TBY talks to Mario Machungo, Chairman of Millennium bim, on record growth, formalizing the informal sector, and interesting growth segments.
THE BUSINESS YEAR How has Millennium bim developed to become Mozambique’s leading bank?
MARIO MACHUNGO Millennium bim began operations in 1995, and in the beginning we were a 50% Portuguese, 50% Mozambican-owned financial institution. We were the pioneers of banking in Mozambique, because when we started initial operations in 1995 the banking system, as we know it, did not exist here. There were three institutions: Millennium, the state-owned commercial bank, and one private Western bank. We introduced IT solutions for banking, focusing on our clients’ needs, as well as ATMs and POS machines. Millennium bim was the first bank in Mozambique that segmented its clients into markets—affluent mass-market clients, corporate clients, and so on—in order to better assess their needs. We started with three branches, two in Maputo and one in Beira, linked online. Within two years, we managed to cover all provinces with our branches. At the turn of the century, Millennium bim began to penetrate rural areas to provide micro-financing opportunities. Today, we continue to expand our business and now have 150 branches throughout the country. We continue to open branches in remote areas of Mozambique, which is not easy, but is a necessity.
To what extent do you have to provide infrastructure for rural branches?
The three main elements we need are electricity, roads, and communications. Usually, we follow the infrastructure. We will follow a large corporation into a remote area because it will build its own infrastructure that can accommodate a small branch bank. The opportunity to have clients or business is there, so we do not hesitate. Some of these branches are not immediately profitable, but we feel we have the obligation or duty to open in these rural locations to help develop the economy in poorer places.
To what do you attribute 50% year–on–year growth between 2010 and 2011?
Initiative and modernity. We introduced a new way of doing banking in Mozambique, and because of this we convinced the market that the best way of banking is with Millennium bim. We are the only bank in Mozambique to have a call center and offer telephone banking, which is another advantage. The internet and telephone banking options allow SMEs to deal with the market using these instruments. In 2011, our performance was impressive and some indicators illustrate this fact. Our return on equity (ROE) achieved 38.8%, and this was underpinned by an increase in net income of 79%. This enabled an increase in shareholders’ equity by $109 million, achieving the mark of $406 million. The bank improved its efficiency as depicted by the fall in the cost-to-income ratio from 44.7% in 2011 to 39.4% in 2012. The success was due to a tremendous effort to position Millennium bim’s brand, product, and service innovation in a bid to tailor offerings to customer needs. As a result, funding from deposits increased by 36%, whereas credit hiked by 19%, implying a loan-to-deposit ratio of 75%. Millennium bim hit the mark of 136 branches in 2011, with a target of 166 branches in 2012. Our success stems from our commitment to place customer satisfaction at the forefront, while striking a balance between the country’s development goals and the profit equation. To a large extent, our shareholders’ commitment to the country’s development has been crucial in consolidating Millennium bim’s position in the market place.
What is your client portfolio breakdown?
It is mostly retail, but we are not only doing retail banking. Millennium bim has a very good department for corporate banking as well as for investment banking. In terms of volume of money, corporate banking is more important. However, for the number of operations, retail banking is more important.
What role does Millennium bim play in developing the maturation of financial markets and investment banking?
We do not have a strong stock market here, but the only bank that fully operates in the stock market is Millennium bim. If we stopped operations, there would likely be no stock market. We are not listed on the local stock exchange, although we are listed in Europe. Investment in Mozambique mostly comes through government bonds and bonds issued by the Bank of Mozambique, although the environment for corporate bonds is also good.
How do you evaluate the insurance sector in Mozambique?
It is growing well, and there are many companies coming to Mozambique. When we started in 1995 there were only two companies and now there are more than 10. This is due to the larger number of businesses now operating in Mozambique. The majority of the companies have come from South Africa.
How significant is micro finance to Millennium’s portfolio?
It is performing very well and it is significant for our operations. After we decided to pursue it, other micro-finance institutions emerged in Mozambique. Micro credit makes up about 37% of our portfolio, and we control the largest slice of the market.
How is Millennium bim working to attract more SMEs?
Millennium bim does not have a policy of financing SMEs with low-interest credit, though we are trying to build an institution that will fund enterprises through micro financing. We are trying to find another instrument to better suit the needs of this segment of the market, and are looking at international and local organizations. At Millennium bim, we think SME financing is very important, because for this country to be stable we need to create a middle class. To create a middle class, you need to create financing for SMEs and the people who do business informally. This economy is supported by the formal sector, but it is spread out. Our policy in starting up with micro finance was to transform the informal sector into a formal sector. We wanted to create a micro-finance institution to finance these companies, creating new clients when they become formalized. At Millennium bim, we will transform the quality of our clients, and in so doing transform the middle class in Mozambique. All the major enterprises that come in to pursue mining and mineral resources need to deal with SMEs to operate.
Looking at the corporate side of the business, are your clients mostly Mozambican, or are you working with international companies as well?
We have some international companies from Portugal and South Africa, though we do not have any of the big corporations yet. Millennium bim offers factoring, leasing, various kinds of credit, currency accounts, debt financing for assets, and trade financing.
Which sectors do you see the most growth?
Mining is very important, though I also foresee a lot growth in agriculture, agribusiness, transport, communications, and electricity generation and distribution. The primary sector in extractive industries and investments in gas and power will lead the growth ladder in the medium term, while the requirement to build infrastructure is another turning point. Non-concessional loans have been capped at $1.5 billion for government projects, though it was previously limited to $900 million. While this is true in the capital-intensive sector, the country is bound to witness greater developments in the construction, logistics and transport, hospitality, industry, and agro-business sectors, following new trade orientation to serve the needs of other emerging countries for coal, gas, and raw materials.
What is your strategy for 2013?
We are a retail banking operation, and I think it is important to grow as a retail bank. However, it is important that we face the growth of the market, which has been enhanced by investments in the mineral sector. We will have to focus more on the corporate side. Another segment that is very important in the future will be prestige branches. We have been servicing individuals with very large assets, and many Mozambicans are becoming wealthier. Retail, corporate, and prestige banking are going to be our focus at Millennium bim.
This interview will be published in 'The Business Year: Mozambique 2013'. To pre-subscribe please e-mail us at firstname.lastname@example.org
© The Business Year - September 2012