Mozambique’s banking sector has grown rapidly in recently years, on the back of the country’s resources boom, and neither the country's large current account deficit or political tensions seem likely to scupper its health.
Mozambique’s banking sector is growing at a pace in keeping with the country’s rapid annual gross domestic product (GDP) expansion of 8%. The south-east African country has recently become a major coal exporter and is in the process of developing what are among the world’s biggest gas fields off its coast. As a result of this economic buoyancy, the country's middle class is swelling, albeit from a low base, and demand for corporate, investment and retail banking products is on the up.
Editor's choice
Three banks dominate the banking sector in Mozambique. The biggest, Millennium bim, is owned by Portugal’s Millennium bcp and has about $2.5bn in assets. It has 1.2 million customers and 158 branches, about 30% of the country's total branch network. Over the past three years, Millennium bim has doubled its equity and grown its asset base by almost 80%. It is looking to continue this trend. Ranked 66th by Tier 1 capital in The Banker’s latest top 400 African banks ranking, it hopes to be in the top 50 next year, says Manuel Marecos Duarte, its chief executive.
Banking boom
Other banks are growing, too. BCI, the number two lender and a subsidiary of Portugal’s state-owned Caixa Geral de Depósitos, saw its net interest income rise 11% in the first half of last year. It is quickly expanding its physical network across the country. In 2010, it had 90 branches; it has 130 today. South African-controlled Standard Bank Mozambique, the third largest lender by assets, has 40 branches. “It has grown aggressively in the past decade,” says its managing director Antonio Coutinho. In that time, its assets have risen from just $300,000 to $1.4bn.
Although the country's three largest institutions account for most of the market share – they control about 75% of the sector’s assets – smaller banks and newcomers are not being left out of the banking boom. Since its establishment in 2011, Banco Único, in which South Africa’s Nedbank bought a 36% stake last year, has grown to be a top six lender in Mozambique, opening 15 branches that cover 60% of the country’s major towns.
According to chief executive João Figueiredo, who used to head Millennium bim, Banco Único, which mainly focuses on the corporate market, can thank Mozambique’s natural resources boom for its expansion. “The economy is growing, offering new opportunities for investors,” he says. “We decided that if we could add an extra touch of quality to our services we could easily expand in this market.”
He is keen to launch into neighbouring countries. “The Southern African Development Community, with 300 million people, is a huge market we need to explore,” he says, referring to the economic bloc comprising 15 countries. “Mozambique has a very strong relationship with South Africa, particularly in terms of trade and investment. These are links that we can exploit.”
Striking deals
Burgeoning opportunities in corporate and investment banking have been key to the growth of Mozambique’s banking sector. In 2012, Millennium bim was involved in the largest bank funding deal in Mozambique’s history when the government bought a $42m stake in hydroelectricity company Hidroeléctrico de Cahora Bassa. In 2013, the bank also funded some local telecommunications projects.
Millennium bim is now looking at supply chain funding opportunities, especially those relating to mining and oil and gas investments. Standard Bank, meanwhile, is touting its services to miners and is an advisor for the Mphanda Nkuwa project to build a $4bn hydropower plant near the Cahora Bassa dam. Smaller banks, such as Único and BancABC, whose Botswanan parent was recently bought by ex-Barclays chief executive Bob Diamond, are similarly exploring advisory opportunities in the natural resources, infrastructure and agriculture sectors.
Mozambique’s banks are keen to capture more business from small and medium-sized enterprises (SMEs), which make up the vast bulk of companies in the country and employ two-thirds of the formal working population. The European Investment Bank (EIB) is partnering with several banks to give $55m of loans to Mozambican SMEs.
In March, Moza Banco signed an agreement with the EIB as part of this project. The institutions are putting €5m each into a fund, managed by Moza Banco, that will lend to companies in sectors ranging from agriculture to tourism. Some caution, however, that lending to the country’s SMEs is a tricky process.
“A number of the smaller banks are struggling to capture business from the limited number of SMEs in the formal sector,” says Doris Ross, the International Monetary Fund’s (IMF’s) mission chief for Mozambique. “Looking at the country’s per capita [income], it is hard to see that there are many opportunities.”
Retail difficulties
Retail banking activity is mainly concentrated in major cities such as the capital Maputo, Tete and Beira. Mr Duarte of Millennium bim, which has a quarter of its branches in rural areas, says that providing a high level of service in remote areas is difficult. He adds that mobile banking will be crucial to reaching the country’s unbanked population in the future.
It was with this in mind that his bank introduced a new mobile banking service, Millennium IZI, last year. It carries out 500,000 to 600,000 transactions each month. “Nobody has the money to open a branch to serve in every single village in Mozambique,” says Mr Duarte. “It will be through new technology that we reach these people.”
Standard Bank’s Mr Coutinho says that there is a lot of political pressure on banks to move into rural areas, but that “they don’t offer much [opportunity for providing] credit and require large investments”. His bank’s expansion plan focuses on cities, especially those profiting from the emerging hydrocarbon industry.
None of Mozambique’s banks have plans to list on the country’s stock exchange, the Bolsa de Valores de Moçambique. Mr Coutinho says the bourse, which has a market capitalisation of barely $1bn and less than five firms listed, is “extremely illiquid”. “If it does trade once, it’s an active month,” he says, adding that although the topic of banks listing is discussed, he does not see things changing within the next five years.
Nonetheless, the bourse is trying to expand. New legislation requiring all companies involved in natural resources extraction to list means that several big firms could float over the next few years (although many believe the exchange will not be able to absorb them and that the government will be forced to back down).
The good and the bad
Family companies are generally unlikely to go public, according to the exchange’s chief executive, Anabela Chambuca Pinha. “Many family companies are just not structured to deal with the costs of corporate governance,” she says. “That said, transparency and the need to [have open] books is not proving so much of an issue. Companies are beginning to realise the benefits of listing, including improved visibility.”
Some experts are concerned about Mozambique’s financial position. The sovereign has credit ratings of B1, B and B+ – all several notches below investment grade – from Moody’s, Standard & Poor’s (S&P) and Fitch, respectively. Although these are in line with most of the rest of sub-Saharan Africa (only four countries from the region have investment grade ratings), Mozambique has hefty deficits. In 2013, it recorded a current account deficit of 40% of GDP and a budget deficit of 12% of GDP. Analysts say these ratios, although weakened at present by the need to import billions of dollars-worth of mining and drilling equipment, will hinder Mozambique’s ability to raise capital for its gas projects.
Certain observers also argue that the lending environment in Mozambique is not investor friendly. “Debt is very costly here,” says Adrian Frey of Swiss Capital Partners. The typical bank loan has a 20% interest rate.
Gardner Rusike, an analyst at S&P, attributes this state of affairs to lack of competition. “You have a few foreign and locally owned banks dominating the market, and that probably explains the stickiness in adjusting lending rates downwards,” he says. “It means that the banking sector is still underdeveloped in Mozambique in comparison with peers such as Zambia or Ghana.”
On the whole, however, the country’s financial indicators are “very good”, according to Ms Ross of the IMF. The banking sector seems safe. It fared well during the recent global financial crisis. “Mozambique is enjoying a fairly unique moment, which is in a way countercyclical to the global recession,” says Mr Figueiredo of Único. “The banking sector was not exposed to the right kind of assets to be too affected by the credit crunch.”
Banking executives also seem unperturbed by rising political tensions between Mozambique’s ruling party Frelimo and the main opposition group Renamo. “The people who are already here know it is nothing to worry about,” says Mr Duarte.
Mr Figueiredo is similarly upbeat. “Even with the current political events, investors are still coming,” he says. “They know it is worth it. The country is booming. It’s simply too good an opportunity to miss.”
