Credit conditions for Angolan banks will remain stable over the next two years, supported by a robust economy; the maintenance of deposit-funding bases, high liquidity buffers, and stable and adequate capital buffers, says Moody’s Investor’s Service in a new report.
However, banks will also continue to face challenges, owing to the lack of corporate transparency, and an inefficient legal system, which will elevate credit risks, said the report titled, “Angola’s Banking System: Overview and Outlook.” Angola (Ba3, positive) has the third-largest banking sector in sub-Saharan Africa.
Situated on the west coast of southern Africa with a population of over 21 million, it is Africa’s largest oil producing country after Nigeria (Ba3, stable). Fuelled by high oil revenues and robust economic growth, Angola’s banks are expanding rapidly, with total banking assets reaching $71 billion as of December 2013 ($39bn in 2009).
Moody’s expects stable credit conditions for Angolan banks over the next two years primarily supported by a robust economy. Moody’s expects real GDP growth of 6.8 percent in 2014, translating into credit and business growth for banks.
At the same time, the maintenance of deposit-funding bases and high liquidity buffers will bolster financial stability, while capital buffers will remain stable, with a Tier 1 capital ratio estimated at around 14 percent – 15 percent.
In Moody’s view, these buffers will allow banks to withstand unexpected mild pressures in the operating environment.
However, elevated credit risks, stemming from the lack of corporate transparency and an inefficient legal system, will continue to pose challenges for banks. Non-performing loans and loan-loss provisions will also remain high as a result, which will constrain banks’ profitability.
Moody’s expects profits will also remain under pressure from low interest rates and rising costs as banks expand their branch networks to increase banking penetration among the large section of unbanked population.
