Banco de Fomento

With its home in dire straits, Portuguese banks have fared better in former colony Angola

Portuguese banks have found that investment in its former colony Angola has provided growth at a time when its own domestic market is facing recession. Peter Wise reports.

More than 400 years after Portugal began setting up trading posts on the coast of the African territory now known as Angola, Lisbon-based banks have rediscovered the oil-rich economy of the former Portuguese colony as a fast-growing alternative to a small domestic market facing recession and a sovereign debt crisis.

Portugal’s three largest listed banks – Millennium BCP, Banco Espírito Santo (BES) and Banco BPI – are the dominant foreign banks in Angola, a market that in 2010 contributed 4%, 19% and 53%, respectively, to the banks' net income and which is forecast to continue driving banking activity with strong economic growth.

Leading position

Banco BPI was the first to begin operating in Angola through its subsidiary, Banco de Fomento Angola, and the group now occupies a leading position in the regional market with 138 branches. At the end of 2009, Banco de Fomento Angola ranked fourth and second in Angolan deposits and loans, respectively, in sharp contrast with BPI’s position in Portugal, where it is only the fifth largest player.

BES Angola has 28 branches in Angola. A slight increase in its contribution to group income last year was driven by the sale of a 24% holding to a local investor for $375m in December 2009. Its loan book grew by an impressive 42% in 2009 and a further 59% in 2010.

Millennium Angola began operations in 2006 with three branches in Luanda, the Angolan capital, which, according to consultants ECA International, is one of the world’s most expensive cities for foreign workers. The BCP group now operates 38 branches in the country.

While BPI and Millennium BCP focus mainly on retail operations in Angola, BES has leveraged its strong corporate franchise and achieved strong growth in corporate lending. However, as Goldman Sachs Global Investment Research point out in a recent report, banking in Angola is still at a very early stage with a large part of business relating to managing salaries and cash flows for foreign companies investing in the country.

Local partners

Complying with local ownership rules, all three Portuguese banks operate in Angola with Angolan partners, which own large minority stakes. This means the banks would be unable to recapitalise their investments by selling off parts of their operations without losing control.

Leading Angolan companies have also made important investments in Portuguese banks. Sonangol, the Angolan oil company, owns 10% of Millennium BCP. Santoro, an Angolan financial holding company, owns 10% of BPI.

Growing trade between Portugal and Angola is expected to support the income of Portuguese banks in addition to their direct operations in the country. Portuguese exports to non-EU countries have grown from 15% of the total to more than 27% in the past decade, with up to 10,000 Portuguese companies estimated to be doing business with Portuguese-speaking Africa.

Big investment

Portuguese firms are estimated to have invested more than $1bn in Angola over the past three years, helping to lift Portugal past China to become the country’s biggest foreign supplier, accounting for 17% of imports that totalled almost $16bn in 2009. As a result, Angola has become Portugal’s fourth biggest export market, ahead of the US.

And people have followed trade. After some 700,000 Portuguese settlers fled the country’s Africa colonies ahead of their independence in 1975, the number of Portuguese living in Angola is estimated to have doubled over the past four years to about 100,000.

Though analysts forecast that Angola’s contribution to BPI’s group profits will fall back to about 40% by 2013 as the bank’s domestic earnings recover, and Angolan earnings are projected to account for a static 20% of BES’s net income by the same year, over the long term the country is seen as an important source of structural growth for Portuguese banks.


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