Mozambique: Banks’ mandatory reserves swelled to new record in September

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Mozambique: Banks’ mandatory reserves swelled to new record in September

1:46 CAT | 25 Nov 2024

File photo: Lusa

Since the end of December 2022, when they amounted to 62,144 million meticais (€933 million), the volume of bank reserves held by the central bank has already increased by more than 332%.

The mandatory reserves of Mozambican banks grew again in September, reaching a historic accumulated 268.392 billion meticais (€4.031 billion) and increasing 13% in the last year, according to official figures seen by Lusa on Monday.

According to data from statistical reports from the Bank of Mozambique, the volume of these mandatory reserves has been breaking consecutive monthly records for almost the last year-and-a-half. In September 2023, they amounted to 237.092 billion meticais (€3.561 billion).

At the beginning of January, 2023, the Bank of Mozambique set the mandatory reserves of commercial banks at the central bank at a ratio of 10.5% in national currency and 11% in foreign currency.

READ: Mozambique: Mandatory reserves held by banks grew again in July to all-time high

However, in the first six months of 2023, in order to “absorb excess liquidity in the banking system, with the potential to generate inflationary pressure”, the central bank increased the ratio twice.

The last of these increases took place in June last year, with mandatory reserve ratios reaching 39% for deposits in national currency and 39.5% in the case of foreign currency to be held in bank reserves.

Since the end of December 2022, when they amounted to 62.144 billion meticais (€933 million), the volume of bank reserves held by the central bank has already increased by more than 332%.

On September 30, the Bank of Mozambique decided to keep the reserve requirements of commercial banks unchanged at these maximum values, at least until November 27, the date of the next meeting of the Monetary Policy Committee (MPC), despite previous calls from business leaders and the International Monetary Fund (IMF).

The IMF advocates reducing reserve ratios to boost the economy, advising alternatives to absorb excess liquidity and remunerate reserves.

“Reducing high reserve requirements is essential to ease financial conditions. Although the Mozambican financial system has a structural liquidity surplus, the significant increases in reserve requirements in 2023 [from around 10% to 40%] (…) may have been greater than necessary to absorb excess liquidity,” reads the IMF’s report on the fourth review of the Extended Credit Facility program, completed in July.

On July 25, Mozambican businesspeople pointed out the lack of foreign currency in the market, leading to delays in payments abroad, fines and losses in invoicing, and called on the central bank to reduce the mandatory reserve coefficient, which has so far been ineffective.

“In general, the lack of foreign currency in the market has constrained the process of paying invoices abroad,” stressed the vice-president of the CTA, Zuneid Calumia.

Source: Lusa