Mozambique Banks - The Challenge of Bancarization

The challenge of bancarization 

Four largest banks are foreign-owned

The Mozambican financial system has witnessed significant growth in recent years. In part, this expansion reflects the local authorities' aim of increasing the financial services available to the population. The introduction of Law 9/2004 led to a strong increase in the number and types of financial players, as it allowed the entry of new entities like electronic money institutions and micro-banks. These played a large part in the development of the local financial system. Today, the 18 banks registered at the Central Bank represent roughly 95% of the total assets of the system. Moreover, close to 80% of the total assets, loans and deposits are held by the four largest banks, which are foreign-owned (by Portuguese and South African investors). 

Size of the banking sector remains relatively small

Despite its recent growth, the size of the local banking sector remains modest. Total assets, loans and deposits stood at only US$ 10bn, US$ 5.3bn and US$ 7bn in 2013, respectively. As a reference, the three largest banks operating in Angola are bigger on an individual basis than the whole of the Mozambican banking sector. However, one can say that Mozambican banks are comparatively profitable (20% ROE) while capital levels remain well above the regulatory minimum of 8%. Asset quality ratios have also improved, benefitting from a favorable macro environment in the country.

Target of 35% banking levels in 2022 (vs. current 20%)

In April 2013, the Mozambican authorities approved the country's Financial Sector Development Strategy (FSDS) for 2013-22. They hope that at least 35% of the local population will have access (physically or electronically) to at least one financial service provided by a regulated financial institution by 2022. This compares with an estimated 20% of the adult population that currently have an account at a formal institution, a figure that is half of the average in Sub-Saharan Africa. The FSDS also aims to (1) establish private credit registry bureaus, (2) promote mobile banking, (3) encourage banking competition, (4) strengthen the insolvency framework by the creation of an insolvency bill and (5) establish a collateral framework.

Better operating performance leads to net profit recovery in 2013

The net profit of the six largest banks in Mozambique (representing 90% of the total assets of the sector) improved 13% YoY to MZM 5.2bn (US$ 174mn) in 2013 after falling double-digits in the previous year. The recovery in bottom-line came on the back of an enhanced operating performance, as below the operating income line the combined evolution of net loan loss provisions, other income and taxes had no major impact on the net profit of this period relatively to 2012.