Friday, July 12, 2024

Financial analysis: increase in non-performing loans signals concerns for Mozambique

The Bank of Mozambique today released alarming data on the increase in non-performing loans in the country’s financial market. According to information from the Financial Stability Bulletin, published recently by the central bank, companies and families with credit in commercial banking are not properly honoring their commitments, resulting in a worrying rise in asset quality.
By June of this year, total credit to the economy amounted to just over 300 billion meticais. However, the non-performing loan (NPL) ratio, expressed as the proportion of NPLs to total credit, rose to 10.58%, compared to 10.02% in June 2022, significantly exceeding the conventional benchmark of 5.0%.
The Financial Stability Bulletin also reveals that the coverage of NPLs by specific provisions increased from 67.99% to 70.61%, indicating an active response by banks in preparation for possible defaults. This change occurred between June 2022 and June 2023, after reaching 71.84% in December 2022.
The Commerce sector led the statistics, accounting for 30.50% of the total NPL last June, followed by Industry, with 23.01%, and Transportation and Communications, with 19.46%. These figures indicate a generalized challenge for different sectors of the Mozambican economy.

Despite this scenario, the report highlights that commercial banks, despite facing high levels of non-performing loans, continue to record notable profits. Net profits for the year increased by 1.2 billion meticais to 14.6 billion meticais in June 2023.
The explanation for this apparent contradiction lies in the 4.4 billion meticais increase in net interest income. Return on assets (ROA) stood at 4.64%, and return on equity (ROE) reached 18.38%, indicating the banks’ ability to maintain profitability amid the challenges of the economic environment.
Meanwhile, it is important to note that the cost-benefit ratio in commercial banking operations increased to 54.42%, up 1.09 percentage points year-on-year. This variation suggests a slight reduction in banking efficiency, indicating the need for more effective management in the face of the current challenging context.

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