Public workers failing to repay loans, warns BoZ
THE Bank of Zambia (BoZ) has observed that many public workers (government employees) are taking on more loans than they can afford and are failing to repay them.
In a statement, BoZ deputy governor for operations Dr Francis Chipimo said the central bank had observed an elevated ratio of non-performing loans associated with public workers.
Dr Chipimo stated that recent financial stability assessments had revealed increasing cases of some public workers obtaining credit outside the payroll system, commonly referred to as off-payroll credit
He said such borrowing was often beyond permissible limits and was being facilitated through misrepresentation, non-disclosure of existing loan obligations and multiple borrowing from different institutions.
Dr Chipimo further noted that some lending institutions had been found to have weak or non-compliant credit underwriting practices, including inconsistent use of the Credit Reference Bureau (CRB) or disregarding bureau data altogether.
He reminded regulated lending institutions, employees and payroll administrators that compliance with debt service tatio (DSR) and affordability requirements, as well as consistent use of the CRB, was mandatory.
“These tools form part of a critical safeguard for responsible lending, consumer protection, prudent credit underwriting and financial stability,” said Dr Chipimo.
He directed all regulated lending institutions to strictly adhere to debt service ratio limits and adopt responsible lending practices.
The deputy governor also urged payroll administrators to strengthen internal payroll controls and recovery mechanisms, and to take appropriate remedial or disciplinary action where abuse of payroll-based deduction arrangements is identified.
He said the Bank of Zambia would continue monitoring compliance with the Banking and Financial Services Act and the 2020 Directive on the Provision of Credit Data and Utilisation of Credit Reference Services and would take necessary measures to ensure adherence to applicable laws and prudential standards.
By Catherine Pule