Mozambican banking sector profits jump 44% with economy speeding up

 

The Mozambican banking sector faced an improvement in domestic economic growth in 2022 and saw profits jump 44% due to healthy margins and lower provisions, according to Eaglestone Securities.

The combined profit and loss account of the six largest banks in the country showed a strong improvement in net profit (44.6% YoY) in 2022, reaching MZM 23,404 million (USD 366 million), according to a new report by the consultancy.

“The evolution in net profit continued to reflect the favorable impact of higher interest rates on margins from customer loans and profitability from debt instruments. It also reflected a sharp fall in loan provisions (-61.9% YoY), especially from the reversal of impairments at BCI and the large drop in provisions at Moza”, Eaglestone said.

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Real GDP growth accelerated to 4.1% in the period from 2.3% in 2021 thanks to stronger growth in several key sectors of the economy, including agriculture and fishing, mining, transport and communication and retail.

On the other hand, annual inflation in the country continued to rise, reaching double-digit figures in the second half of the year for the first time since the end of 2017. This led the Banco de Moçambique (pictured above) to continue to raise its benchmark interest rate on two occasions for a total of 400bps, with the MIMO rate currently standing at 17.25%.

“The reserve requirements at the central bank were left unchanged during 2022. However, already in 2023, they were significantly increased in order to try to absorb the excess liquidity in the banking system, which tends to generate some inflationary pressures”, the report adds.

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The country faces “a lot of uncertainties on the international front, namely related to geopolitical factors and persistently high inflation levels, also impacted the domestic economy and activity in the sector”, according to Eaglestone.

Overall, the combined operating income of the six biggest Mozambican banks advanced 17.3% YoY, with revenues rising 11.5% YoY and costs 5.8% YoY, with the latter staying well below the average inflation rate of 10.91% recorded in the country in 2022.

Eaglestone estimates indicate that the combined solvency ratio of the six banks remained well above the required 14% after standing at 27.3% in 2022 (up from 25.6% in the previous year). Also, liquid assets (including cash and balances at the central bank and other credit institutions as well as financial assets) represented more than 63% of total assets.

 

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