Restructuring Banco Espírito Santo Angola (BESA) into Banco Económico
Initial Situation
In 2014, Banco Espírito Santo Angola (BESA) faced significant financial difficulties with approximately $5 billion in bad loans. This led to a substantial increase in its share capital.
Restructuring Process
Central Bank Intervention
The Angolan Central Bank detected large registrations of non-performing loans and issued sovereign guarantees.
- Sovereign Guarantee: The Central Bank provided a guarantee to support the bank’s operations.
- Provisional Directors: The Central Bank appointed provisional directors to oversee the bank’s activities.
- Prudential Rule Waiver: Temporary exemption from prudential rules allowed the bank to focus on resolving its issues.
Extraordinary Measures
The Central Bank took additional steps:
- Loan Portfolio Assessment: A thorough evaluation of the bank’s loan portfolio and assets for potential disposal or restructuring.
- Restrictions on Commercial Activities: The Central Bank imposed restrictions on the bank’s commercial activities to prevent further financial instability.
- Equity Adjustment and Provision Reinforcement: The Central Bank deemed it necessary to adjust the bank’s equity and reinforce provisions.
Impact of Measures
The measures led to:
- Withdrawal of Sovereign Guarantee: The Angolan State withdrew its sovereign guarantee, requiring the bank to rely on its own resources.
- Restrictions on Veto Powers: Provisionally appointed directors received a mandate to veto actions affecting the bank’s solvency or financial system safety.
Capital Injection and Name Change
The Central Bank ordered BESA’s shareholders to approve measures aimed at increasing the bank’s share capital. After the capital injection, the bank was renamed Banco Económico, S.A., with Sonangol becoming its majority shareholder.
Public Debt Issuance
The Angolan State issued public debt of €200 million through state-owned insurer ENSA to purchase ex-BESA assets and credits.
Conclusion
The restructuring process of BESA highlights the importance of a sound regime for financial institutions in maintaining foreign investors’ confidence in Angola. While certain practical obstacles remain, such as regulations regarding the Resolution Fund and Deposit Guarantee Fund, the use of remedial and resolution measures has improved the situation for Angolan financial institutions.
Key Takeaways
- Central Bank intervention can be effective in addressing issues with distressed banks.
- Capital injection and name change can revitalize a bank’s operations.
- Public debt issuance can provide necessary funding for asset purchases.
- A clear framework is essential for resolving losses resulting from restructuring measures.