Mozambique's banking market is on the verge of a significant shake up, with new challengers entering the market and the country on the brink of a natural gas boom. 

Ask many Mozambicans about the state of their country’s development, and they will draw parallels to Vietnam. In the past half century, both countries have been through a prolonged and messy period of decolonisation, a devastating civil war and harsh communist rule. Both of their economies remain dominated by agriculture, but are opening up to the rest of the world, and diversifying into industry and resource extraction. Both have recorded impressive gross domestic product (GDP) growth in recent years.

The similarities are not endless, however. Vietnam is considerably further down the development road. It has five times Mozambique’s population, and in GDP terms outstrips it by 10 to one. It also has a far smaller share of its population living in absolute poverty. Mozambicans are confident of catching up, though, helped in part by a sturdy financial system.

Big gains

Banking in Mozambique is a crowded market, with 18 registered commercial banks creating a total asset base of $10bn as of 2013. It is also highly concentrated. Roughly 85% of this asset base resides in the hands of six banks – BCI, Millenium BIM, Standard Bank, Moza Banco, Banco Unico and Barclays. BCI and Millenium BIM alone take up half the overall total.

Mozambique's banking sector has expanded significantly in the past few years. The number of bank branches in the country has grown from 296 in 2008 to 578 by the end of last year. The volume of credit offered to private companies by banks has expanded by 20% in the past three years. There is still huge potential for growth, too. Only about 20% of Mozambique’s 25.8 million people have a bank account or any kind of relationship with a bank, less than half the average across the rest of sub-Saharan Africa.

With such a massive part of the market still untouched, and with the central bank keen to foster more diversity and competition, smaller banks are eyeing up big possible gains.

“Bringing ‘unbanked’ people onboard and creating a banking culture is very difficult, especially in the rural areas of the country,” says Ibraimo Ibraimo, chief executive of Moza Banco in Mozambique’s capital, Maputo. “Given the sheer number of people who have no connection with the system, the rewards for the bank or banks that do this successfully are enormous.”  

Deep divide

Moza Banco is one of the big six local banks but, with 7% of total banking assets, it is still a fairly lightweight contender in the market compared to the BCI or Millenium BIM behemoths. In 2013, it revamped its business model to become a universal bank with a strong retail focus and, by 2018, it aims to operate on an equal footing to its larger rivals. It has the distinction of being the only bank operating in the country that can count Mozambicans as the majority of its shareholders, and it is pursuing some innovative strategies to bring in new customers.

“We have begun putting ‘mini-banks’ in local markets and bazaars so we can attract people who are more used to informal transactions. These branches are staffed by just a few employees, and customers can open an account without having to put any money into it, if they want. Even if they put in small amounts, 100 meticals [$2.95], for instance, they get paid interest on that. It’s all about building faith in the banking system, and getting people used to using our services,” says Mr Ibraimo. Moza Banco opened one such mini-bank near an open-air market in Maputo at the beginning of December and, according to Mr Ibraimo, it already has more than 500 customers.  

Ecobank is another financial institution hoping to make hay in Mozambique. The pan-African lender arrived in the country in April 2014, after acquiring Banco ProCredit Mozambique, a local microfinance firm. Ecobank also has designs on the retail market, and intends to develop a universal banking service in the country.

“In 2011, the portion of deposits taken in by the largest four Mozambican banks was 80% of the total. By the end of 2014, that had dropped to approximately 68%. New banks such as ourselves are making a difference to customers in this country. We can use our expertise from operating across Africa to help local businesses and customers,” says Adama Sene Cisse, director-general of Ecobank’s business in Mozambique.

Costly business

The optimism of the smaller banks is not shared by everyone. “It wouldn’t surprise me if there was a further concentration in the banking sector over the next few years,” says one senior local banker. “A lot of the smaller lenders are not bringing in enough new customers or making enough profit from existing ones to justify spending the money that will be required to expand into uncharted territories.”

Although small banks have been making ground recently, the dominance of BCI and Millenium BIM will be hard to break. Since April 2013, the former has increased its client base from 530,000 to 1,040,000 individuals and companies. In comparison, Moza Banco has increased its client base from 18,000 to 36,000 in roughly the same period. BCI has increased its number of branches by 25% in the past year alone, giving it the largest network in the country, and expanded its deposit base by 25%.

“Our size and presence across the country helps us deal with the extra operating costs involved in offering business in Mozambique,” says Paulo Sousa, BCI’s chief executive. He explains that, owing to floods in the north of the country, 47 of BCI's branches were dependent on generators for electricity during January and early February 2015. “Supplying branches in outlying regions, where most Mozambicans live, is an expensive process. Communication and travel is difficult. I believe it is important to personally visit as many as branches as possible as often as possible, but to do this you have to eat a lot of dust,” he says.

Millenium BIM has also seen a growth spurt. It is the only Mozambican lender to register in The Banker's top 100 African banks ranking. It accounts for 62% of the Mozambique banking sector’s profitability, and 40% of its shareholder funds.

Both banks are embarking on ambitious technology projects to involve more customers in online or mobile banking. In 2013, Millenium BIM launched IZI, a mobile banking service that it hopes will help it reach customers all over Mozambique, from inner-city Maputo to the furthest flung reaches of the countryside. “IZI is one of the main instruments for the bank’s future strategy. No bank has the resources to open a branch in every single village in Mozambique. We have to use technology to reach these people,” says Manuel Marecos Duarte, chief executive officer of Millenium BIM. When it opened, IZI was processing about 400,000 transactions a month. In December last year, it recorded 4.3 million transactions.

Credit concerns

Though its banking sector continues to expand, Mozambique’s wider society often remains cut off from credit. About 90% of the country’s small and medium-sized enterprises (SMEs) cannot get access to financing for day-to-day activities and investment plans.

A principal reason for this is that the banks’ deposit bases are concentrated in a very specific sector of Mozambican society – namely, rich individuals and large companies. The country’s middle class remains of negligible size, so this small number of depositors can demand high rates in return for giving the banks their money. Banks then have to balance these high outgoings with high interest rates from loans. Though borrowing costs have recently decreased slightly (see interview with the central bank governor on page 84), they are still unaffordable for many Mozambican corporates.

Aside from expanding the depositor base, there are other ways to ease lending problems. To reduce risk, Moza Banco has sought partnership from outside development agencies, such as the World Bank’s International Finance Corporation (IFC), the South African Industrial Development Corporation and the African Development Bank. “By signing agreements with the IFC and other organisations, we can share the credit risk of our loan portfolio with them and reduce rates by perhaps two or three percentage points,” says Mr Ibraimo.

Ecobank can do something similar, using profits from its presence in 35 other African countries to effectively subsidise Mozambican operations. Ms Cisse recognises that establishing a client base in Mozambique and furnishing it with adequate financing and support will be a capital-intensive process, requiring some level of risk-sharing across the whole Ecobank organisation.

One problem facing all banks in Mozambique is a lack of credit information on potential customers, both individuals and companies. This makes banks nervous about extending finance, and incrementally raises borrowing costs for all customers. The central bank has launched an initiative to establish a risk database to help banks out in this regard. Lenders will log information on the loan applications made by customers, their repayment history, overdraft status and any other relevant information to this database, which will be accessible to all banks. In theory, this will allow banks to map out the creditworthiness of new customers and reduce borrowing rates for those who have proved their reliability. The government has also made it easier to set up a company in the first place, reducing the waiting period from 30 days to between one and three days.

Another, more radical, solution suggested by Mr Sousa at BCI is the establishment of a mutual guarantee scheme within the Mozambique financial sector. “Banks and the government could contribute a small amount to a general pool that covers perhaps 50% of the risk in loans towards Mozambican SMEs. That would lead to borrowing cost reductions without placing a significant burden on bank balance sheets,” he says.

Promoting growth

Mozambique’s growth prospects should be immeasurably improved by the discovery of 4250 billion cubic metres of natural gas under the seabed in its coastal waters. This stroke of luck has produced a palpable sense of excitement in government and financial circles, even though the pay-offs are not expected to arrive until the turn of the next decade.

Mozambique’s banks know they do not have the balance sheet muscle to help finance these big natural resource projects. Instead, they are aiming at the satellite industries that will inevitably spring up around them, as local firms provide services to multinational energy giants.

“There will soon be a rush of new business activity into the country. This provides the perfect opportunity for Mozambican SMEs to create jobs, create prosperity and help grow the middle class in this country,” says Mr Duarte at Millenium BIM. “The banks must play their part and promote this growth.”

According to Mr Duarte, the recent crash in oil prices has produced a note of caution in government circles toward expecting too much of the resource boom. As a result, much time and effort is being spent on developing other areas of economic growth.

Foot on the gas

Mozambique’s position on the Indian Ocean makes it a natural link to Asia and the rest of the outside world for exporters in the southern African interior, but there is an awareness that the country’s infrastructure needs to improve significantly for this to work properly. UK-Australian multinational mining firm Rio Tinto recently took a huge hit on its Mozambican coal mining venture, selling up for $50m and leaving the country after making a $3.7bn investment in 2011. It cited poor infrastructure as the main factor behind the retreat, as rail links from its mines in the northern Tete province were not sufficiently advanced to get the required amount of coal to the ports and out to foreign buyers.

Better infrastructure will also help Mozambique’s agricultural sector, the largest part of its economy. Though the country has huge areas of arable land, farmers often struggle to get their produce to market, meaning that much of this land ends up under used. Mozambique still imports most of its food. “We need to improve the value chain for companies. There is a willingness in the financial sector to lend to them, but many firms cannot prove that they will be able to repay the loans because the necessary links to their markets are not in place,” says Adriano Maleiane, Mozambique’s minister of economy and finance.

Though the government is working hard to keep a lid on economic expectations before the returns from the gas fields come through, there is a feeling among many bankers that ordinary Mozambicans must start to feel the benefits of economic growth before then if unrest is to be forestalled in the medium term.

“Helping the Mozambique economy transition to a resource-rich environment will be a challenge for the banks,” says Mr Duarte at Millenium BIM. “We are undergoing a banking revolution in this country. I don’t think anyone can say where it will take us, but I do know it will be somewhere completely different to where we are now.”


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