Wednesday, March 11, 2009

Zambia to Ban Kwacha Loans to Non-Residents, Central Bank Says

By Garth Theunissen

March 6 (Bloomberg) -- Zambia introduced regulations barring non-residents from borrowing the kwacha, the southern African country’s currency, for less than one year, an official from the nation’s central bank said.

“We are stopping non-residents from borrowing kwacha in the domestic money market in contracts with a tenure of less than one year,” Lazarus Kamanga, the Bank of Zambia’s assistant director of money market operations, said in a telephone interview from Lusaka. “These measures are aimed at providing stability in the financial markets in Zambia, which include money, capital and foreign-exchange markets.”

The regulations will prevent commercial banks in Zambia from extending “any form of local-currency lending to non- residents” for less than 12 months, the Bank of Zambia said separately in an e-mailed statement.

The southern African nation may be introducing the regulations to prevent foreign banks from speculating against the kwacha, which has plunged 31 percent since the start of 2008 as a slide in copper prices reduces foreign revenue, according to Standard Bank Group Ltd., Africa’s biggest lender. Zambia earns 80 percent of its export revenue from copper, the world’s third-most most used metal.

“They are trying to prevent foreign banks from taking advantage of potential depreciation of the kwacha,” said Phumelele Mbiyo, a fixed-income strategist at Standard Bank in Johannesburg. “If sufficient numbers of people borrow kwacha to buy dollars on the assumption that they can repay the kwacha after the currency has depreciated, it would cause the currency to weaken. That’s what they’re trying to prevent.”

Foreign Reserves

The kwacha, which means “dawn” in the indigenous Chinyanja language, may decline to 6,000 per dollar by the end May, Standard Bank forecast last month. The currency traded at 5,540 to the dollar today. Copper has slumped about 60 percent in the past year as a global recession reduces demand for the metal used in wiring and household appliances.

Policy makers will allow exemptions to the new rules, which have been explained in a statement to commercial lenders in the country, the e-mail said.

Zambia’s foreign-exchange reserves slumped 36 percent to $900 million at the end of February from $1.4 billion a year earlier, the Lusaka-based Post reported yesterday, citing Bank of Zambia Governor Caleb Fundanga.