Mozambique’s Banking System: Strengths and Weaknesses

Overview

Mozambique’s banking system has made significant progress in recent years, with a stable financial sector and robust regulatory framework. However, the country still faces challenges in its supervision mechanism.

Key Performance Indicators

• Non-Performing Loan (NPL) ratio decreased from 5.3% in 2012 to 2.3% in 2014
• Return on Assets (ROA) increased from 1.9% to 2.0%
• Return on Equity (ROE) improved, reaching 22.20%

Regulatory Framework

The Bank of Mozambique has a strong regulatory framework in place, based on Basel II standards. The Central Bank Law and Banking Law provide the legal foundation for banking supervision, while the Anti-Money Laundering and Combating Terrorism Financing Law ensures that financial institutions are monitored for illicit activities.

Challenges

• Lack of qualified supervisors and bank examiners
  • Recruitment process hindered by shortage of trained professionals with academic qualifications in banking supervision
• Compliance with best practices
  • Mozambique aims to fully implement 25 core principles of banking supervision
  • Implementation of Basel II framework poses challenges, particularly for local banks without international parent companies

Islamic Banking: A Growing Trend

Mozambique does not have a specific regulatory framework for Islamic banks, as the country’s banking system is dominated by conventional banks. However, the regulatory framework is in line with Basel Committee for Banking Supervision principles, which could pave the way for the introduction of Islamic banking in the future.

Conclusion

Mozambique’s banking system has made significant progress in recent years, with a stable financial sector and robust regulatory framework. While challenges remain, particularly in supervision and compliance, the country is well-positioned to continue its growth trajectory.