Angolan Banking sector resilient to macroeconomic shocks

LUANDA (Capital Markets in Africa) – The International Monetary Fund considered that the heavy reliance of Angolan banks on the oil sector constitutes a key risk, mainly for state-owned banks, while private banks are better positioned to weather the impact of an oil shock given their initial strong position. It indicated that the main channel of transmission of an oil shock is through fiscal activity, as lower oil prices would contain public spending and weaken non-hydrocarbon sector activity and, in turn, weigh on the banks’ credit and liquidity metrics. In this context, the IMF assessed the resilience of the banking sector to macroeconomic shocks by conducting a stress test that measures the impact of the oil price shock of 2014 on the banks’ non-performing loans (NPLs) and their capital adequacy ratios (CARs) over the 2013-16 period.

The Fund assumed that the deteriorating macroeconomic conditions would put pressure on the private and public sectors, and would result in negative credit growth as well as in the deterioration of the banks’ NPLs ratios to over 20%. It indicated that the stress test results showed that the system-wide CAR dropped from 22% in mid-2014 to 18.2% in mid-2016, but remained well above the regulatory minimum of 10%. It noted that 20% of banks breached the regulatory minimum of 10% by mid-2015, up from 4% of banks before the oil price shock. In parallel, it said that smaller banks have higher capital buffers and are generally risk averse, while most state-owned banks are weakly capitalised and exposed to both the sovereign and the private sector, and require significantly higher recapitalisation needs to weather the impact of the shock.