The banking sector remained solid and resilient during the period under review, with growth in profits and adequate levels of capitalization and liquidity, according to the Financial Stability Bulletin released by the Bank of Mozambique last December. Meanwhile, in terms of asset quality, the non-performing loans ratio stood at around 10%, above the conventional benchmark of 5.0%.

Concentration levels in the banking sector

In June 2023, the Herfindahl Hirschman Index (HHI) 10 of the banking sector’s assets, deposits and credit stood at 1,434, 1,605 and 1,286 points respectively, with market concentration remaining at a moderate level.

The three systemically important domestic credit institutions (D-SIBs), namely BCI, BIM and Standard Bank, jointly accounted for 60.99%, 64.97% and 54.07% of the banking sector’s assets, deposits and credit, respectively, in the period under review.

Balance sheet structure

At the end of the first half of 2023, total assets amounted to 887 billion meticais, representing growth of 3.67% and 4.77% compared to December and June 2022, respectively.

This positive variation, compared to the same period in 2022, was essentially due to the growth in cash and cash equivalents of 136.56% and financial assets of 29.53%, mitigated by the fall in investments in credit institutions and other assets of 65.47% and 24.86%, respectively.

In terms of asset composition, the banking sector continued to focus on investing in highly liquid and profitable assets.

Assets considered more liquid and less risky, consisting of cash and cash equivalents, investments in credit institutions and financial assets, accounted for 49.96% of total assets (47.09% in December 2022 and 44.30% in June 2022).

Loans net of impairments continue to represent a substantial portion of the banking sector’s balance sheet, accounting for 31.68% (31.59% in December and 31.19% in June 2022).

The items “other assets” and “tangible and intangible assets” represent 14.60% (17.17% in December 2022 and 20.36% in June 2022) and 3.77% (4.14% in December 2022 and 4.16% in June 2022) of assets, respectively.

Liabilities and equity
In the period under review, the banking sector’s total liabilities amounted to 731 billion meticais, representing an increase of 28.8 billion meticais (4.10%) compared to the same period in 2022. This variation was fundamentally the result of the 19.2 billion meticais increase in resources at credit institutions compared to the same period in the previous year.

Deposits, amounting to 615.5 billion meticais (of which 76.12% in national currency and the rest in foreign currency), are the largest source of funding for credit institutions and represent around 84.25% of total liabilities.

The banking sector’s equity amounted to 155 billion meticais, an increase of 8% compared to the same period in the previous year. The annual variation in this item was basically due to the increase in net profits for the year of 1.2 billion meticais, corresponding to 9%.

Financial soundness indicators

The banking sector’s capital adequacy in relation to exposure to economic and financial risks remained solid during the first half of 2023.

In this context, the solvency ratio stood at 23.33% (26.95% in December and 26.76% in June 2022), well above the regulatory minimum (12.0%). Compared to the same period in the previous year, this variation was due to a 7.51% increase in risk-weighted assets and a 1.25% increase in own funds.

The Tier 1/Risk Weighted Assets ratio stood at 26.02% (27.52% in December and 27.33% in June 2022), above the regulatory minimum (10.0%), driven by the growth of Tier 1 in smaller proportions than risk weighted assets. This variation translates into lower coverage of higher quality capital over risk-weighted assets.

The leverage ratio, another indicator of capital adequacy, which gives an indication of the extent to which assets are financed by equity, stood at 12.72% compared to 12.97% in December and 12.92% in June 2022.

Asset quality
Asset quality, as measured by the ratio of NPLs to total loans, remained relatively unchanged in the period under review. The NPL ratio stood at 10.58% (8.97% in December and 10.02% in June 2022), above the conventional benchmark of 5.0%.

NPL coverage by specific provisions increased from 67.99% in June 2022 to 70.61% in June 2023, after 71.84% in December 2022.

At sector level, Trade had the largest share of the total NPL in June, with 30.50% (28.76% in December 2022), followed by Industry, with 23.01% (21.53% in December 2022), and Transport and Communications, with 19.46% (20.38% in December 2022), as shown in Graph 7.

Profitability

In the period under review, the banking sector continued to make a profit, as net profits for the year increased by 1.2 billion meticais to 14.6 billion meticais in June 2023.

This variation is fundamentally due to the 4.4 billion meticais increase in net interest income.

In general, the main profitability indicators were relatively higher than in the same period last year (Table 3).

Return on assets (ROA) stood at 4.64% and return on equity (ROE) was 18.38%.

The net interest income ratio shows that around 69% of banking income comes partly from financial intermediation (attracting savings and granting loans).

The cost-to-income ratio stood at 54.42%, an increase of 1.09 percentage points on the same period last year, indicating a slight reduction in banking efficiency.

Liquidity and fund management

In June 2023, the main liquidity indicators remained at high levels, compared to the same period in 2022, which ensures the continuity of the banking sector’s financing operations (Table 4).

The transformation ratio of deposits into credit stood at 49.35%, due to the 5.24% increase in credit, which outstripped the 2.40% growth rate in deposits.

Meanwhile, deposits continued to represent the banking sector’s main source of funding, accounting for over 95.15% of the total (98.76% in December and 98.02% in June 2022), with the remaining sources of funds maintaining a residual weight (Graph 9).

In terms of structure, 58.95% corresponds to demand deposits, 39.08% to term deposits and 1.97% to other deposits. Both demand and term deposits recorded increases equivalent to 3% and 1%, respectively, when compared to the same period in 2022, thus contributing to the continued strengthening of the banking sector’s funding flows.

Banking Sector Ranking

Meanwhile, in the ranking of the 100 largest companies in Mozambique – 2023, the study conducted by KPMG Auditores e Consultores, SA, referring to the 2022 financial year, the sectoral analysis indicates that Banco Comercial e de Investimentos (BCI), with a turnover of MZN 20.315 million, was found to be the best financial institution in Mozambique.

In general terms, the banking sector remained solid and resilient, with growth in results and adequate levels of capitalization and liquidity, which favoured the prevalence of systemic risk at the moderate level. Even so, the sector continued to face risks stemming from the worsening levels of public debt and the rise in the non-performing loans (NPL) ratio.