Mozambique’s Banking Sector Gets a Boost with New Capital Requirements and Risk-Mitigation Policies

Enhancing Transparency and Stability in the Financial System

Mozambique’s banking sector has taken a significant step forward with the implementation of new capital requirements and risk-mitigation policies. These measures aim to increase transparency and stability in the financial system, reduce leverage, and improve liquidity management.

Basel II Principles Alignment

The Bank of Mozambique (BM) has introduced guidelines based on international best practices to address various risks, including:

Credit risks
Liquidity risks
Interest rate risks
Foreign exchange rate risks
Operational risks
Strategic risks
Reputational risks
Compliance risks
IT risks

These guidelines are part of the BM’s efforts to align with Basel II principles and enhance risk assessment techniques, ultimately promoting a stronger and more resilient banking system.

In 2014, the new capital requirements came into effect, increasing the minimum share capital requirement from MZN 70 million (approximately USD 1.1 million) to MZN 17 billion (approximately USD 270 million). This move aims to reduce leverage and improve liquidity management, ultimately promoting sustainable economic growth.

Risk-Mitigation Policies

Banks in Mozambique are now required to establish and disclose risk-mitigation policies, standards, and procedures. These measures aim to:

Define responsibilities and lines of authority
Control exposure to various risks inherent to banking activities

To monitor risk levels and facilitate timely adjustments to risk positions and exceptions, institutions must implement an information and management system that effectively tracks risk indicators.

Mozambican Association of Banks (AMB) Role

The AMB has played a key role in promoting good banking practices by publishing the Banking Code of Conduct in 2006. The code is legally binding and outlines principles for credit institutions and financial companies to follow when interacting with customers, including:

Assistance
Celerity
Clarity
Competence
Integrity
Legality
Non-discrimination
Respect for good banking practices

Expected Outcomes

The introduction of these measures is expected to promote a more robust and transparent banking sector in Mozambique, ultimately benefiting the country’s economy and its citizens.