The study “CFO Survey Mozambique 2024” highlights that the volatility of the financial markets, rapid technological advances and ESG factors are other major concerns for financial leaders.
In this context, Profile interviewed Eduardo Caldas, Assurance Partner at Ernst & Young (EY) Mozambique, who describes the main findings of the report.
Profile Mozambique: Tell us about the main objectives of this Ernst & Young (EY) CFO Survey?
Eduardo Caldas: This report was carried out in line with what Ernst & Young (EY) was already doing internationally. It is a report aimed exclusively at financial services, more specifically the banking and insurance sector, where we tried to reflect on the concerns of current and future CFOs operating in Mozambique, considering factors such as the talent of the people they work with, who therefore make up the finance team, as well as aspects related to technological acceleration and investment prospects considering the challenges they currently face.
Another objective, I would say a second objective, was to provide an insight into what the current and future challenges are for CFOs operating in Mozambique, obviously considering what the current market conditions are and the level of knowledge of the teams that make up the financial areas of the various banks and insurance companies.
A third objective of the study was to provide CFOs’ perspectives on the banking and insurance sectors in Mozambique. So to get a broad, holistic view of what the CFOs’ main perspectives are on this market.
PM: How many companies were surveyed in this report?
EC: We ended up surveying 37 companies, so 22 banks and 15 insurance companies, and of these 37 entities we received a response from 24, including 14 banks and 10 insurance companies.
We had a fairly representative sample, around 65% of the total number of questionnaires and contacts we made, and of the total number of contacts to which we received a response, 12 were from Directors (CEO/CFO), 2 from first-line Directors and 10 from Coordinating Directors.
PM: Why these two sectors: Banking and Insurance?
EC: Above all because the financial system, which obviously includes banking and insurance, is currently constantly evolving, both internationally and particularly in Mozambique, where there are various challenges and many opportunities in the market, arising from the frequent regulatory changes that are taking place in these two areas, I’m talking about Banking and Insurance.
The issue of digital transformation has been very important, especially in these two lines of business, banking and insurance, as well as the impact that monetary policies, imposed by the various central banks, have had on the market in general, especially in the banking sector through higher interest rates and the increase in the minimum reserve requirements, which is obviously a general concern. It should be noted that although restrictive monetary policies increase banks’ financial margins, they can also lead to an increase in banks’ NPLs. In the specific case of Mozambique, where the net interest margin ratio grew from 64% (2021) to 68.5% (2022), the NPL trend was fortunately the opposite, rising from 10.6% (2021) to 9% (2022). It should also be noted that despite the global trend of rising/maintaining interest rates, the Bank of Mozambique recently reduced its reference rate (“Prime Rate”) from 24.1% to 23.5%, giving a sign of some stability in controlling inflation and improving the investment outlook for the main investors.
I would say that it was a choice, because these are the sectors of activity that are having and suffering the greatest impacts in terms of the current macroeconomic and geopolitical framework that exists throughout the world, of great uncertainty, and which have significant impacts on banks and insurance companies.
This is fundamentally why we decided to choose these two sectors of activity and obviously to contact these CFOs.
PM: What are the main trends and challenges facing the banking and insurance sector in the current climate?
Clearly, the trends and challenges we are seeing domestically are the same as those we are seeing globally, because of the effect of globalization and the rapid volatility in the markets. Although both sectors of activity are undergoing major changes, obviously the banking sector is moving relatively faster than the insurance sector because of the global macroeconomic framework we have at the moment. There is a constant updating and strengthening of regulations by supervisors, sometimes becoming much more complex, covering not only matters related to accounting standards and supporting the closing of accounts process itself, but also in other areas, namely issues related to the new paradigms of digital transformation, fundamentally banking digitalization, the creation of technological accelerators and the ESG agenda with new policies on sustainability, the latter clearly a concern identified by the CFOs of insurance companies.
These are two sectors that are very dependent on the macroeconomic development of the country as a whole and, therefore, they are articulating and adapting to the needs and the various changes imposed by the regulators themselves.
MP: What can be done to increase investment and transactions? And which sectors are of most interest and why?
EC: Looking specifically at the areas of banking and insurance, which were the sectors covered by the aforementioned survey, we are talking about a market with too many players, 31 banks at the moment, including 15 commercial banks, 12 micro banks and 4 cooperatives, and 16 insurance companies, including 2 in the life branch, 10 operating in the non-life branch and 4 mixed, for a level of financial and insurance operations that is not sufficiently dimensioned to the structure of the existing offer. Perhaps this is why there have been a number of mergers/acquisitions in the market recently, especially in the insurance market.
Even so, we are talking about a market that globally manages a volume of assets of around 900 billion Meticais (2022) and has generated global profits of around 30 billion Meticais, i.e. around 3% of Mozambique’s GDP considering 2021 figures.
Given the current market conditions and the recent developments arising from the current geopolitical situation, I don’t think there are any prospects for major new investments in the financial area.
There is a growing tendency for current players to invest in their businesses in order to adapt to new regulatory requirements, to improve the quality of information in information systems, which is the basis for decision-making, and to meet the challenges posed by digital transformation, forcing the implementation of technological accelerators.
