Research

Research

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28 Junho 2024

Mozambican Banks: Net profit impacted by slower revenue growth

Economic activity continued to improve in 2023

The Mozambican banking sector benefitted from stronger economic growth in 2023, as real GDP growth in the country accelerated to 5.0% in the period from 4.2% in the previous year. The improvement in economic activity was largely thanks to the very significant expansion recorded in the mining sector (35.9%), which contributed 2.3% of the 5.0% total real GDP growth in the period. Despite faster economic growth, some banks continued to refer to the challenging economic backdrop in the country and the significantly more restrictive monetary policy recently implemented by the Banco de Moçambique as important impediments to faster growth in their net profit. In 2023, the central bank decided to leave its key interest rates unchanged (after increasing them a total of 400bps in 2022). However, it lifted the mandatory reserve coefficient in local currency from 28.0% to 39.0% and in foreign currency from 28.5% to 39.5% to absorb liquidity in the banking system and reduce potential inflationary pressures.  

Revenues impacted by slower growth in net interest income

The combined profit and loss account of the six largest banks in the country showed a deceleration in net profit growth in 2023 after a significant expansion in the previous year. Total net profit reached MZM 25,299 million (US$ 396 million), rising just 6.8% YoY. This net profit represents a ROE of 19.5% and a ROA of 3.47%. The evolution in net profit continued to reflect some improvement in revenue growth, although this growth was materially slower than the one recorded in the previous year. Overall, the combined operating income of these banks advanced 4.2% YoY, with revenues rising 4.0% and costs 3.9%, with the latter staying well below the average inflation rate of 7.00% recorded in the country in 2023. The cost performance of the sector largely reflected a higher increase in staff costs (accounting for more than half of the total cost base) than in the previous year. This was due to the stabilization of the exchange rate, as an important part of these costs is linked to foreign currency. This meant that the combined cost-to-income ratio of the six banks remained unchanged at 47.7% in 2023. Net profit was also impacted by a significant increase in loan impairments (36.9%) as some banks mentioned that they saw the need to be more prudent in managing their risk in the current higher interest rate environment. However, this impact was mostly offset by significantly lower other provisions, as one of the banks was able to recover loans and interests that had previously been written-off.

Asset quality ratios showed some improvement

Balance sheet data showed that the total amount that the six banks had deposited at the Banco de Moçambique nearly trebled in 2023 when compared with the previous year, accounting for 28.3% of the total assets. This followed the decision by the central bank to sharply increase the mandatory reserve ratios in both local and international currencies. Also, total net loans declined 1.7% YoY mostly because of the persistently high interest rate environment, which has led to a lower demand for credit and a more prudent lending policy approach by the main players in the sector. On the other hand, total deposits remained unchanged in the period and accounted for 90.4% of the total liabilities. Overall, the loans-to-deposits ratio declined further to 37.6% after falling to a level below 40% for the first time in 2022. Other data showed that the combined NPL ratio of these banks improved to 7.97% from 10.04% in 2022, while the NPL coverage ratio also improved to 90.5%. Finally, our estimates show that the combined solvency ratio of the six banks remained well above the required 14% after standing at 25.6% in 2023 (down from 27.2% in the previous year).