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Fitch: Divergence Widens between Angola's Banks
March 24, 2017 / 12:20 PM / 8 months ago

Fitch: Divergence Widens between Angola's Banks

(The following statement was released by the rating agency) LONDON, March 24 (Fitch) The recapitalisation of state-owned Banco de Poupanca e Credito (BPC), Angola's second-largest bank, highlights the growing discrepancy between the country's public- and private-sector banks, says Fitch Ratings. State-owned banks are undergoing restructuring and face greater challenges over capital, foreign-currency (FC) liquidity and asset quality. A weak operating environment weighs heavily on the performance of all Angolan banks and sluggish credit demand has taken its toll. However, the data mask sharp differences between them. BPC, the country's leading retail lender, is undergoing far-reaching restructuring, initiated in September 2016. Overseen by the Ministry of Finance and the Banco Nacional de Angola (BNA), senior management has been replaced and an in-depth review of the loan book is being conducted. Impaired loans could be more than double the sector average, reaching 30% of total loans, according to the BNA. Media reports suggest capital shortfalls at BPC are about USD1.4 billion, which is sizeable considering the size of the country's banking sector - USD65 billion equivalent of total assets and USD6.8 billion of total equity at end-January 2017. However, BPC's recapitalisation will not add to Angola's FC liquidity shortages because any capital injections will be made in local currency. Two more state-owned banks are being restructured - Banco de Desenvolvimento de Angola, the development bank, and Banco de Comercio e Industria, a small commercial bank. We are not aware of any restructurings among private-sector banks. Angolan banks will report capital adequacy ratios in line with Basel II from end-June 2017 and must be fully compliant with these rules by end-2017. The BNA says that impact studies conducted in 2014 and 2015 highlighted no material expected shortfalls under Basel II. We believe this is likely to be the case for the leading private-sector banks, which we expect will comply with the BNA's minimum requirement of 10%. However, BPC will require additional capital to meet minimum Basel II requirements, in our view. All banks are struggling to access essential FC to satisfy their customers' trade finance needs in a country heavily reliant on imports. International capital markets are not open to Angolan banks and international lenders are reluctant to provide unsecured credit lines. A handful of correspondent banks are still providing confirmed letters of credit but many require Angolan banks to deposit cash to guarantee the transactions. Monthly sales of FC by the BNA have fallen to an average of about USD450 million this year from USD750 million last year. The BNA's website highlights that some sales are specifically directed towards settling BPC's FC external obligations, suggesting that the bank is reliant on support for FC liquidity. Press reports also suggest that state-owned Banco Economico, emerged from the failed Banco Espirito Santo Angola, is also reliant on BNA FC liquidity. Loan quality is weakening, with non-performing loans reaching 15% of total loans at end-October 2016, up from an average 11% over the period 2013-2015. Unreserved impaired loans were equivalent to 20% of sector regulatory capital. However, we believe asset-quality problems are understated because public-sector risks are not classified as impaired in Angola and restructured loans, of which there are many, are not captured in the regulatory impairment figures. Recredit, a "bad bank" owned by the Ministry of Finance, was established last year to take over selected non-performing assets of BPC. In September 2016, an issue of USD1.4 billion of government bonds was approved to fund Recredit's acquisition of BPC's impaired loans. The loans have not yet been transferred and public disclosure regarding Recredit is limited. We affirmed Angola's sovereign rating on 17 March at 'B' with a Negative Outlook. Contact: Janine Dow Senior Director, Financial Institutions +44 20 3530 1464 Fitch Ratings Limited 30 North Colonnade London E14 5GN David Prowse Senior Analyst, Fitch Wire +44 20 3530 1250 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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