Angola Banks Appeal for Bailout as Oil Slump Cuts Liquidity

LUANDA (Capital Markets in Africa) – Angolan banks are appealing to the government to help put together a bailout package to protect account holders as lenders reel from low oil prices that make up almost all of the nation’s foreign-exchange earnings.

Financial assistance could come from the administration of President Jose Eduardo dos Santos or be shared by all of the southwest African country’s 28 operational lenders, Amilcar Silva, chairman of the Association of Angolan Banks, said in an interview in the capital, Luanda. He didn’t specify whether lenders were calling for a liquidity boost that would improve the industry’s ability to convert short-term assets into cash, or capital injections aimed at struggling banks.

“Banks must be helped because they have liquidity problems that can cause negative situations in the whole system, putting its credibility at stake,” Silva said. “What we need to do is look at the matter in-depth and then decide the best way,” he said, adding that any agreements between the industry and financial authorities would have to cover the future viability of banks, and “if they have to return the money and when.”

The Angolan economy, sub-Saharan Africa’s third-largest, has been crippled by oil prices that have halved since mid-2014, with the International Monetary Fund estimating zero growth for 2016. Those woes have knocked the banking industry, causing bad debts to soar and business to slow as the government cuts spending. Dollar supplies have also dried up as foreign banks pulled out of supplying greenbacks to the country that Transparency International ranks among the world’s 20 most corrupt because of poor compliance with anti-money laundering rules.

Improve Compliance
Troubled loans more than tripled to 15 percent of total credit in September when compared with levels in 2010, and were at their highest as a proportion of regulatory capital requirements since 2014, according to data compiled by the country’s central bank and consultancy Eaglestone Advisory SA, which has offices in Johannesburg, Lisbon and Luanda. Foreign exchange fell to about a third of bank deposits from more than half in 2012, the data show.

Some of the country’s smaller lenders have been hit particularly hard, said Silva, whose group represents 24 of the country’s banks. Most of the industry’s profit in 2016 was split between foreign-exchange transactions and loans, he said. The association has set up a group of experts to improve member compliance with international rules and best practices, he said.

A spokeswoman at Angola’s central bank didn’t answer calls to her mobile phone or respond to e-mailed and text-message requests for comment. Angola’s kwanza weakened 20 percent against the dollar in 2016.

Stress Test
Revenue at the country’s banks might be “slightly” higher in 2016, Silva said, after the central bank raised the benchmark interest rate three times last year to a record 16 percent. While the industry’s return on equity is growing, it is still less than half of the 32 percent earned in 2010, according to the central bank and Eaglestone.

The central bank’s 2015 financial stability report showed almost half of the country’s banks would fail a stress test of holding 10 percent capital reserves if their loan book was lowered by two notches out of the seven risk levels, according to a Jan. 13 report in Luanda-based Expansao newspaper. The risk adjustment would also cut the industry’s 141.3 billion kwanzas ($848 million) net profit that year to a loss of 413.7 billion kwanzas and reduce the solvency ratio to 11.7 percent from 19.8 percent, the newspaper said.

Three of the banks wouldn’t meet liquidity requirements if clients withdrew half of their deposits, according to Expansao.

Bank Mergers
Lenders with liquidity or capital problems should consider combining with other banks, Banco BIC SA Chairman Fernando Teles told reporters in Luanda on Monday. BIC will continue lending to the government in 2017 because it is a “good payer,” he said, adding that about half of the $6.4 billion the company has extended in credit in Angola since starting operations there in 2006 has gone to the state.

“We don’t have liquidity problems, otherwise we wouldn’t be renewing” our pledge of increasing loans, Teles said. BIC’s bad-loan ratios are “not significant,” and adequately covered by provisions, he said, without being more specific.