HOUSEHOLD DEBT INCREASES BY 4.9%

By Cecilia Chiluba

Bank of Zambia’s April 2025 Financial Stability Report has revealed that household debt has increased modestly by 4.9 percent.

The debt has increased to K32.8 billion since the October 2024 Financial Stability Report, mainly on the back of a 5.9 percent growth in salary-backed loans.

According to the report, financial intermediaries’ household credit portfolio is still heavily inclined towards low-risk salary-backed loans representing 92 percent share, largely due to the low risk associated with them.

It stated that although financial institutions’ claims on individual borrowers rose, households’ relative indebtedness has contracted.”

“The household debt relative to Gross Domestic Product (GDP) has fallen to 3.4 percent from 4.1 percent previously.”

“This implies that credit expansion to households grew at a pace lower than the growth in economic activity,” the report read in part.

It indicated that disbursements of digital credit, which are low value loans extended by financial intermediaries to primarily low-income households through mobile money platforms, rose by 10.9 percent in the fourth quarter of 2024, as new products were launched.

“However, the value of the average disbursement declined further, falling below the K300 mark, largely reflecting the low- to micro- values of disbursements from the new product class.”

“Consumers usually access digital credit to bridge short-term cash-flow gaps and cover bills, including telecommunication services and utilities like water and electricity.”

The report added that this model of credit delivery has the potential to advance financial inter-mediation and inclusion as low value credit can be extended on a larger scale.

“The above notwithstanding, the high rate of delinquencies may constrain the growth of this product class. For instance for some financial intermediaries supervised by the Bank of Zambia, the aggregate digital Non-Performing Loans (NPLs) ratio stood at 21.2 percent in the fourth quarter of 2024.

“These were associated with insufficient Know Your Customer (KYC) details on customer accounts which hinders follow-ups of overdue repayments. Secondly, system integration challenges affected automatic collections on customer accounts for some institutions.”

In its report, the Central Bank warned that if these challenges persist, digital credit may be constrained, decreasing the flow of credit to households, thereby intensifying the existing low levels of financial intermediation.

Meanwhile, the report revealed that Zambia’s external sector resilience has remained moderately strong since the October 2024 Financial Stability Report.

According to the Bank, reserves adequacy, which measures the country’s capacity to absorb external shocks, remained robust at 4.6 months of import cover.

“Copper prices were buoyant during the review period and rose above the US$10,000 mark in March 2025 after traders preemptively bought the industrial metal in anticipation of higher prices due to tariff hikes.

“However, the robust external sector buffers could come under pressure from the growing risks in light of a drastic shift in the US trade policy,” it said.