Angolan Banks: Lower net profit, despite better operating performance

Faster economic growth and lower inflation

Economic activity in Angola continued to improve in 2022, with real GDP growth accelerating to 3.2% from 1.2% in the previous year. This improved performance was thanks to the expansion in both the oil (0.5%) and non-oil (4.0%) sectors for the first time since 2012. Meanwhile, contrary to what happened in most other countries in the world, inflation in Angola followed a downward trajectory in 2022 after being under pressure in the previous two years. Annual inflation reached 13.86% at the end of the year, standing well below the government’s target of 18.0% for the period and the 27.03% recorded in 2021. This lower inflation allowed the central bank to gradually loosen monetary policy during the second half of 2022. The BNA cut its benchmark interest rate by 50bps in September and lowered the mandatory reserve coefficient in local currency from 22.0% at the start of the year to 17.0%.

Balance sheet figures impacted by another appreciation of the kwanza

The combined assets of the 20 banks that reported their 2022 accounts reached AKZ 15,724 billion (US$ 31.2 billion), rising 3.7% from the previous year. This evolution mainly reflects an increase in net loans and cash and deposits, which represented about 20% of the total assets of the sector each. Still, Angolan banks remained more exposed to treasury instruments, as these continued to represent about a third of their combined assets. Balance sheet figures showed that net loans advanced at 12.4% YoY thanks to a larger contribution from loans denominated in local currency, with loans in foreign currency continuing to be impacted by the appreciation of the kwanza in the period. Loans in local currency represented 85.5% of total loans (vs. 80.5% in 2021). Deposits recovered 5.4% YoY after the fall in the previous year, remaining by far the main funding source of the sector as they represented 90% of total liabilities (with deposits in kwanzas accounting for 64.6% of the total deposit base). Angolan banks maintained a low-risk appetite as reflected by their modest loans-to-deposits ratio of 24.8% (vs. 23.2% in 2021).    

Credit quality continued to improve

Balance sheet figures also continued to show a reduction in NPLs (-32.4% YoY) thanks to an improvement at most of the largest banks, in particular BPC. We note that the sharp fall in NPLs at BPC (-66.5% YoY) was mostly related to the significant number of write-offs that the bank made in the period. Overall, our calculations showed that the combined NPL ratio of the 20 banks declined from 26.2% in 2021 to 18.6% last year and that the total NPLs at the five largest banks continued to represent more than 90% of the total NPLs of the Angolan banking sector.  

Net profit falls with the absence of the impact of the reversal of other provisions

The combined net profit of the 20 banks declined 16.5% YoY to AKZ 346,096 million (US$ 687 million) in 2022. This evolution is explained by the absence of the highly favorable impact that the reversal of provisions for other assets (after the upgrade of Angola’s sovereign rating in 2021) had on their bottom-line that year. Indeed, Angolan banks actually recorded a significant improvement in their operating income in 2022 (57.6% YoY) thanks to another robust revenue performance and flat costs in the period. However, this was insufficient to offset the aforementioned impact in terms of the reversal of other provisions. Overall, according to our calculations, the total net profit of these banks represented a ROE of 14.3% and a ROA of 2.20%. The banking sector also remained well capitalized, with the BNA stating that the total solvency ratio of the sector improved from 24.2% in 2021 to 28.2% last year.