This is after the Banco Nacional de Angola (BNA, the central bank), the Portuguese parent of BES Angola (BESA), required a state-rescue. BES’s problems started in May 2014 when it disclosed an audit ordered by the Portuguese central bank which found irregularities in the accounts of its parent, Espírito Santo International. Following the audit, the conglomerate and some of its units filed for creditor protection.
After investors lost confidence in BES, the bank was broken up into a ‘good bank’ and a ‘bad bank’ by the Portuguese government.
The bad bank received the toxic assets of the lender, including its exposure to souring loans and securities from its troubled parent, while the good bank received the deposits, good assets and a capital injection totalling $6.5bn from a domestic (Portuguese) resolution fund. It was then revealed that BES’s stake in BESA would be placed among the bad bank’s assets. The bad bank will enter liquidation and thereafter be managed by a bankruptcy administrator.
Angola has since appointed administrators to manage the indebted local unit of BES. BESA’s assets would be assessed and could be sold off or restructured, but the BNA has ensured that deposits at the bank would be guaranteed, and its business relations with existing clients would remain unchanged.
One of the announced measures already approved by BNA administrators is the naming of a new BESA board of directors, which will hold office for a maximum period of one year.
Angolan bank loans have more than doubled between 2007 and 2013, reaching $14.4bn at the end of last year. In addition, retail banks operating in Angola had $3.3bn in defaulted loans at the end of 2013, which was a rise of 50.7% compared to the 2012 figure.
The rise in defaulted loans is partly due to delays in payments by the government to its contractors, which also forces banks to increase their provisions to cover credit risks. However, at the end of April, Moody’s Investors Service released a largely positive report on the outlook for the Angolan banking system. The agency noted that Angolan banks will remain stable over the next two years, supported by a robust economy; the maintenance of deposit-funding bases and high liquidity buffers; and stable and adequate capital buffers. Total assets in the commercial banking sector reached around $79.6bn at the end of May 2014.
A few weeks before the BES revelations, the acting speaker of the National Assembly stated that Angola is committed to creating a strong and sound financial system with high levels of capital, liquidity and reserves, capable to ensure the economy and the operation of markets. Recent developments do not bode well for this goal, although the BESA situation is unlikely to spill over into the rest of the Angola financial system in any significant manner. The governor of the BNA has stated that the solution found for BESA will ensure the stability of the Angolan financial system and allow the continuity of the business relationship between depositors and the institution without any reservations.
In other central bank news, the Monetary Policy Committee (MPC) of the BNA decided on July 28 to cut the country’s benchmark interest rate from 9.25% to 8.75%, the first easing of monetary policy in 2014 following a 50 bps cut in November 2013. The MPC stated that the expansionary monetary policy intends to stimulate private sector credit growth.
The BNA’s resolve to support economic growth has been accommodated by downward trending consumer price inflation since the fourth quarter of 2010. According to the Angolan Instituto Nacional de Estatistica (INE), inflation increased slightly in July, ending a five-month long run of downward trending inflation. The most recent figures show that price inflation increased from 6.89% y-o-y in June to 6.98% y-o-y in July.
It should be noted that Angola’s economic performance is strongly linked to the country’s oil sector, with government revenue, export receipts and domestic production largely determined by the sector’s performance.
According to the country’s oil minister, crude production fell to 1.6 million bpd in June, making it increasingly unlikely that Africa’s second-biggest producer will reach its output target of two million bpd over the short term. The accommodative monetary policy will attempt to offset part of the disappointing performance in the oil sector, but overall GDP growth will certainly be negatively affected due to the structure of the Angolan economy.