Mozambique: Tax Authority suspends inspections and audits of commercial establishments - AIM
DW
Is Mozambique on the brink of a banking crisis? The opinions of analysts sought by DW Africa are divided. The Economist Intelligence Unit says yes, and points the finger at the government. A Mozambican economist rejects the hypothesis and foresees “more robust financial system”.
On November 14, O Nosso Banco, Mozambique’s third largest among banks with mostly national capital, closed its doors to the public after the institution’s financial problems dictated the cancellation of its license by the Bank of Mozambique. It was the second financial institution to warrant Bank of Mozambique intervention, the regulator having at the end of September suspended the board of directors and executive committee of Moza Banco to “protect the interests of depositors.” Unlike Nosso Banco, Moza has not been liquidated and is being prepared for sale.
Other banks are currently under Bank of Mozambique supervision. The institution says there is “no reason to panic because the banking system is stable and solid” and calls on Mozambicans to trust them. However, some say that a crisis is inevitable, with more problems expected in the sector soon.
“The EIU has been anticipating significant pressures on banks for several months,” says Charlotte King, of the British consultancy Economist Intelligence Unit (EIU), who says that Mozambique is “certainly” on the verge of a banking crisis and that “the failures of Moza Banco and O Nosso Banco validate these forecasts.”
The researcher does not believe, however, that one can speak of a domino effect on the basis of these “two specific cases”. Moza Banco, for example, is the only one that belongs entirely to Mozambican investors and O Nosso Banco is the only one majority-controlled by the state. Still, the analyst believes that “the pressures on these two banks will certainly have a negative effect on other banks as well”.
Solution lies in the end of the crisis
According to the Bank of Mozambique, the system is “well capitalised” and has “liquidity to meet market needs”. Taking the current financial problems of the government into account, the Economist Intelligence Unit disagrees with this view of the sector.
The EIU says the devaluation of the metical, rising inflation and aggressive austerity measures are undermining the quality of banks’ credit portfolios. At the same time, these financial institutions are dependent on state-owned companies, which exposes the financial system to sovereign risks. With the increase in liquidity pressures, the risk of a banking crisis will continue to increase in the short term, the British consultants predict.
One of the main problems, according to King, is the amount of toxic assets accumulated by the Government or, in other words, the amount of damages the Mozambican executive has become liable for. “As the government is currently in a liquidity crisis, this will have a significant negative impact on the quality of the banks’ credit portfolios,” King says, adding that the EIU predicts the worsening of the government’s financial crisis “in the coming months”, which “will lead to more defaults”.
Tighter referee
Hipolito Hamela, an economist and professor at Eduardo Mondlane University, has a different perspective on the current situation of the Mozambican banking system, “absolutely” rejecting that the country is on the verge of a banking crisis.
“What is happening is that people are not used to seeing the Bank of Mozambique working as it is working,” says Hamela. “It’s like having a referee that people got used to seeing let some things go by. They are happy because the referee did not blow the whistle for a penalty that would have ruined a marvellous move. People are not used to this extreme: a referee – the Bank of Mozambique is a referee of the financial and banking system – which is quite strict,” he explains.
Hamela points out that these “minor shortcomings that the referee has so far let go” have affected many people, giving as an example the clients who are disadvantaged by the closing of O Nosso Banco. However, the economist believes that the policies of the Bank of Mozambique will eventually have a positive effect, resulting in a “more robust, more rigorous, reliable financial system, ‘clean’ in the eyes of the regulator, as banks follow all the precepts to operate in the system”.
Difficult path to the happy ending
Hamela admits that “there will be problems in the economy, for both companies and consumers,” but believes that “the financial system will become more solid”. “It is not possible to implement these policies without winners and losers, but I believe all will be well in the end,” he says.
According to the Mozambican economist’s forecasts, the private sector “will suffer significantly”. “On the one hand, prices are rising, people have less and less purchasing power, demand is contracting. On the other hand, the cost of doing business will increase because interest rates will increase even more.” A scenario that, combined with “the state’s resorting to domestic debt to meet its expenses due to the problems it is having in accessing foreign capital, will result in a private sector competing with the state for the meagre resources that commercial banks in Mozambique have to grant credit. This will bring problems to small and medium-sized enterprises,” the economist concludes.
For Charlotte King, “Bank of Mozambique measures have been more encouraging in the last month,” and the closing of some banks may have a positive side.
“The Bank has been raising interest rates very aggressively and is well aware that this will have a negative effect on several banks and the economy. By raising interest rates, the Bank of Mozambique is anticipating – and possibly orchestrating – a certain consolidation in the markets”, she explains. “Some of the smaller banks that have emerged over the past 10 years are working on unsustainable business plans, so this is not necessarily a bad thing if some of these banks – in a well-managed and appropriate way – are closed,” she concludes.
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