Credit Where Credit’s Due

The 18-player Mozambican banking sector, regulated by the Bank of Mozambique—which doubles as the central bank—is set to expand on the back of national growth (projected to reach 8.2% in real terms according to the IMF) largely supported by reserves of coal and other resources. The central bank favors the creation of a sovereign wealth fund to oversee resource revenues. Yet the country still hosts one of the world’s poorest populations and a large unregistered economy, which has given rise to a paradox that called for alternative solutions. The paradox is that the sector is ostensibly in the hands of three entities that have close ties to the Portuguese banking sector, and that hold around 90% of total sector assets, largely pursuing commercial imperatives through prudent lending. Yet in a country where 80% of the population is agrarian (agriculture accounts for around one-quarter of GDP), of which a large percentage being smallholdings, close to 80% of the people remain unbanked, curbing retail segment growth. This said, growth of the sector per se is undeniable, and by 2011 the ratio of deposits to GDP was at 25% and private sector credit to GDP at 12.8%.

THE OFFICIAL RESPONSE

A 2013 presentation of the African Development Bank underlined key pillars of banking sector maturity, including active government creation of an “enabling environment for the implementation of local content activities [as well as]…standards set and minimum qualification criteria for local content entities to ensure the highest levels of professionalism.” This awareness in fact translates readily to other non-African markets keen to develop the local skill base and foster technology transfer.

Meanwhile, the central bank, aware, too, that sound legal frameworks underpin financial sectors, has bolstered banking sector credibility through supervision. It has adopted International Financial Reporting Standards (IFRS) and promoted an environment of risk-based supervision. Back in 2009, legislation pertaining to intermediation costs targeted greater sector transparency, standardizing commissions and fees. The start-up costs for SMEs also saw some reduction.

MICROFINANCE

A 2011 report of Micro Finance Transparency valued the African microfinance sector’s gross loan portfolio at $4.6 billion with 4.5 million borrowers. Mozambique ranked 20th largest in terms of active numbers. Meanwhile, according to Making Banking Work in Africa—a platform for African governmental participation geared at fostering healthy financial sectors, and hosted by the African Development Bank—as of 2011 only 2.7% of the adult population had taken out credit from a commercial bank. Access to credit, therefore, has relied on alternative sources. Detractors of the system have claimed that the banks’ insistence on collateral has in many cases nipped entrepreneurialism in the bud. Yet clearly, too, creditworthiness depends on greater commercial knowledge from SMEs and the agrarian sector. And while many enterprises and individuals remain wary of disclosing commercial details to the authorities, many others simply lack the acumen to prepare a business plan on the basis of which to obtain credit. Poor banking accessibility has prompted commercial organizations to provide micro-credit, once the preserve of organizations such as the World Bank. Today, in the interests of economic sustainability, these credits are often conditional on accepting financial education, as much as on perceived creditworthiness. Aside from microbanks, a number of commercial entities also provide microcredit. In an interview with TBY Paulo Sousa, the CEO of Mozambique’s second largest commercial Banco Comercial e de Investimentos (BCI), commented on launching a credit line for Mozambican SMEs in 2013. “This was the first time that a bank had allowed a 0% spread over the prime rate to SMEs. We understood that pricing was the question, and that there was a barrier to be broken in order to bring the small companies to the market.”

Banco Oportunidade Moçambique (BOM) began as a Christian initiative to sustainably address chronic African poverty. Today with a commercial banking license, it operates 14 branches and six mobile banks across seven of Mozambique’s 10 provinces. Bank CEO Pieter Van Der Merwe explained to TBY how the bank provides six-month credit where upon maturity bank and client, “…hold trust group meetings, where we offer them financial literacy training, and encourage responsible commercial behavior.” Of the client base, 60% are women engaged in micro-businesses, whom the bank encourages to save as well as invest in business growth assessed by the bank in terms of “…social performance management.”

MAJOR NAMES

Leading the field in Mozambique with a 35% market share is Millennium bim, majority-owned by Portugal’s Millennium BCP (66.69%), with the Mozambican state holding a 17.12% stake. With 2,430 staff servicing its 1.2 million customers (up 15% YoY), Millennium bim enjoys the visibility afforded by a robust retail operation signposted by 151 branches, 390 ATMs, and 4,430 POS devices in operation. In January 2014, a new branch in Mueda in the Cabo Delgado Province became the bank’s 158th branch. On a 25% YoY rise, the bank’s telephone banking service registered 116,000 new customers. In 2013 the bank ranked, for the second consecutive year, among the top 100 financial institutions in Africa, rising from 67th position to 62nd, and remaining the only bank in Mozambique to make the African Business magazine’s rankings.

For 2012 the bank had total assets of MZN70.64 billion ($2.27 billion at YE2011) on a 16% YoY rise, a return on average equity (ROAE) of 27.2% down from 38.8%, and a return on average assets (ROAA) of 4.6% down from 6.0% YoY. It posted non-performing loans (NPLs) over the 90-day level of 2% up from 1.5% for the period. Meanwhile, the loan-to-deposit ratio as at December 2012 was 71% up from 60% YoY.

With close to 600,000 customers in 2012, Banco Comercial e de Investimentos (BCI) is the second key commercial entity in the banking sector with a 30% market share for that year. Named “Best Commercial Bank in Mozambique” by World Finance magazine for past three years, BCI is catering to the rural unbanked through mobile banking. The bank had 134 physical branches in 2013 and aims at a further 12 in 2014.

The latest available data reveals a historic high net profit of roughly $41 million in 2012. Client numbers climbed 38% to 563,500, while the number of branches grew by 7%. Most of these are in the main cities—like other Mozambican banks, the BCI’s coverage of the countryside is poor, and in many of the rural districts it is not present at all. BCI has a healthy solvency ratio of 12.43% for 2012, well over the 8% stipulated by the central bank. Meanwhile, NPLs were at 0.97% of total credit in 2012, down from 1.13% in 2011.

SOWING THE SEEDS

As its name implies, apart from SMEs, retail, and corporate banking, Banco Terra services the agricultural sector, financing small- to medium-sized farms. In the words of CEO Dominic Terberg “…we develop cash-flow projections, jointly with the farmers.” By assessing the value chain of specific crops, the bank mitigates undue risk in a drought-prone nation where most crops are rain-dependent.

LINKED TO VALUE

Nigeria-based United Bank for Africa Mozambique (UBA) is geared toward corporate and commercial banking, while also financing retail clients through e-banking offerings. CEO Clement Isikwe told TBY that, “About 45% of our business today is corporate, with 35% SMEs and 20% retail. Our business philosophy is entrenched in value-chain banking.” The bank’s UBA Africard e-wallet is a pre-paid Visa card aimed at enticing the reluctant unbanked population into the formal banking system.

FOREIGN CURRENCY

Mozambique hosts two major international players in Standard Bank and Barclays Bank.Standard Bank, in Mozambique for over 120 years, is the third largest player by assets and market share. As the premier bank on the African continent, Standard is keen to extend its retail segment and project financing footprint given Mozambique’s huge infrastructure investments. In early 2013, state mining company Empresa Moçambicana de Exploraçao Mineira (EME) and Standard Bank Mozambique signed a deal to service the mining sector.

Absa Group, a South African registered subsidiary of Barclays Bank PLC, holds a 98.1% stake in Barclays Bank Mozambique’s operations, having purchased and rebranded Banco Austral in 2002. The bank has roughly 350,000 customers, a branch network of 58, and around 100 ATMs nationwide. Also active in project financing, with other Absa Group banks it is creating a vast regional African banking network.