Mozambique’s Banks Resisting Economic Adversities Quite Well

7 August 2017

Even after two central bank interventions, the Mozambican banking sector has shown itself to be quite flexible at a time when the country’s economy is undergoing a process of accelerated growth following the very difficult year of 2016, analysts indicate.

Mozambique was affected by economic and financial difficulties last year due to the suspension of assistance from the International Monetary Fund and major donors. That occurred after the government recognised that two public enterprises had contracted loans worth US$1.2 billion with state endorsement though in breach of current legal provisions.

The US$850 million loan contracted by the Mozambican state-owned tuna company Ematum was widely publicised in due time. A contract for acquisition of fishing and coastal patrol boats was even signed in Cherbourg, France, at a ceremony attended by the presidents of Mozambique and France, respectively Armando Guebuza and François Hollande.

In banking, the financial crisis affected the health of two banks, Nosso Banco and Moza Banco, forcing intervention by the regulator, Banco de Moçambique (BdM). Although the worsening scenario is still not entirely out of the picture, the sector has shown itself to be sufficiently flexible, reports the Economist Intelligence Unit.

“The central bank will remain largely independent” and, despite the “risk of a crisis throughout the sector”, the “forecast is that the major banks will be able to resist pressures and that the smaller banks do not represent a systemic threat”, indicates the EIU in its latest report on Mozambique.

The macroeconomic foundations of Mozambique have improved since the 2016 liquidity crisis and BdM has begun imposing a flexible monetary policy. The EIU nevertheless asserts that the “pressures that plagued the banking sector are far from over”, especially due to nonperforming loans and some banks’ exposure to the public sector, namely to ‘hidden’ loans.

Following BdM’s decision to increase capital requirements, the EIU expects some of the country’s smaller banks to close in coming months, though the three biggest banks, which together hold more than half of total deposits and assets, have conditions to resist adversities, namely via “recourse to their foreign owners for additional financing, if necessary”.

Particularly regarding the solution found by BdM for Moza Banco (its capitalisation via the regulator’s own pension fund (Kuhanha), which diluted the stake of the two main shareholders, Novo Banco (Portugal) and Moçambique Capitais, to 10 percent each), the EIU considers it a justifiable solution. (Macauhub)