Angolan Banks: Sector results undermined by the impact from BPC

Persistently challenging environment

Angolan banks have faced a quite challenging economic and business environment in recent years that has had major repercussions in the asset quality and profitability levels of the sector. Results have also been particularly impacted during 2018-19 by adjustments made in the foreign exchange market after the BNA decided to exit the peg of the kwanza to the US dollar in January 2018, resulting in a sharp depreciation of the local currency. The central bank also decided to enhance its sales of foreign currency, which meant that the shortages previously existing in this market were largely reduced. This resulted in the spread between the exchange rate in the official and parallel markets narrowing from 150% in end-2017 to near 20% in 2018-19.

Implementation of a floating exchange rate regime

The BNA continued its gradual reform of the foreign exchange market during 2019, which is one of the major recommendations set in the IMF’s assistance program to the country. This reform aimed to implement a floating rate regime and has allowed for a more efficient and effective foreign exchange market. One of the key highlights in 2019 was the asset quality review carried out by the BNA on thirteen banks that represented a combined 92.8% of the total assets of the sector. The results, which were based on data from end-2018, showed that the sector is globally robust, despite the need of some banks to strengthen their loan impairment levels.   

Results ex-BPC show a different picture

The combined net profit of the 25 banks operating in Angola that disclosed their 2019 figures tumbled 73% YoY after more than doubling in the previous year. This drop reflected a weak revenue performance and a significant increase in provisioning levels in the period. However, our analysis shows a different picture for the sector if we exclude the impact from BPC. Indeed, the bank is still undergoing a significant restructuring process and reported another net loss (AKZ 404,732 million; US$ 839 million) in 2019. Total net profit for the other 24 banks would actually improve 9% YoY, with operating income showing a modest increase of 2% YoY and provisions (for loans and other assets) falling near 12% from the previous year. This also meant that the profitability levels of the sector would be more aligned with the performance recorded in recent years, as ROE would stand at 27.9% and ROA at 4.35%.

Asset quality is still an issue that needs to be addressed

The 2019 results also showed that, despite the measures taken by the authorities, the sharp increase in non-performing loans witnessed in recent years is an issue that is far from being resolved and should continue to be addressed. Our calculations show that the combined NPL ratio for the sector surged to 36.1% in 2019 from 30.9% in the previous year. However, it is worth noting that BPC accounted for 72.5% of the total NPLs of the sector, which means that the NPL ratio (ex-BPC) would be a more reasonable 13.7% (still up from 13.1% in 2018). On the operating front, the revenue performance of local banks continued to face some headwinds from the long-lasting recession in Angola. The sharp depreciation of the kwanza also continued to have a large impact on costs, as a significant part is denominated in foreign currency, while the need for larger investments in new technology hit the cost structure of several banks. Overall, this means that profitability levels could witness some pressure in the foreseeable future, although the solvability of the sector is expected to remain well above the regulatory minimum of 10%.