Angolan Banks: Results hit by higher provisions and…BPC

Pandemic severely impacts Angolan economy

Angolan banks continue to face a challenging economic and business environment. In 2020, this was aggravated by the countless challenges brought by the impact from the Covid-19 pandemic. On the economic front, real GDP saw a sharp contraction of -5.2% (vs. -0.6% in 2019), as activity in both the oil and non-oil sectors declined in the period. The pandemic affected negatively household income, unemployment and public accounts, hindering consumption, production and investment levels. This led the BNA to implement several measures to protect, mitigate and reduce the risks of exposure of domestic banks and their activities to these negative impacts.

Angolan banks maintained a low-risk appetite

Total assets of the Angolan banking sector reached AKZ 16,822 billion (or US$ 34.8 billion) in 2020, an increase of 19.3% YoY and maintaining the upward trend seen in recent years. The sector kept a low-risk appetite, preferring to continue to finance the public sector through the investment in treasury instruments instead of increasing more significantly the amount of loans to the economy. Nevertheless, total customer loans saw a double-digit recovery following several consecutive years of declines. On the other hand, the deceleration in private consumption associated with the restrictions imposed to prevent the spread of Covid-19 led to healthy increase in customer deposits (both from individuals and companies). This meant that the loans-to-deposits ratio declined further, reaching a rather low 23.4% (vs. 25.6% in 2019).

Credit quality is still an issue that needs to be addressed

Asset quality levels remained elevated and the need for domestic banks to continue to increase provisioning levels clearly intact. Still, total NPLs for the sector declined by nearly 30% YoY, as BPC continued to transfer part of its problematic loans to Recredit. Our calculations showed that the combined NPLs of the five largest banks still represented 88% of the total (45.6% for BPC alone). This compares with 93.8% and 73.6%, respectively, in 2019. They also showed that the total NPL ratio (ex-BPC) actually increased from 13.0% in 2019 to 16.8%, with NPL coverage at 149%.      

Sector results negatively impacted by BPC (again)

The banking sector finished 2020 with net losses due (once again) to the impact from BPC. These losses amounted to AKZ 165,927 million and compare with a net profit of AKZ 121,234 million in 2019. If excluding BPC, the sector would actually record a net profit of AKZ 358,996 million, which is 31.7% below the level of the previous year. The results of the banking sector mainly reflected a significantly lower revenue contribution following the impact of capital losses in the sale of NPLs by BPC. They also reflected a sharp increase in provisions for debt instruments after the downgrade of Angola’s credit rating, while banks raised loan impairment levels due to potential risks arising from the impact of Covid-19 on their loan books.

Banking sector remains well capitalized

Despite the drop in the combined net profit in 2020 and the subsequent reduction in regulatory capital, the Angolan banking sector continued to show some resiliency in terms of solvency levels. According to the BNA, the solvency ratio stood at 19.7% in the period. This is lower than the 21.9% recorded in 2019, but still well above the regulatory requirement of 10%.