Economic Expansion Benefits Mozambican Banks

by: Jessica Ferreira

The Mozambican banking sector benefited from stronger economic growth in 2023, as real GDP growth in the country accelerated to 5.0% in the period, according to a report by financial consultancy firm Eaglestone.

According to the report, the improvement in economic activity was largely due to the very significant expansion recorded in the mining sector (35.9%), which contributed 2.3% of the total real GDP growth of 5.0% in the period, compared to 4.2% the previous year.

However, despite the faster economic growth, some banks continued to refer to the country’s challenging economic context and the significantly tighter monetary policy recently implemented by the Bank of Mozambique as important impediments to faster growth in their net income.

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In 2023, the central bank decided to keep its key interest rates unchanged (after raising them by a total of 400 basis points in 2022, but it increased the reserve requirement ratio 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.

The combined profit and loss account of the country’s six largest banks saw a slowdown in net profit growth in 2023, after a significant expansion in the previous year, with the total net profit reaching MZM 25.299 million (USD 396 million), up just 6.8% on the previous year.

Overall, the banks’ banking income grew by 4.2% compared to the previous year, with revenues growing by 4.0% and costs by 3.9%, the latter being well below the country’s average inflation rate of 7% in 2023.

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In addition, total net loans decreased by 1.7% compared to the previous year, mainly due to the persistence of a high interest rate environment, which led to lower demand for credit and a more prudent approach to lending policy on the part of the main players in the sector.

Overall, the ratio of loans to deposits fell back to 37.6%, after dropping below 40% for the first time in 2022 and, according to the report, the combined solvency ratio of the six credit institutions remained well above the required 14%, standing at 25.6% in 2023 (compared to 27.2% the previous year).

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