BusinessCountry FocusAngola's financial institutions grow, but profits face pressure

Tue,21Nov2017

Posted on Friday, 14 February 2014 10:17

Angola's financial institutions grow, but profits face pressure

Banco Nacional de Angola has taken measures to reduce dependence on the US dollar. Photo©ISSOUF SANOGO/AFPNew oil legislation will give Angola's currency and banks a boost, but for some, non-performing loans are spreading at an alarming rate.

 

Banks in Angola are growing and diversifying fast, pulled in the slipstream behind the oil and gas economy, although their profits have been hit by lower interest rates and higher levels of bad debt.

There is no other bank in Angola right now that can match our capabilities or experience

In 1999, Angola had just six banks; now London-listed Standard Chartered hopes to become the 24th bank with a full operating licence.

Standard Chartered opened a representative office in Luanda in February 2013 in a joint venture with state-owned insurance provider Empresa Nacional de Seguros de Angola (ENSA).

Now it offers clients offshore services, trade financing, syndicated debt and foreign exchange services.

A full licence will allow Standard Chartered to open a branch network.

Standard Chartered Angola chief executive Miguel Bartolomeu Miguel says the initial targets are big corporate clients: "Our primary focus in Angola will be towards oil and gas companies," he tells The Africa Report.

"After that [we'll focus on] multinationals, and in the longer term we aim for large Angolan entities."

Standard Chartered wants to capitalise on its extensive networks in Asia to facilitate trade links with Angola.

"There is no other bank in Angola right now that can match our capabilities or experience," says Miguel.

Angola is already China's largest African trading partner.

Kwanza in demand

Head of capital markets at Angola's state oil company Sonangol until 2009, when he joined Standard Chartered, Miguel says: "We believe we are coming in at a very good time. Under new Angolan legislation oil companies are required to pay for their operations in local currency through local banks. This presents us with a big window of opportunity."

The new foreign exchange law first came into effect in July 2013 as part of a move by the central bank, the Banco Nacional de Angola (BNA), to strengthen the kwanza and reduce the economy's dependence on United States (US) dollars.

Despite fears that the new system would delay payments and hit the financing of oil production, IMF representative in Angola Nick Staines says: "The initial view is positive and that things are working well. There was anxiety that there would be a shortage of US dollars."

Instead, the opposite happened: "More dollars [are] being sold to commercial banks, so that operators can buy kwanza to pay their suppliers. This means less of the dependence on the Banco Nacional de Angola to auction those dollars."

With fewer greenbacks on the streets, says Staines, the BNA could have more control over the kwanza.

Debt shoots up

According to an October 2013 report from international accountants KPMG, Angola's banks grew by 14% in 2012 but profits dipped by more than 30%.

The BNA announced in October that credit growth rose by 26% in 2012 and banks' assets grew by 14%.

Non-performing loans shot up to 166.5bn kwanza ($1.7bn) – about 84% higher than in 2011 – partly because of a weakening real estate market and delays in payments for government contracts.

Standard Bank chief executive Pedro Pinto Coelho says that his bank, the first South African bank in Angola, was back in the black after two years of losses reflecting big initial investments: "We are swimming against the tide. Our credit book is new, so we don't have a heap of historic debt like many banks. Interest rates were already coming down when we started out, so we didn't have that free ride that others had."

He sounds a note of caution: "There are too many operators in the financial system for an economy like Angola, and we will see some consolidations."

The KPMG report also said that the country's top five banks control 78% of assets in the banking sector.

Yet Coelho is confident that well-run and competitive banks would emerge stronger as Angola's oil-driven economy starts to diversify. ●

 



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