©The mast
Introduction
The banking sector is said to be the backbone of any
economy in the world. This sector channels savings into investments and provides
the liquidity that fuels sustainable economic growth. In Zambia, a nation that
is heavily reliant on copper mining and agriculture, a stable financial system
is crucial for supporting small businesses and households as well as some
government initiatives. It has been observed that over the decades, Zambia has
grappled with periodic bank failures that have eroded the trust of the public,
disrupted livelihoods of the citizens and highlighted vulnerabilities in the
regulation and management of the financial system. These events are not
isolated disasters but symptoms of broader economic pressures that include
aspects such as currency fluctuations, insider dealings and stiff competition
from foreign players in the financial sector. By examining both past and present
cases, this article argues that while the Bank of Zambia (BOZ) has strengthened
its oversight through frameworks like the Banking and Financial Services Act
and the Basel Accords, strict adherence to corporate governance practices is
the key to prevent future crises and foster inclusive growth of the financial
sector.
The 1990s: A Wave of Collapses
Amid Economic Liberalization
The banking troubles faced by Zambia
in the mid-1990s were a stark reminder of the risks that come as a result of
transitioning from a state-controlled economy to a market-driven economy or in
simpler terms a free market economy. Following the Structural Adjustment
Programmes (SAPs) in the late 1980s and early 1990s—pushed by international
lenders like the IMF and the World Bank—the country liberalized its financial
sector. This opened doors to new banks into the financial sector but also
exposed weaknesses in supervision. The financial sector in Zambia before SAPs
was dominated by a small number of foreign owned and state-controlled banks.
In May 1995, the Bank of Zambia experienced its first
bank closure following the reforms made in the financial sector. The most
notorious failure was Meridien BIAO Bank Zambia which was once the
fourth-largest bank in the country. Its collapse stemmed from aggressive unsustainable
practices such as insiders lending vast sums of money to connected parties
without proper collateral. This in itself was connected to the bank offering
sky-high interest rates so as to attract deposits, resembling Ponzi schemes
that continue to siphon funds abroad like those seen in the recent past in
Zambia. When the bank was faced with problems, depositors rushed to withdraw
and the bank could not meet the demands, leading to its liquidation. This
triggered a domino effect, pulling down other local institutions like African
Commercial Bank and Commerce Bank later that year.
The crises deepened in 1997 and 1998, with several
indigenous banks folding due to similar issues. As of 31st December
1999, The African Commercial Bank, Meridien BIAO Bank, Manifold Investment
Bank, Credit Africa Bank, and Prudence Bank were in Liquidation while First
Merchant Bank was undergoing restructuring. Some of the issues causing these
failures were rampant insider lending which created non-performing loans that
outnumbered assets and poor risk management which left institutions unable to
weather economic shocks like the falling copper prices at the time. It is
observed that regulatory lapses played a key role too. The Bank of Zambia which
was still building its capacity, struggled to predict failures using financial
data alone. BOZ missed non-quantifiable red flags like breakdowns in governance
such as poor management and the rising corruption levels. Poor corporate
governance practices such as weak board oversight and unethical conduct by the
staff of the banks was a major factor in these collapses as these happenings allowed
fraud and negligence to go unchecked.
These events are seen to have costed the economy
dearly at the time. Depositors lost savings, businesses faced credit crunches
and public confidence in banks plummeted. Despite the costs to the economy,
these events spurred meaningful reform. The Bank of Zambia improved the way it
checked on banks by not just looking at numbers and balance sheets but also
paying attention to how banks managed their internal controls and checking how
strong they were. This shift helped to make the banking sector stable more
stable, leading to reduced bank failures in the early 2000s. This reduced bank
failure paved the way for Zambia to qualify for debt relief under the Heavily
Indebted Poor Countries (HIPC) programme in 2005. The key lesson is that in
weak and fragile economies, regulators must look at the whole picture and not
just financial numbers. Financial metrics alone cannot capture the human
elements such as poor leadership or weak management that drive distress of the
banks.
The Role of the Basel Accords
and the Banking and Financial Services Act
In response to past failures, Zambia has adopted
international standards to strengthen its banking regulations. The standards
adopted being the Basel Accords, which are a set of global rules designed to
ensure banks hold enough capital to cover risks. To put simpler, the Basel Accords
are a set of international rules that have been created to make sure banks
around the world operate safely and do not take excessive risks that could lead
to financial crisis. The implementation of this international framework in
Zambia has been key to ensure that bank failure is averted.
The Bank of Zambia began implementing Basel II in
2007, with the full rollout in 2014, which first started as a parallel run with
the older Basel I framework. The Basel II framework focuses on better risk
assessment, including credit, market and operational risks, helping banks to
avoid the kind of over-lending that doomed institutions in the 1990s. However, scholars
such as Douglas Walter Rolls argue that the stricter Basel III rules which demand even
higher minimum capital buffers, have challenged smaller local banks in Zambia.
This is now sometimes forcing these banks to merge or close due to compliance
costs. Many small Zambian banks have been forced into merger and acquisition arrangements
with larger foreign banks to fund their undercapitalized positions to survive.
It is noted that in cases where Basel-inspired rules fall short, Zambia has
used absolute minimum capital requirements to maintain the stability of the financial
sector.
Complementing these is the Banking and Financial
Services Act (BFSA), first enacted in 1994 then amended in 2000 and
significantly updated in 2017. The BFSA of 2017 strengthens rules on licensing,
ownership and prudential regulation standards of banks in Zambia. It has gone
on to emphasize the aspect of corporate governance to prevent insider abuses like
those that occurred in the 1990s. It gives the Bank of Zambia powers to
intervene early in troubled banks, such as taking possession of afflicted banks
so as to protect depositors. This phenomenon was seen when the Bank of Zambia
took over Development Bank of Zambia on 21st July, 2023 and much recently
Investrust bank on 2nd April, 2024. The amendments made to the BFSA
in 2020 further enhanced these tools by allowing quicker resolutions and
reducing the impact of bank failures. While earlier reforms under the BFSA have
contributed to some bank closures by raising standards too quickly for weak banks,
the Act has overall improved supervision and cut down on systemic risks in the
financial sector.
Corporate governance remains a cornerstone of these
reforms. Good governance means ensuring that boards are strong, decision-making
is transparent and conflicts of interest situations are avoided. These elements
are said to have been missing in the banks that failed in the 1990s and other Zambian banks that have failed in
the recent past. For instance, in development banks like DBZ, complex ownership
structures have led to poor oversight, enabling bad loans to pile up. Some of
the failures are tied to governance issues, such as fraud and negligence. It is
said that these failures highlight how weak internal controls can amplify
economic shocks and lead to the bank collapsing. Strengthening governance
through the BFSA’s requirements for independent audits and ethical codes could
address these gaps and make banks more resilient to economic shocks and other contingency
issues.
The 2016 Intermarket Debacle: Capital Shortfalls in a
Growing Sector
Fast-forward to 2016, most banks in Zambia appeared
more robust and supported by economic growth averaging 5% annually in the
preceding years. But cracks emerged again with Intermarket Banking Corporation
(IBC), a locally owned bank that failed to meet the new minimum capital
requirements that were set by the Bank of Zambia. The bank was declared
insolvent and was placed under the possession of the Bank of Zambia on 28th
November 2016. The central bank took possession so as to safeguard the payment
system of depositors. Critics have argued that small depositors in this case
lost their money with others receiving their money much later than expected.
This is largely because of the absence of a deposit protection scheme whose
main aim is to protect the deposits of especially small depositors who in most
cases are unsecured creditors.
Unlike the 1990s chaos, this failure was contained.
Insider loans and mismanagement of the bank is said to have contributed to the
failure, but the core issue was undercapitalization amid rising operational
costs. The Bank of Zambia orchestrated a resolution and announced on 27th
February, 2017 that they would restructure IBC to facilitate its re-opening.
The Bank of Zambia reached an agreement with the shareholders of Intermarket
Banking Corporation and rebranded it as
Zambia Industrial and Commercial Bank (ZICB) by 2019, restoring 90% of
depositor funds. The National Pensions Scheme Authority (NAPSA) which had K50
million in Intermarket Bank before its closure decided to covert that amount to
become shareholders of the Zambia Industrial and Commercial Bank, which was now
the new name of the bank. This swift intervention by the Bank of Zambia
minimized spillover effects of bank failure, demonstrating how updated
laws—like the Banking and Financial Services Act of 2017—empower regulators to
act decisively to prevent contagion as seen in the past. This case underscores
a persistent argument that indigenous banks which in most times serve
underserved rural areas continue to struggle against multinational giants like
Standard Chartered or Barclays (now Absa).
Recent Turbulence: DBZ in 2023, Investrust in 2024 and
MyBucks in 2025
The banking sector in Zambia has shown remarkable
resilience in recent years, with assets growing up to 12% in 2023 despite
issues of inflation and the depreciation of the kwacha. A survey by PwC in 2024
ranked economic stability and liquidity management as top priorities, with no
widespread bank failures reported in recent times. However, high-profile
interventions that were done in 2023, 2024 and 2025 reveal ongoing
vulnerabilities, particularly for banks that are development-focused and those
that are considered to be smaller banks in the banking sector.
In July 2023, the Bank of Zambia seized the
Development Bank of Zambia (DBZ), the country’s sole dedicated development
lender. This occurred after DBZ flunked capital adequacy tests and proved
insolvent. The woes of DBZ were traced to legacy bad loans from the 1990s and
inefficient operations that left the bank unable to fund infrastructure
projects that were critical to national development. The takeover protected
depositors but raised the question whether Zambia could afford to lose a bank
meant to bridge private-sector gaps in long-term financing?
This pattern was repeated with Investrust Bank in
April 2024, when the Bank of Zambia declared it insolvent and assumed control
under the amended 2020 Banking and Financial Services Act. With 20 branches
nationwide, Investrust catered to small and medium enterprises (SMEs), but it
faltered due to thin capital buffers, outdated technology and fierce rivalry
from bigger foreign banks. The depositors panicked as accounts froze
temporarily and over 200 staff faced layoffs in a country where youth
unemployment hovers at 20%. The bank decided to accelerated loan repayments a
thing that squeezed borrowers that were already hit by the high interest rates
on their loans.
In early 2025, the Bank of Zambia took possession of
MyBucks Zambia, a fast-growing digital lender, after it was declared insolvency—meaning
it could no longer meet its financial obligations. This case highlighted the
growing risks in the fintech sector, where companies often expand quickly
through mobile and online lending. rapid growth. The sector lacks strong
governance structures and adequate capital buffers to absorb losses. The
collapse of MyBucks showed that technology alone cannot replace sound financial
management. Regulators such as the Bank of Zambia must ensure that fintech
firms are subject to the same prudential regulation standards as traditional banks.
This will ensure that there is a balance between innovation and financial stability.
These cases argue for a more balanced way of
regulating the financial sector. The power that the Bank of Zambia has to take
over troubled banks prevents the systemic collapse of the financial sector—preserving
most deposits and averts bank runs. But however, the central bank treats immediate
problems, not the underlying causes. Indigenous banks which in most cases
create jobs by employing the locals and financing community projects, need
incentives like tax breaks or funding to upgrade their digital systems to
compete with huge foreign banks. Without such support more local banks could
fail and leave the banking sector dominated by foreign owned banks. This would
in turn weaken the goal to build an economy that is self-reliant in Zambia.
Broader Implications and Paths Forward
Bank failures in Zambia, from the 1990s to date, show
a clear pattern where it is the local banks that suffer the most. Problems like
risky insider lending, inadequate capital and unfair competition make them even
more vulnerable. When banks fail, the effects spread widely and people lose
trust in saving, borrowing becomes more expensive and small businesses (which
provide 70% of jobs) struggle to get credit. Rural communities and small
depositors feel the hardest impact as such failures are seen to widen social
and economic inequalities. But there is some progress that has been recorded.
The Bank of Zambia has strengthened oversight, including talks to enhance cybersecurity
by setting up a Computer Incident Response Team (CIRTs), which will help to
keep the banking system safe and innovative. Reviews by the IMF in 2025 have praised Zambia’s fiscal discipline and helped
with debt restructuring.
To strengthen the sector further, policymakers should
focus on three steps:
1. Tighten insider-lending rules and introduce
real-time audits to catch risky behavior early.
2. Set up a fund to recapitalize viable local banks,
possibly using a portion of mining revenues/royalties.
3. Introduce a deposit insurance scheme to protect
depositor funds in the event of bank failure to prevent bank runs.
4. Invest in fintech training so as to enable the local
banks to compete in the digital era.
These measures would not only curb bank failures but
help Zambia use its banking sector to reach Vision 2030 which aims to make the
country have a middle-income status.
Conclusion
The bank failures in Zambia show us that a strong banking system requires more than just laws. It needs effective implementation, good governance and the support for local banks. While frameworks like the Basel Accords and the Banking and Financial Services Act have made progress, ongoing challenges show us that the work is not done. By focusing on corporate governance to prevent internal weaknesses and providing targeted help to indigenous banks, Zambia can turn its banking history into a foundation for lasting prosperity. A resilient banking sector will protect citizens, boost the economy and ensure that lessons from the past lead to a brighter financial future for all.
About the author: Clement Ngoma is a Lecturer in Law at the Copperbelt
University in the School of Humanities and Social Sciences.