Ratios Drop as Banking Sector Struggles to Keep Pace with Growth

The latest figures from the Bank of Mozambique reveal a decline in key ratios, signaling concerns about the banking sector’s ability to keep pace with rapid economic growth.

Non-Performing Loans (NPL) Ratio Surges

According to data released yesterday, the NPL ratio surged to 5.3% in 2014, up from 2.3% in 2013 and 15.1% in 2012. This represents a significant deterioration in the sector’s credit quality.

Leverage Ratio Remains Stable

Meanwhile, the leverage ratio remained stable at around 9.4%. However, profitability ratios ROA and ROE showed some improvement, rising to 2.10% and 22.20%, respectively.

Banking Sector Regulations

The Bank of Mozambique has implemented a supervisory framework based on Basel II guidelines, which includes regulations and laws aimed at ensuring the stability and soundness of the financial system. The banking sector is regulated by:

Central Bank Law
Law of Credit Institutions and Financial Companies
Law on Anti-Money Laundering and Combating the Financing of Terrorism

Challenges Facing Banking Supervision

Despite these efforts, the sector faces several challenges, including:

Compliance with Basel Core Principles
Implementation of Basel II framework
Cross-border supervision
Rapid economic growth
Shortage of skilled human resources

Focus on Financial Inclusion and Promoting the Metical

In a related development, the Bank of Mozambique has announced that it will focus on promoting financial inclusion and the value of the metical through initiatives aimed at increasing access to financial services for underserved segments of the population.

Mechanism to Supervise Islamic Banking

The Bank of Mozambique has no specific regulatory framework for Islamic banking, and therefore, there are no Islamic banks in the country. The regulatory framework is aligned with Basel Committee for Banking Supervision principles.

Source: Bank of Mozambique