Mozambique’s smaller banks should combine in an effort to overcome the blow dealt by government debt defaults after four lenders failed over nine months.

The country’s debt crisis threatens to unravel efforts by the central bank to strengthen the nation’s financial system through the introduction of new capital and liquidity rules. Central bank governor Rogerio Zandamela said last week that the measures might result in consolidation or force companies to change their operating models. The central bank didn’t respond to e-mail questions sent last week.

"Mozambique’s banking sector faces a serious systemic risk of collapse," said Robert Besseling, Johannesburg-based director at EXX Africa, which advises companies on business risks. "Rapid credit growth and concentration of bank loan books are the main risks" while some of the country’s lenders bought significant amounts of loans now in default.

The economy of the world’s ninth-poorest nation is in turmoil after state-owned companies piled on more debt than the government, which guaranteed the loans, is able to repay. The loans hadn’t been disclosed, resulting in the International Monetary Fund (IMF) and other donors withdrawing aid. A Kroll probe found the companies couldn’t account for at least $500m of the $2bn in loans, most of which were arranged by Credit Suisse.

The central bank has already had to contend with four failures over a nine-month period. Moza Banco, O Nosso Banco, Micro Banco Fides Moçambique and Caixa Co-operativa De Crédito had to be taken over by regulators or cease operations, while Atlas Mara’s BancABC Mozambique needed a cash injection from shareholders.

With 19 commercial banks, nine smaller lenders and 69 micro-credit organisations for a population of about 27-million, Mozambique has more banks per person than the continent’s two biggest economies of SA and Nigeria.

"The central bank is trying to correct things in the banking system," said Fernanda Massarongo, a researcher at the Economics and Development Research Group in Maputo. It still needs to confront a sharp decline in the rate of credit growth, falling property prices and the potential manipulation of solvency ratios by banks to make themselves seem stable, she said.

Regulators insist the financial system is stable. While big lenders have an excess of liquidity, the smaller banks have too little, Zandamela said on June 19, adding that those lacking capital aren’t a systemic risk.

Mozambique lenders do have some buffers that might help the banking system, even though the government’s debt obligations may exceed the country’s GDP, according to analysts at BMI Research.

Almost 40% of the deposits they hold can’t be withdrawn without notice, reducing the scope for bank runs, BMI analysts said in a June 15 report. Furthermore, lenders are mostly domestic-deposit funded, while the high level of foreign ownership means there’s a source of funding should the industry run into difficulties, according to BMI.

The 19 registered commercial banks in Mozambique are mostly units of foreign lenders or controlled by international investors. Socremo Banco de Microfinanças, Moza Banco and Banco Nacional de Investimento are the lenders majority owned by Mozambican shareholders, according to their records.

Barclays Africa Group wanted to consolidate its Mozambican assets by bidding for Moza Banco, people familiar with the matter said in May, but the central bank chose to give the failed lender to the regulator’s own pension fund.

Mozambican banks, already under stress due to a shortage of dollars, will likely see credit risks rise this year because of an increase in bad debts and investments by banks in the government-linked loans, Besseling said. There are also limited prospects that the IMF will entertain a new programme or that donors will end their year-long freeze on direct budget support, he said.

Moza Banco bought $20m of the ProIndicus loan from Credit Suisse, and Millennium BIM also lent the state-owned company money, according to the Kroll report. Both Moza Banco and Banco Comercial e de Investimentos had accounts for ProIndicus, and Moza Banco also handled state-owned Ematum’s account, it said. The IMF is planning a visit to Mozambique from July 10 to discuss the results of Kroll’s audit.

"Even if some banks intend to hold out against market consolidation forces, the government is likely to require some to merge or open up for acquisition by imposing very strict liquidity limits and other regulations," Besseling said. "The Moza Banco episode shows that some stakeholders in Mozambique would prefer to allow local political interests to benefit from the consolidation process, rather than to open up to foreign investors."


Please sign in or register to comment.