… Says all lenders remain compliant
The Central Bank of Lesotho (CBL) has defended its decision not to identify a commercial bank that failed one of its liquidity stress tests, insisting that all licensed banks continue to meet regulatory requirements and that disclosing institution-specific results could itself threaten financial stability.
The clarification follows questions raised after the CBL’s 2025 Financial Stability Report revealed that, under one hypothetical stress scenario, a bank would experience liquidity shortfalls if subjected to a sustained bank run.
The report stated that “under a five-day bank-run scenario, one bank faces liquidity shortfalls, indicating a decline in liquid assets compared to the previous stress test.”
The disclosure prompted questions about whether the affected institution had been required to strengthen its liquidity position and whether depositors faced any risk.
In a written response to Newsday, the CBL stressed that the exercise was based on hypothetical scenarios designed to assess the resilience of the banking system rather than predict the failure of any institution.
“A stress test is a tool used for measuring and predicting the ability of a bank to respond to and withstand certain hypothetical, but plausible, negative economic events (shocks), such as a recession or pandemic,” the Bank said.
“It helps the Bank to assess and determine the level of resilience in the banking sector.”
The Bank said international practice varies widely on whether stress test results should identify individual banks.
“While many Central Banks publicly disclose aggregated results of stress test exercises and high-level methodology and scenario features, a sizeable minority does not publish any results at all, and very few Central Banks disclose bank-specific details or announce follow-up actions,” it said.
According to the regulator, naming a specific institution could have unintended consequences.
“Publication could also be counterproductive if undue management attention is diverted towards managing public relations issues associated with stress test outcomes.”
“For this reason, the Bank always exercises its discretion and is cautious that the information it publishes does not, at the same time, compromise financial stability.”
No corrective action required
Despite the stress test identifying a liquidity vulnerability under the hypothetical scenario, the CBL said it had not required the affected institution to take corrective action.
“Given the nature and maturity of the current stress test framework, the Bank does not yet require any corrective measures from banks based on the stress test results,” it said.
“However, the results are used as an input for prudential supervision purposes.”
The regulator added that banks’ liquidity positions are monitored every week.
“Banks’ liquidity positions are also monitored on a weekly basis for prudential supervision purposes, and all banks continue to meet the prudential requirements.”
The Bank further maintained that the banking sector remains resilient.
“As stated in the opening paragraph of Section 3.1, the stress test results indicate that the sector maintains adequate capital buffers and, in most cases, sufficient liquidity to withstand severe adverse conditions.”
Insurance market concentration
The CBL also responded to questions about the insurance industry after its report revealed that the market remains heavily concentrated.
The report found that the country’s three largest insurers account for 87.1 percent of all insurance premiums, while the Herfindahl-Hirschman Index (HHI), an internationally recognised measure of market concentration, exceeds 6,190 in both the long-term and short-term insurance sectors.
Asked to identify the three dominant insurers, the Bank declined.
“The Bank reports industry performance and assessments in an aggregate form,” it said.
The regulator also said it has not undertaken any study to determine whether such market concentration has affected competition, innovation, pricing or consumer choice.
“While literature indicates that market concentration can have positive and negative implications, the Bank has not conducted any study to determine if the level of concentration affects competition, innovation, pricing, and consumer choice within the insurance sector.”
On the report’s finding that the life insurance sector continues to record significant technical losses, the CBL said the problem is not affecting the entire industry.
“The reported underperformance is not broad-based, and the Bank is cautiously monitoring this development through microprudential supervision.”
Regarding whether any interventions are planned to reduce market concentration, the regulator said the structure largely reflects the size of Lesotho’s economy.
“Market concentration is a structural issue which, to a large extent, is a result of Lesotho’s small and less developed economy.”
However, it said its licensing framework remains open to new entrants.
“The Bank’s licensing regime allows for free entry into the market and, as such, is counter-concentration.”
Report error acknowledged
The Central Bank also acknowledged an error contained in the Financial Stability Report relating to mining royalties.
The report had stated that government earnings from mining royalties “fell sharply by 170 percent to M99 million between 2019 and 2025.”
After Newsday pointed out that a decline exceeding 100 percent would be mathematically impossible while still producing a positive value, the Bank confirmed that the statement was incorrect.
“It was an error and has since been corrected.”
Summary
- The Central Bank of Lesotho (CBL) has defended its decision not to identify a commercial bank that failed one of its liquidity stress tests, insisting that all licensed banks continue to meet regulatory requirements and that disclosing institution-specific results could itself threaten financial stability.
- In a written response to Newsday, the CBL stressed that the exercise was based on hypothetical scenarios designed to assess the resilience of the banking system rather than predict the failure of any institution.
- “A stress test is a tool used for measuring and predicting the ability of a bank to respond to and withstand certain hypothetical, but plausible, negative economic events (shocks), such as a recession or pandemic,” the Bank said.
Lesotho activist and journalist who is the Chairperson of the Media Institute of Southern Africa (MISA) Lesotho. He is an International Visitor Leadership Program (IVLP) alumnus.
Boloetse is driven by the need to protect and promote the rights of others, especially the marginalized segment of society. He rose to prominence as an activist in 2018 when he wrote to Lesotho communications Authority (LCA) asking it to order Econet Telecom Lesotho (ETL) and Vodacom Lesotho (VCL) to stop charging expensive out-of-bundle rates for data when customers’ data bundles get depleted.
