Mozambique Banks Snared in Debt Crisis Must Merge to Thrive

(Bloomberg) -- Mozambique’s smaller banks should combine in an effort to overcome the blow dealt by government debt defaults after four lenders failed over nine months.

The country’s debt crisis threatens to unravel efforts by the central bank to strengthen the nation’s financial system through the introduction of new capital and liquidity rules. Central bank Governor Rogerio Zandamela said last week the measures might result in consolidation or force companies to change their operating models. The central bank didn’t respond to email questions sent last week.

“Mozambique’s banking sector faces a serious systemic risk of collapse,” said Robert Besseling, Johannesburg-based director at Exx Africa, which advises companies on business risks. “Rapid credit growth and concentration of bank loan books are the main risks,” while some of the country’s lenders bought significant amounts of loans now in default.

The economy of the world’s ninth-poorest nation is in turmoil after state-owned companies piled on more debt than the government, which guaranteed the loans, is able to repay. The loans hadn’t been disclosed, resulting in the International Monetary Fund and other donors withdrawing aid. A Kroll LLC probe found the companies couldn’t account for at least $500 million of the $2 billion in loans, most of which were arranged by Credit Suisse Group AG.

The central bank has already had to contend with four failures over a nine-month period. Moza Banco SA, O Nosso Banco SA, Microbanco Fides Mocambique SA and Caixa Cooperativa De Credito SA had to be taken over by regulators or cease operations, while Atlas Mara Ltd.’s BancABC Mozambique needed a cash injection from shareholders.

With 19 commercial banks, nine smaller lenders and 69 micro-credit organizations for a population of about 27 million, Mozambique has more banks per person than the continent’s two biggest economies of South Africa and Nigeria.

“The central bank is trying to correct things in the banking system,” said Fernanda Massarongo, a researcher at the Economics and Development Research Group in Maputo. It still needs to confront a sharp decline in the rate of credit growth, falling property prices and the potential manipulation of solvency ratios by banks to make themselves seem stable, she said.

Regulators insist the financial system is stable. While big lenders have an excess of liquidity, the smaller banks have too little, Zandamela said on June 19, adding that those lacking capital aren’t a systemic risk.

Mozambique lenders do have some buffers that might help the banking system even though the government’s debt obligations may exceed the country’s gross domestic product, according to analysts at BMI Research.

Almost 40 percent of the deposits they hold can’t be withdrawn without notice, reducing the scope for bank runs, BMI analysts said in a June 15 report. Furthermore, lenders are mostly domestic-deposit funded, while the high level of foreign ownership means there’s a source of funding should the industry run into difficulties, according to BMI.

The 19 registered commercial banks in Mozambique are mostly units of foreign lenders or controlled by international investors. Socremo Banco de Microfinancas SA, Moza Banco SA and Banco Nacional de Investimento SA are the lenders majority owned by Mozambican shareholders, according to their records. 

Barclays Africa Group Ltd. wanted to consolidate its Mozambican assets by bidding for Moza Banco, people familiar with the matter said in May, but the central bank chose to give the failed lender to the regulator’s own pension fund.

Mozambican banks, already under stress due to a shortage of dollars, will likely see credit-risks rise this year because of an increase in bad debts and investments by banks in the government-linked loans, Besseling said. There are also limited prospects that the IMF will entertain a new program or that donors will end their yearlong freeze on direct budget support, he said. 

Moza Banco bought $20 million of the ProIndicus loan from Credit Suisse and Millenium BIM also lent that state-owned company money, according to the Kroll report. Both Moza Banco and Banco Comercial e de Investimentos SARL had accounts for ProIndicus and Moza Banco also handled state-owned Ematum’s account, it said. The IMF is planning a visit to Mozambique from July 10 to discuss the results of Kroll’s audit.

“Even if some banks intend to hold out against market consolidation forces, the government is likely to require some to merge or open up for acquisition by imposing very strict liquidity limits and other regulations,” Besseling said. “The Moza Banco episode shows that some stakeholders in Mozambique would prefer to allow local political interests to benefit from the consolidation process, rather than to open up to foreign investors.”

--With assistance from Matthew Hill and Borges Nhamire

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net.

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Vernon Wessels, Antony Sguazzin