Angolan Banks: Net Profit shows sharp recovery in 2021

ANGOLAN BANKS: NET PROFIT SHOWS SHARP RECOVERY IN 2021

 Improved economic activity and higher inflation in 2021

Angola’s five-year recession ended in 2021, with economic activity recovering very moderately (0.7%) in the period. This recovery was supported by the non-oil sector, which recouped by 6.1% (from -5.0% in 2020). On the other hand, activity in the oil sector remained quite depressed and contracted for the sixth year in a row (-11.5% in 2021) due to the continued decline in crude production in the country that more than offset the tailwind effect of higher oil prices. Meanwhile, annual inflation kept an upward trajectory that largely stemmed from the pandemic period, reaching a multi-year high of 27.0%. Despite the continued stability of the kwanza exchange rate and muted aggregate domestic demand, the evolution of the inflation rate reflected the persistent pressure on the cost of food items, with this being responsible for about 70% of the increase in overall consumer prices. As a result, the need to try to contain inflation triggered the central bank to aggressively raise the BNA rate by 450bp to 20% in June and maintain a tight monetary policy throughout the year.     

Treasury instruments still represented about a third of total assets

The combined assets of the 23 banks that reported their 2021 accounts reached AKZ 16,134 billion (US$ 29.1 billion), down 3.0% YoY and interrupting an upward trend seen in recent years. This evolution largely reflects a reduction in the amount that banks invested in treasury instruments, although these continued to represent nearly a third of the total assets of the sector. Balance sheet figures also showed that net loans continued to recover (4.8% YoY), contrasting with deposits that declined (-3.9% YoY) in the period after the sharp increases of recent years. As expected, the appreciation of the kwanza in 2021 had a material impact on both loans and deposits in foreign currency. Overall, net loans represented 18.9% of the total assets of the sector, above the 17.5% in 2020 while loans in domestic currency reached 78.1% of total loans (vs. 67.2% in 2020). Deposits remained the main funding source of the sector and represented 87% of total liabilities, with deposits in kwanzas accounting for 56.9% of the total deposit base. Angolan banks maintained a low-risk appetite as reflected by a relatively modest loans-to-deposits ratio of 25.8% (vs. 23.6% in 2020).    

Credit quality improved slightly in 2021

Balance sheet figures also evidenced a continued decline in the amount of NPLs in the sector in the period thanks to an improvement in asset quality levels at the largest banks, except for BPC. That said, our calculations showed the combined NPLs of the five largest banks still represented 88.7% of the total (48.5% for BPC alone). They also revealed that that total NPL ratio (ex-BPC) declined from 17.0% to 15.0%, with NPL coverage increasing to 159% (from 148% in 2020).      

Recovery in net profit thanks to larger revenues and lower provisions

Angolan banks recorded a significant recovery in their combined net profit thanks to the robust improvement in their revenue performance and a reversal of provisions for other financial assets following the upgrade in the country’s sovereign rating in July 2021. Their combined net profit reached AKZ 419,093 million (US$ 755 million) in the period which compares with a loss of AKZ -200,286 million in the previous year. According to our calculations, this represents a ROE of 16.6% and a ROA of 2.60%. The banking sector remained well capitalized in 2021, with the BNA stating that the total solvency ratio of the sector improved from 19.7% in 2020 to 24.2% last year.