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Western EuropeJune 1 2011

Portugese incumbents face competition for slice of growing Angolan wealth

The tenacious Portugese banks have prided themselves in their ability to stick with the Angolan economy in good and bad years, but they are now facing increasing competition from foreign banks, which stress their international network credentials.
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Portugese incumbents face competition for slice of growing Angolan wealthAngola's central bank is regulating the market well

Angola's financial sector is set to become even more competitive as more foreign banks look to develop investment, corporate and retail banking opportunities. These are expected to grow more rapidly as the country becomes wealthier on the back of what are expected to be sustained high oil prices.

The global investment banks, including JPMorgan, Citigroup and Goldman Sachs, have been discussing a sovereign bond issue, while the banks competing for business on the ground in Angola now include Standard Bank of South Africa, while Standard Chartered Bank opened a branch in Luanda in February last year.

Standard Bank, which opened its representative office in 2006 and received a full banking licence in 2009, sees Angola as one of its priority markets in Africa. “Standard Bank Angola offers a full range of investment banking, global market and transactional products and services, as well as commercial banking and wealth management,” says Pedro Coelho, the bank’s chief executive.

Foreign influx

This new wave of international banks are mounting, particularly on the corporate and wealth management side, a tough challenge to the Portuguese banks which have been operating in some form of joint venture in Angola since the early 1990s. The scramble to win the lion’s share of new deposits is becoming ever more intense, though bankers do admit that margins still remain attractive.

In many ways, it is a traditional type of battle between the global banks, which stress their international networks and the Portuguese-led ones, which emphasise their readiness to stay with the local economy in good years and bad. The Portuguese banks have been through many structural and ownership changes in the past 15 years, but have tended to stay in Angola despite the many name changes.

Nor has there been any difficulty in attracting local shareholders, including state-oil giant Sonangol and wealthy individuals, from taking stakes in these financial institutions. Most banks have a 51%/49% split, with the international partner maintaining a majority stake. While it is not a technical requirement to have a local partner, bankers say there is a tacit acceptance that this is necessary and that business would be affected if they did not.

Untapped resources

Shareholders have taken stakes because the country’s oil and mineral resources should ensure a profitable market in the years ahead. The key question is whether the Angolan economy is growing rapidly enough to deliver enough business to the increasing number of financial institutions in the market.

“The market today is growing very rapidly but, because there are now many more banks active in the Angolan market, there is intense competition to take the biggest share of this new business,” says Daniel Chambel, president of the executive committee of Caixa Totta bank.

The bank, which has been established in Angola since early 1993 and includes Caixa and Santander among its shareholders, has focused on the oil and gas and mining sectors, which make up the major part of Angola’s exports. “And we have provided the full range of services for multinationals and local companies specialising in commerce, goods and services – a business that is still growing rapidly,” says Mr Chambel.

Among the other Portuguese banks with a presence in Angola is Banco Espirito Santo, whose local operation, BES Angola, has 28 branches – a 24% holding was sold to local investors for $375m in 2009. Millennium BCP operates through Millennium Angola, which opened in 2006 and now has 38 branches across the country.

There is no denying the speed at which the market is expanding. Today there are more than $35bn in deposits, which represents a 35-fold increase in less than two decades – and the overwhelming amount has come since the end of the civil war in 2002.

Fast growth

The number of financial institutions chasing this business has rapidly grown, shown by the number of branches that are opening across the country – there is also an ATM network which bankers say is both safe and secure.

There are now 22 banks in the country compared with only two state-owned institutions in 1992. The first three Portuguese-partner banks opened a year later but the real expansion has come more recently. “When I arrived here six years ago there were only 10 banks and the total has now more than doubled,” says Emídio Pinheiro, chief executive of Banco Fomento Angola (BFA), whose Portuguese shareholder is Banco BPI.

Underpinning the confidence of the financial sector is the belief that the market is increasingly well regulated by the central bank (the National Bank of Angola – BNA), whose governor José Massano was formerly chief executive of Banco Africano de Investimentos (BAI).

Among the changes introduced by the governor, in office for only 18 months, has been a much greater emphasis on the need for banks to carry out proper due diligence on their customers. “The days when it was possible to arrive at a bank with $2500 and open an account have gone for ever,” says one banker. Anyone who wants to open an account has to provide proof of identity and their address, besides answering an extensive and full compliance questionnaire.

Bankers also say that the quality of inspection is becoming increasingly rigorous. The BNA insists that banks remain very liquid and one rule stipulates that they cannot lend more than 50% of any deposit in hard currency.

There are challenges in delivering profitable banking services in Angola. It is, say bankers, an extremely expensive country in which to maintain a branch network and to provide services. In addition, many of the newer entrepreneurs have a limited track record.

Corporate opportunities

However, bankers believe that there is still strong potential in the corporate sector. There are now more structured transactions being offered to corporate clients, particularly by institutions such as Standard Bank, which provided a pre-export finance transaction for oil giant BP. The rebuilding of the transport network also requires millions of dollars of investment, which can be funded by syndicated loans.

Services for corporate customers are becoming more sophisticated. There is greater demand for products that offer protection against currency and interest rate fluctuation, though, as one banker admits, “they are still essentially vanilla products". Banks are also offering comprehensive cash management services to both multinationals and local companies.

However, it may well be that the biggest opportunities lie in retail banking – and all the banks are looking to develop their networks across the country, both through branches and ATMs. At the top end of the market, there is a big potential market in high-net-worth individuals – the price of top-quality flats in central Luanda is evidence that some individuals and companies have earned considerable fortunes. “Our branch network can already cope with the needs of high-net-worth individuals,” says Mr Pinheiro.

But banks are also looking to attract business from a middle class, including managers, teachers and doctors that was almost obliterated by the civil war but is now gradually returning to the country. And in the longer term the mass of the population is as yet unbanked – estimates say that as few as 15% of Angolans have a bank account. It will be a slow process, but bankers believe this market will grow as levels of employment and education standards improve.

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