AGGRESSIVE FOR GROWTH

Mozambique 2013 | FINANCE | VIP INTERVIEW

TBY talks to Inaete Merali, CEO of Moza Banco, on the challenges facing Mozambique's financial sector, and the future performance of the metical.

How can Mozambique's financial sector diversify to meet the needs of the future?

Mozambique's economy and financial system will grow in the coming decade, and finance institutions will need to be able to provide adequate products and services to a growing economy. Moza Banco's core advantage is that it understands the market because of the exposure and business relationships of its local stakeholders in all quadrants of the economy. Mozambique also assembles rather solid and effective regulation across key areas of the financial sector. Last year, the authorities revised the Foreign Exchange Law, while this year a publication was effected on a new law and regulation outlining criteria for the concession and observance of projects related to public-private partnerships, megaprojects, and corporate concessions. However, the financial market would welcome favorable regulatory terms for the efficient operation of Maputo Stock Exchange (BVM). For example, it came to our attention that just recently the Ministerial Cabinet approved a revision of the Tax Code over legal entities (IRPC), which amongst other changes will effectively double the level of withholding tax to 20% for income received from investments in listed debt securities. The financial market would also be pleased with a regulatory framework in aspects of wealth and asset management, sharia-compliant finance, and derivative products, which haven't received much attention.

The Bank of Mozambique has followed a policy to reduce interest rates, the most recent fall being from 11.5% to 9.5%, yet commercial banks still charge upward of 20% to customers. When will credit become more affordable in Mozambique?

Moza Banco is predominantly a corporate and business bank and, as such, is exposed to the aggressive reductions of the standing loan facility (FPC) that have occurred this year. As per our last asset and liabilities committee (ALCO), around 40% of our portfolios are indexed to the FPC. So, naturally, credit has become more affordable for our clients. However, it is important to emphasize that the bank does not obtain its funding from the Bank of Mozambique, whilst only a handful of institutional clients are cash flush and rather influential in determining the price level for deposits. Also, other variables need to be factored in to determine the price of credit, as, for example, the lengthy and costly process of recovering non-performing loans (NPLs) via the judicial system. A study done a few years ago by the World Bank demonstrated that per $1 of capital provided, the financial system only recovers $0.11 when it is forced to draw on the collateral.

“In addition to Chinese and Brazilian investors, we have seen a lot of US investors in 2012."

How would you evaluate the Bank of Mozambique's policy to further depreciate the metical (MZN)?

We have to be extremely careful in terms of the effect of high-profile investments and the natural resources that have recently been discovered, such as gas, coal, and maybe oil in the near future. If our currency becomes too strong, it will become non-competitive for the traditional export products such as sugar, tobacco, cotton, and wood. It could eliminate the agricultural sector, for example, and we may hurt the tourism sector as well. I am a bit skeptical on how this will evolve, but I am positive that the Bank of Mozambique and the IMF will regulate together in order to make sure the traditional sectors are not neglected. This is very important, as more jobs are created via the more traditional sectors.

Are you expecting the metical to continue to depreciate?

I expect there will be some depreciation until the end of the year, but it will not be volatile. The depreciation of the metical will be controllable and I think it will reach a maximum of MZN30/31 to the US dollar. Over the one- or two-year horizon, the metical is expected to trade broadly stronger amidst the inflow of capital for the realization of mega-projects in the resource sector and related businesses. There are also large investments in agribusiness, such as the production of glucose for paper manufacturing, sugar, and rice, as well as related manufacturing plants in the pipeline. Nevertheless, it really depends on the scale of investments that will be realized, the adequacy of the road, rail, and port infrastructure that are needed to make such investments feasible, and how the trade balance of the country will be managed.

Moçambique Capitais holds the largest stake in Moza Banco. To what extent is private equity developing Mozambique's financial environment?

It is still in the initial phases, but due to the dependence of corporations on leveraging the business, I foresee immense opportunities in this field. There are one or two deals that I have seen; however, I believe that there will be many more to come in the next five to 10 years. We need to diversify the traditional ways of obtaining finance in Mozambique.

In terms of international clients that are coming to Mozambique, what trends are you noticing in origin and areas of interest?

In addition to Chinese and Brazilian investors, we have seen a lot of US investors in 2012. We believe there are going to be substantial US investments coming online as well as German investments. I also believe that Middle Eastern investors are starting to look at Mozambique, and they have some delegations that are coming here and will have meetings with senior local representatives. US investor interest is generally oil and gas related, but they also come here to look at the agricultural sector as well. I think that, along with upstream oil and gas operations, there will be a trickle-down effect on the agricultural industry as well. In relation to agriculture, we should note that only 10% of farmable land is used for agriculture, which shows enormous growth potential for a sector that imports most of its basic products, such as cereals maize, rice, wheat, tomatoes, and potatoes.

How has Moza Banco positioned itself to serve these sectors?

We have many specialists and we have been able to create many niche markets. We want to develop this and create a different segmentation process. We are the only bank that has created a trade finance platform able to access both local and international clients. Mozambique is a country that produces little locally, and trade finance specialists and managers are something that will be needed. We have created a very strong corporate team and an international desk group. In 2012, our shareholder capital increased from $35 million to $45 million to be able to leverage these projects.

How has the increase in share capital impacted your position in the market?

I do not like to speak about numbers because we are a fairly new bank, having been around for only four-and-a-half years. However, Moza Banco has steadily improved its position in terms of deposits and in terms of credit. We are the largest of the small banks in terms of assets, currently ranked fifth in this category, though we still want to grow. We have an extremely aggressive expansion plan according to which we will have 23 branches by end-2012 and 30 branches by end-2013. It is an extremely aggressive expansion plan, but our main focus is on human resources, as that is the main capital of any bank. We conduct a very important training program before we open any branch. The bank's main focus is definitely on human resources. We have launched a training school and the staff are monitored at the end of every training day. It is definitely a program that has a huge investment cost, but we are positive that it will pay off in terms of training and upgrading the skills of our workers.

In terms of your portfolio for commercial corporations, what is the split between SMEs and larger domestic companies?

Moza Banco has international investors, but it cannot neglect local entrepreneurs and companies. We have a corporate area, a business area, and we have gone into the retail segment. The retail market is a profitable business, and we have to look into the retail banking area—specifically consumer loans, mortgages, and other credit facilities. We provide mortgage loans, but we do not sell them as our major product because we believe they would be difficult to manage in terms of our asset/liability allocation. There is definitely growth potential in the retail segment, and our portfolio has been diversifying since the beginning of 2012 due to geographical and branch expansion. We believe that, as we grow, 25% to 30% of our profits will come from retail banking.

© The Business Year - January 2013