Mozambican Banks

STRONG OPERATING RESULTS FEED BOTTOM-LINE

Economic performance reflects growth in the banking sector

Mozambique has been one of the fastest growing economies in Sub-Saharan Africa in the last decade, witnessing an average annual real GDP growth rate of 7.3% in the period. It compares with an average growth of 4.7% in the region. In 2014, economic activity expanded 7.4%, with the financial services sector playing once again a leading role in the country's impressive growth performance. There are currently 18 banks registered at the Central Bank. However, nearly 90% of the total assets, loans and deposits of the banking sector are held by the six largest players, which are foreign-owned (mostly by Portuguese and South African investors). We believe the performance of these six banks provides us with a fairly accurate picture of how the sector as a whole has behaved in a certain period of time.

Balance sheet continued to expand rapidly

Our analysis of the 2014 results of these banks leads us to several conclusions. First, the key balance sheet figures continued to expand at impressive growth rates. Assets, loans and deposits all increased more than 20% from the previous year. This allowed the transformation ratio (loans-to-deposits) to improve to 73.6% (vs. 69.9% in 2013). Second, nearly three-fourths of the loans and deposits were denominated in Meticais, as banks continued to reduce their share of foreign currency loans largely owing to the stricter regulatory requirements for granting loans in this type of currency. Third, more than 60% of the deposits were sight deposits, a level that has remained stable in recent years. Fourth, asset quality ratios have recently deteriorated, but remain at relatively comfortable levels. And fifth, most of the sector is still well capitalized, despite a reduction of the solvency ratios of some of the banks.

Improvement in both efficiency and profitability levels

The combined net profit of the six banks increased once again last year, as a robust operating performance helped offset higher provisioning charges and taxes. Despite the lower interest rates and a more competitive business environment in 2014, these banks were able to deliver a highly improved net interest income performance in the period, benefiting from substantial volume growth. Revenues were also boosted by stronger trading gains, which in some cases accounted for more than a quarter of total banking income. Costs continued to reflect the branch expansion strategy of most banks as well as the higher wages from a more competitive labor market. However, total costs per employee and per branch remained rather stable from 2013. Meanwhile, provisions increased significantly, partly owing to the precautionary measures for potential future risks taken by some banks. All in all, one could say that the local banking sector saw an improvement in both efficiency and profitability levels in 2014 relatively to the previous year.