Zambia is to privatise 51% of the troubled Zambia National Commercial Bank (Zanaco), after an attempt to sell a smaller stake was ignored by investors.

Zanaco has had its own problems. That is why we (central bank) moved in to put a close watch on it

Caleb Fundanga Central Bank of Zambia

"Now 51% of shares will go to the private sector," Central Bank of Zambia Governor Caleb Fundanga said in his first media briefing since his appointment last month.

Last year, the government put up the 'for sale' sign at Zanaco, but the offer of 35% stake attracted little interest, according to the privatisation agency.

Mr Fundanga said he now expected more interest because the new offer gave management control.

Privatisation condition

Zanaco's privatisation is a key condition for Zambia to gain full debt relief under the World Bank's Highly Indebted Poor Countries (HIPC) programme.

For lenders to Zambia to write-off half of its $7.3bn (£5bn) debt, the government must show sustained economic restructuring for 12 months by the December 2003 deadline.

On Tuesday, a Zambian court ordered Zanaco to open its books for an independent audit to prove it was not involved in fraudulent activities under former president Frederick Chiluba.

It is the first time a court has ordered an audit of a state institution and follows promises of greater transparency by President Levy Mwanawasa, who succeeded Mr Chiluba after elections in December.

On offer

Mr Fundanga said Zanaco, with a market capitalisation of 6.5bn kwacha (£1.02m), was currently under strict central bank supervision after it made a net loss of just over 65bn kwacha in 2001 due to bad debts.

"Zanaco has had its own problems. That is why we (central bank) moved in to put a close watch on it," Mr Fundanga said.

Mr Fundanga denied accusations that there had been government interference at Zanaco and that it had ignored banking regulations in its operations.

Zanaco has 43 branches and 1,440 employees, making it Zambia's biggest retail bank.