROVISIONS
1. Title
2. Interpretation

#### PART II
##### CAPITAL REQUIREMENTS
3. Minimum paid up capital for bank
4. Minimum primary capital for bank
5. Minimum capital for financial institution or financial business
6. Other minimum capital requirements
7. Leverage ratio
8. Capital conservation buffer
9. Countercyclical capital buffer
10. Criteria for inclusion of capital instruments in common equity tier one
11. Regulatory adjustments applied in computation of common equity tier one
12. Classification of assets and computation of risk weighted assets
13. Additional tier one capital
14. Secondary capital
15. Minimum regulatory capital requirements

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#### PART III
##### REGULATORY COMPLIANCE
16. Bank’s guidance before issuance of capital instrument
17. Amortisation of secondary capital instruments
18. Exclusion of certain guarantees from regulatory capital computation
19. Significantly under capitalised financial service provider
20. Internal capital adequacy assessment process
21. Public disclosure of capital and risk exposures

#### PART IV
##### GENERAL PROVISIONS
22. Maintenance of records
23. Consolidated reports
24. Submission of reports
25. Submission of state of affairs and results of operations
26. Rules not applicable to bureau de change
27. General offence and administrative penalties
28. Revocation of statutory instruments and saving and transitional provisions

##### SCHEDULES

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*Single copies of this Statutory Instrument can be obtained from the Government Printer, P.O. Box 30136, 10101 Lusaka, Price K60.00 each.*

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## IN EXERCISE of the powers contained in section 168 of the Banking and Financial Services Act, 2017, the following Rules are made:

### PART I
#### PRELIMINARY PROVISIONS

**1. Title**  
These Rules may be cited as the Banking and Financial Services (Capital Adequacy) Rules, 2025.

**2. Interpretation**  
In these Rules, unless the context otherwise requires—  
“additional tier one capital” means a capital instrument which provides loss absorption on a going concern basis and enhances common equity tier one, although the capital instrument does not meet the criteria for inclusion in common equity tier one;  
“associate” has the meaning assigned to the word in the Act;  
“bank” has the meaning assigned to the word in the Act;  
“Bank” has the meaning assigned to the word in the Act;  
“capital conservation buffer” has the meaning assigned to the words in the Act;  
“capital instrument” means a financial security issued to meet capital adequacy requirements;  
“citizen” has the meaning assigned to the word in the Constitution;  
“common equity tier one” has the meaning assigned to the words in the Act;  
“consolidated basis” means a financial position of a financial service provider including all its subsidiaries and associates;  
“countercyclical capital buffer” has the meaning assigned to the words in the Act;  
“financial institution” has the meaning assigned to the words in the Act;  
“financial service provider” has the meaning assigned to the words in the Act;  
“general loan loss reserves” means an appropriation of retained earnings by a financial service provider to create a reserve against future, presently unidentified loan losses;

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“goodwill” means an intangible asset which represents the excess of the purchase value over the value of the net identifiable assets at the time of acquisition;  
“leverage ratio” means a non risk based measure of common equity tier one to the total sum of assets and off balance sheet exposures;  
“microfinance institution” means a person who, as part of that person’s business, advances micro credit facilities;  
“off balance sheet exposures” means contingent assets or liabilities which include letters of credit, guarantees, commitments to re-purchase loans or securities, acceptances and performance bonds that the Bank considers as constituting credit risk;  
“paid up capital” means the amount of money paid for common shares issued by a financial service provider;  
“primary capital” has the meaning assigned to the words in the Act;  
“regulatory capital” has the meaning assigned to the words in the Act;  
“regulatory consolidation” means the combination of a financial service provider with an affiliate, associate, holding or subsidiary company or person that controls a financial service provider where the Bank determines that an affiliate, associate, holding or subsidiary company or person is linked to the financial service provider with the potential to impact the safety and soundness of the financial service provider;  
“revaluation reserves” means an increment in a recorded or book value of a financial service provider’s own fixed assets or long term equity investments arising from a formal revaluation to reflect their current value or an amount closer to their current value and not the historical cost;  
“risk weighted assets” means the amount of a financial service provider’s assets and off-balance sheet exposures, multiplied by risk weights specified by the Bank for the purposes of determining the minimum amount of regulatory capital that a financial service provider is required to have;

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“secondary capital” means supplementary capital which is used to absorb losses so as to protect depositors and creditors in a gone concern; and  
“solo basis” means the financial position of a financial service provider as a stand alone entity.

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### PART II
#### CAPITAL REQUIREMENTS

**3. Minimum paid up capital for bank**  
(1) A bank in which at least fifty one percent of the equity is owned by citizens or owned by a company that has at least fifty-one percent equity owned by citizens shall commence operations with paid-up capital of not less than one hundred and four million kwacha.  
(2) A bank in which more than forty-nine percent of the equity is owned by non-citizens, a foreign company or a company incorporated outside the Republic shall commence operations with paid-up capital of not less than five hundred and twenty million kwacha.  
(3) A bank referred to under sub-rule (1) and (2) shall maintain the paid-up capital referred to under this rule.

**4. Minimum primary capital for bank**  
A bank shall maintain a minimum primary capital equivalent to eight percent of the sum of the bank’s risk-weighted assets or the minimum paid-up capital specified in rule 3, whichever is higher.

**5. Minimum capital for financial institution or financial business**  
(1) A financial institution or financial business shall commence operations with a paid-up capital specified in the First Schedule or primary capital equivalent to ten percent of the sum of the financial institution or financial business’ risk-weighted assets, whichever is higher.  
(2) A financial institution or financial business shall maintain the minimum capital referred to under sub-rule (1).

**6. Other minimum capital requirements**  
(1) A financial service provider shall maintain common equity tier one capital equivalent to six percent of the sum of the financial service provider’s risk-weighted assets or the minimum paid up capital specified in rule 3 if it is a bank or rule 5(1) if it is a financial institution or financial business, whichever is higher.  
(2) A financial service provider, except a financial institution or financial business providing a micro-financing service, shall maintain regulatory capital equivalent to ten percent of the sum of its risk-weighted assets or the minimum paid-up capital specified in rule 3 if it is a bank or rule 5(1) if it is a financial institution or financial business, whichever is higher.

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**(3) A financial institution or financial business that is providing a micro-financing service shall maintain regulatory capital equivalent to fifteen percent of the sum of its risk-weighted assets or the minimum paid-up capital specified in rule 5(1), whichever is higher.**

**7. Leverage ratio**  
Despite rules 3, 4, 5 and 6, a bank or financial institution shall maintain a leverage ratio in the form of common equity tier one capital of not less than six percent of the sum of total assets and off-balance sheet exposures.

**8. Capital conservation buffer**  
(1) A bank or financial institution shall build and maintain a capital conservation buffer in the form of common equity tier one capital of three percent of the bank or financial institution’s risk-weighted assets.  
(2) The capital conservation buffer referred to under sub-rule (1), shall be maintained in addition to the common equity tier one capital under rule 6(1).  
(3) Capital distribution constraints shall be applied by a bank or financial institution where the capital conservation buffer under sub-rule(1) falls below the minimum capital conservation buffer ratio specified in the Second Schedule.  
(4) For the purposes of sub-rule (3), capital distribution constraints shall apply to the following:  
(a) dividends and share buy backs;  
(b) discretionary payments on additional tier one capital instruments;  
(c) discretionary bonus payments to staff; and  
(d) any other capital distribution constraints that the Bank may determine.

**9. Countercyclical capital buffer**  
(1) A bank or financial institution shall build and maintain a countercyclical capital buffer of between zero and two and a half percent of the risk-weighted assets in the form of common equity tier one capital.  
(2) The countercyclical capital buffer referred to in sub-rule (1) shall be maintained in addition to the capital conservation buffer referred to under rule 8.

**10. Criteria for inclusion in common equity tier one**  
A capital instrument issued by a financial service provider qualifies for inclusion in common equity tier one capital if the capital instrument meets the criteria set out in the Third Schedule.

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**11. Regulatory adjustments applied in computation of common equity tier one**  
(1) The following shall, for the purposes of computing minimum common equity tier one capital, be deducted from or added to common equity tier one capital in the manner specified in the Fourth Schedule:  
(a) goodwill arising from an acquisition net of adjustments to the income statement reflecting changes from impairment of the goodwill;  
(b) other intangible assets net of adjustments to the income statement reflecting amortisation and impairment, except core banking software and other related software, where prior approval of the Bank has been obtained;  
(c) deferred tax assets net of associated deferred tax liabilities, where netting is permitted, except deferred tax assets relating to temporary differences and where deferred tax liabilities exceed the amount of deferred tax assets, the excess shall not be added to common equity tier one capital;  
(d) cash flow hedge reserve relating to the hedging of items that are not recorded at fair value on the balance sheet, including projected cash flows;  
(e) shortfall of specific provisions for loans and other losses;  
(f) net unrealised gains or losses on securities carried at fair value through other comprehensive income;  
(g) gain on sale related to securitisation transactions;  
(h) cumulative unrealised gains and losses due to changes in own credit risk on fair valued financial liabilities;  
(i) assets and liabilities of a defined benefit pension fund, sponsored by a financial service provider as an employer, after netting associated deferred tax liabilities if not already reflected in common equity tier one capital;  
(j) investments in own shares, whether held directly or indirectly;  
(k) reciprocal cross holdings of capital instruments of other financial service providers and insurance companies;  
(l) investments in the capital of entities outside the scope of regulatory consolidation;  
(m) lending of a capital nature to subsidiaries and associates;  
(n) value of assets pledged to secure liabilities if the assets are not available to meet the liabilities;  
(o) regulatory adjustments applied to common equity tier one capital due to insufficient additional tier one capital and tier two capital to cover deductions; and  
(p) any other adjustments that the Bank may determine.  
(2) Assets deducted from common equity tier one capital under sub-rule (1) shall not be included in the computation of risk-weighted assets.

**12. Classification of assets and computation of risk weighted assets**  
(1) A bank shall classify assets and compute risk-weighted assets in a manner that the Bank determines.  
(2) A financial institution shall, where the Bank requests, classify assets and compute risk-weighted assets in a manner that the Bank determines.  
(3) A financial service provider, other than a bank or financial institution referred to under sub-rule (1) and (2), shall classify assets and compute risk-weighted assets in a manner set out in the Fifth Schedule.

**13. Additional tier one capital**  
(1) A bank’s or financial institution’s additional tier one capital shall consist of the sum of the bank’s or financial institution’s capital instruments and share premium as set out in the Fourth Schedule.  
(2) A capital instrument issued by a financial service provider qualifies for inclusion in additional tier one capital if the capital instrument meets the criteria set out in the Sixth Schedule.  
(3) Additional tier one capital shall not exceed twenty-five percent of the primary capital.

**14. Secondary capital**  
(1) A bank’s or financial institution’s secondary capital shall consist of the sum of the bank’s or financial institution’s capital instruments, share premium, general loan loss reserves, latent revaluation reserves or cumulative unrealised gains as set out in the Fourth Schedule.  
(2) A capital instrument issued by a financial service provider qualifies for inclusion in secondary capital if the capital instrument meets the criteria set out in the Seventh Schedule.

**15. Minimum regulatory capital requirements**  
(1) A financial service provider shall compute its minimum regulatory capital as set out in the Fourth Schedule.  
(2) A financial service provider shall, in computing minimum regulatory capital in sub-rule(1), consider the following components of regulatory capital: