Banking Sector Growth Outlook Robust, But Uneven

BMI View: Standard Bank 's purchase of a 51% stake in local insurance and fund management firm AAA Activos reflects the significant opportunities for foreign banks within Angola's financial sector. The attractive combination of robust economic growth prospects, improving financial regulation, rising levels of liquidity and low rates of penetration is likely to see competition within the sector heat up over the coming years. That said, the banking sector continues to fall short in its primary responsibility of capitalising the economy, with lending to the non-oil sector remaining weak.

Conditions Aligning For Strong Growth

From a fundamental perspective, the growth prospects for Angola's banking sector are highly favourable, underpinned by robust, oil-driven economic growth and strong inflows of foreign capital. This has been further boosted in recent years by government efforts to implement economic stabilisation measures - notably through more stringent foreign exchange restrictions and raising bank reserve requirements -which have in turn increased banking sector stability. Indeed, we expect the current account to maintain a healthy surplus over the coming years which has positive implications for domestic liquidity. Meanwhile, a stabilising currency and an increasingly credible central bank bode well for inflation and, in turn, asset growth.

Thanks to these favourable conditions, banking sector lending continues to grow at a healthy clip. In 2011, total domestic credit extended rose by 29%, according to data from the Banco Nacional de Angola (BNA), of which nearly 96% was issued to the private sector. Meanwhile, lending in local currency increased by around 75% as easing inflationary pressures and increased exchange rate stability boosted confidence in the kwanza.

Liquidity Levels To Remain Favourable
Angola - Current Account Forecasts (US$mn)

Moreover, a new law, which came into effect in May 2012, forcing oil companies to route capital transactions through local banks is likely to see vast quantities of additional capital pass through the system over the next few years. While the surge in financial inflows will provide a stern test of the sector's robustness, it also represents an opportunity, with greater liquidity in the system likely to boost loan growth and returns.

Vying For Position

The attractiveness of the market is underscored by growing foreign interest. Although around 20 commercial banks operate within Angola's capital Luanda, the market is dominated by five large institutions, which include Portuguese banks BPI and BES, as well as state-owned lender BPC. While not among the big five, Standard Bank, the continent's biggest lender, is targeting rapid expansion in the country, planning to open 20 branches by the end of the year (according to Reuters) as it seeks to establish itself as a market leader. Standard Bank's partnering with AAA Activos also reflects the opportunities for consolidation within the sector as foreign banks seek to gain a foothold in the fast-growing market.

Positive Private Sector Credit Growth
Angola - Domestic Credit Breakdown (%)

A number of banks may also have half and eye on a potential stock market launch which would have a major impact on the country's under-developed capital markets. While plans to launch the Angola Stock Exchange appear to have been shelved for the time being, the prospect of one being launched at some point in the future is a notable carrot.

Not All It Seems?

The low levels of banking services penetration in Angola - estimated at around 11%, according to a KPMG report - illustrate the sector's vast growth potential, but also reflect the highly uneven nature of the country's economic boom. While credit to the real estate and construction sectors has seen strong growth in recent years, this has largely been driven by oil-derived wealth concentrated in the hands of the elite. Banks, still relatively risk averse following the liquidity crisis in 2009, are reluctant to lend to non-oil industries, which is serving to inhibit growth in key sectors such as agriculture. Moreover, the consumer loan market - one of the key pillars of a healthy banking sector - remains largely undeveloped. Angola's large informal economy, financial illiteracy and poor infrastructure continue to represent major challenges to the development of a broad-based banking sector - challenges we do not expect to be overcome over the near future.

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Geography: Angola

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