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VERSÃO ACTUALIZADA BANKING IN REVIEW Angola 2008 Contents Presentation A reference in the Angolan economy 2 Banking in Review Supervision Risk control to generate value 4 Angola 2008 Mandatory reserves penalise financial sector profitability 8 EMIS has New Card Issue and Management Platform under preparation 10 This is the third edition of the 'Banking in Review' publication, which presents some enhancements comparing with last year's Risk management 14 publication following a philosophy of continuous improvement, particularly related to the development of some of the most critical Bankarisation and new distribution models 15 issues for the Angolan banking industry; the evolution of the distribution models, the more efficient risk management and the Capital markets preparation for the stock exchange opening. Opportunities in a crisis environment 17 This publication, the result of a partnership between ABANC More and better banking in Angola 19 (Angolan Banks Association) and Deloitte Angola, has become a reference to the sector and the Angolan economy, as seen in the Study 'Banking in Review Angola 2008' 31 improvement of the debate and transparency of the results, as well as in the diffusion of the industry success to other national and international forums. The main goal of the comparison with other markets and even within the sector is to lead and assist the development of several Banks competing in Angola and the sector as a whole, either through adoption of management and market best practices, either through innovation and creativity. This is our purpose to sponsor and participate in this study. On the other hand, we intend to support the narrowing between the financial sector and all the other economical sectors, which seek up to the banks, solutions to the development and implementation of their projects. Once again, we would express our thanks to Deloitte Angola team for the coordination and technical work, and to the associate members for their availability, which has enabled the presentation Property of a study that emphasizes the initiatives that each bank has been Deloitte developing towards the modernization and affirmation on the Rua Engº Costa Serrão, nº 13 • Luanda • Angola Angolan financial sector, Tel: (+244) 222 391 808 • Fax: (+244) 222 391 972 firstname.lastname@example.com Dr. José Massano Sponsorship Chairman of the Executive Board ABANC - Associação Angolana de Bancos ABANC – Angolan Banks Association Rua Dr. Alfredo Troni, nº 79 - 15º andar do BPC Caixa Postal nº 1847 • Luanda • Angola 30 July 2008 Telefax: (+244) 222 399 474 email@example.com Design, redaction, edition, graphical production and pre-print Editando - Edição e Comunicação Lda. Rua Joaquim Bonifácio, nº21 - 5º • 1150-195 Lisboa • Portugal Tel: (+351) 213 584 460 • Fax: (+351) 213 584 461 email@example.com • www.editando.pt Printing IDG - Imagem Digital Gráfica, Lda. 1 BANKING IN REVIEW Angola 2008 A reference in the Angolan economy It is with great pleasure that Deloitte Angola returns to conduct the study 'Banking in Review', a reference in the industry analysis in Angola, in close collaboration with the Angolan Banks Association. Since the study first edition, we have tried to follow closely the dynamism of the sector, improving the study. In its second edition the study become bilingual, thereby increasing the potential audience of the study, something very important taking into account the different and increasingly diversified trading partners of Angola. In this third edition, we have decided to further analyze and develop some issues that we consider of great importance for the financial sector at the present moment: • Despite the industry growth, the Angolan rate of bankarisation is still low, thus at a time when there are 16 banks in Angola, the question that raise is which distribution strategies may increase the rate of bankarisation of the Angolan population • At a time when the Stock Exchange has already started to operate, although using virtual companies, and that had become clear that the official opening is imminent, it's acceptable to question the degree of preparation of the different banks to better take advantage of this market mechanism in their benefit and therefore in the benefit of the Angolan financial sector • Finally, given the recent development of credit crisis in the United States and Europe, which have led to the muscular intervention of central banks to ensure the solvency of some banks, to develop some thoughts on the best strategies for risk management In 2007 the financial sector, aligned with the rest of the Economy, continued to show high levels of growth, although slightly lower than those observed in 2006. As happened last year, the biggest growth took place on the side of credit, with an evolution of 82.8%. The deposits still had an extremely relevant growth with an increase of 45.6% over the previous year. These high levels of growth raises a number of challenges to the Banks leaders in that it is essential to ensure the scalability of the various components that operationally support banks, may they be information systems that with business growth increase their importance, or processes and organization whose complexity tends to increase with business growth, or, finally, human resources, whose lack in the labour market is a painful reality. We hope this study and the whole debate and analysis around it contributes to the continuous development of this sector, which is absolutely structural for the development of the Angolan Economy and to its regional and global statement. For Deloitte Angola as a professional services firm, it is without a doubt an opportunity to improve our know-how and thus also improve our ability to continue providing a quality and excellence service to all our customers. Nuno Vaz Managing Director Deloitte Angola 2 BANKING IN REVIEW Angola 2008 Supervision Risk control to generate value The high rate of growth of the economy, with a substantial growth of underscored "the efforts made with a view to aligning prudential liquidity, increases the need to consolidate a monetary policy that will regulations with international standards, in compliance with the 25 open up the way to stabilisation of inflation and creation of Basel Principles directing banking supervision activities and actions" prudential rules that will encourage healthy development of Angola's and how "harmonisation of the process of implementation by financial system. Growth of the financial sector has been particularly operators of the financial system within the SADC member countries significant over the past three years, in step with the overall growth and the increased co-operation in this matter, particularly with regard of the Angolan economy and, from the standpoint of regulatory to the training of our supervisors were relevant to our Central Banks". architecture, the three sub-sectors – banking, insurance and capital market – have distinct supervisory entities, which articulate with each Institutional framework other in performing their duties. In this connection, a modern, The Banking Supervision Division is charged with ensuring the stability efficient financial system constitutes an essential instrument of and solidity of the financial system, the security of deposits and development, acting as a resource catalyser between the export depositors, and the protection of consumers of financial services. To sectors, which generate capital, and the rest of the economic fabric. this end it has a number of instruments, mostly of a preventive In recent years, the National Bank of Angola (BNA) has introduced nature, designed to ensure the stability of the institutions, though alterations to the prudential system with a view to progressively bringing about the conditions required to adopt the international accounting standards and, later, the Basel II Accord (see box). In 2007, "Progressive adoption of the International examples of the new regulatory framework for financial institutions operating in Angola include setting mandatory reserves at 15% of Accounting Standards will allow greater own funds and the adoption of a new Accounting Plan, effective as articulation between national and from January 1st 2007. Another area fundamental to increasing the credibility of the Angolan system within the international financial international institutions, an important system was the creation of a 'battery' of solvency indicators, which step towards obtaining a rating simplify comparisons with other countries, particularly at regional for our market". level. Just recently, on the occasion of the SADC Supervisors Meeting, the person responsible for BNA's supervision, Laura Monteiro, Carlos da Silva/Banco Privado Atlântico 4 BANKING IN REVIEW Angola 2008 "These profound structural changes must be faced if we are to promote our financial RISK-CONTROL market as a reference on the continent". IS THE RIGHT WAY José Massano/Banco Africano de Investimento The present context of the international economy "clearly indicates the relocation of the poles of growth. During many years we witnessed the hegemony of the West, the EU and the USA in particular. Today, we are witnessing the budding of a new pole, the engines of which are the emerging economies", points out Carlos da Silva, Chairman they replace neither competent management nor effective internal of BPA, for whom these "peculiar times, with the global control by the credit institutions and financial companies. economy experiencing a delicate and complex recessive Thus, from a distance, the Central Bank analyses economic and period, are the result of little concern for the quality of financial performance within the scope of internationally accepted credit extended during a decade of exponential global practices, monitoring compliance with the regulations. growth based on cheap raw materials and exceptionally low The aim of the Prudential Rules is to ensure the security and solidity interest rates". Now that "the framework has changed of the institutions, while also protecting depositors and investors radically in less than a year, with raw-material prices rising against possible risks of inadequate or fraudulent management by the sharply, mainly energy and food, and the consequent financial institutions. increase of inflationary pressures and of interest rates", Recent examples in the international context, such as the bankruptcy international banks are facing a "new crisis – the reduction of major institutions such as Bear Stearns and Northern Rock, merely of economic growth at the traditional poles and high add to the need for control by the central authorities of each country. interest are causing very difficult financial conditions for the Thus, the basis of supervision is to gauge the exposure to risk, taking life of companies on a very large scale, which could lead to own funds into account. This leads to limits, based on the degree of a need for further write-offs of assets in their books". risk of the assets, for shareholdings or for provisions designed to For the BPA chairman, this new context, allied to the cover loans and advances. In short, there are rules directed at considerable losses booked by the leading international influencing access to the market and others at controlling credit, financial institutions, poses a twofold challenge: "A growing market and exchange-rate risks. The first of these involves rules such need to control the levels of financial gearing and capital as control of acquisition of qualified holdings, verification of the ratios, so as to prevent crises of lack of liquidity at moments standing and experience of the members of the management and of greater market volatility"; and the need to adopt supervisory bodies, and imposition of minimum equity capital, while "extremely rigorous structures and methodologies in limits to concentration of risks for a single customer or limited set of extending credit, from the analysis of the dossier and cons- customers, limits to financial holdings or the setting aside of tant monitoring of the processes to the time when they provisions illustrate the rules of the second type. have been repaid in full". In Angola, own funds cannot be less than the minimum equity capital While it is true that the stage of growth and maturity of the and at least 20% of the net profit returned each year has to be Angolan financial system has allowed it to come through allocated to a legal reserve until such time as it equals the equity this crisis relatively unscathed, it should view as an example capital. In a preventive framework, the solvency ratio (which those problems "that are striking the world's leading finan- compares own funds with assets) should not be less than 10% and cial institutions", says Mr da Silva. loan-loss provisions should account for 2 to 4% of credit extended. Emídio Pinheiro, Chairman of the Executive Comittee of BFA, agrees that "since it does not yet have very much On the right path exposure to the international markets", Angolan banking The first step in safeguarding the proper working of the financial will not be particularly affected by the international financial institutions was the enactment of the New Accounting Plan, which crisis, "other than the increase of spreads on loans". largely reflects an approach to the Basel II Accord and the regulations Couto Lopes, Chairman of the Executive Comittee of on equity capital, and the need for capital for each type of risk. Finibanco Angola, is confident that despite "the fact that Angola's monetary policy guidelines have been praised by the situation of the international economy is complex and international institutions such as the World Bank, which concluded worrying", an oil producing country such as Angola, "with that, as far as inflation control, international financial reserves and about 20% of the whole of Africa's water resources, with growth of the economy other than in the oil area, such as agriculture, diamonds and other minerals, besides its exceptional agri- construction and financial services, are concerned, Angola "is on the cultural potential, has an economic and social future of right path". great hope". In turn, at the presentation of the study on Development in the But the "particularly serious international situation" imposes Provision of Financial Services and Improvement of the Efficiency of learning. Mr Massano, Chairman of the Executive Comittee the Banking Industry, Amadeu Maurício, the BNA governor, listed a of BAI, insists on the "principle of investing in sectors and number of constraints involving Human Resources, Information and products in which the risks are known and manageable", Propriety, Offer of Financial Services and Other Factors relating to and the "present crisis shows that this is the way. Ongoing Supply and Demand, which hampered faster growth in access to improvement of the quality of banking supervision, the bank loans. banks' ability to manage the risks, mainly those of a Greater banking efficiency called for "an increase of the offer of financial and credit nature, and to keep their balance sheets medium - and long-term loans, particularly to finance private inves- highly liquid" are fundamental to Angola and, therefore, tments, in a climate in which the government was making efforts in "the new prudential rules and the new Accounting Plan are the reconstruction of infrastructures to allow private activity, which welcome", concludes the BFA chairman. ought to be the engine of the economy, to become more dynamic". 5 BANKING IN REVIEW Angola 2008 "The banks have provided the market with a powerful signal of great commitment to Specifically, one of the biggest challenges "has to do with the financing households and the business of adaptation of the software, which is totally different and will require a huge effort by the banks, not only to accommodate the new companies". accounting structure, but also in terms of opening up the way to Emídio Pinheiro/Banco de Fomento Angola making better use of the IT platform in the production of mana- gement information". Aware of the weight of the institution that he heads – 100 branches, over 470,000 customers and assets totalling US$ 4.7 billion - Emídio Pinheiro, chairman of the Executive Committee of Banco Fomento de On the other hand, the Importance of the SMEs in driving the Angola (BFA), corroborates the ideas of "quite complex, demanding economy would suggest that specific measures be implemented for work", and that "in-house, the process has been launched so that we this segment, especially with regard to access to credit. shall be prepared to adopt the New Accounting Plan at the start of The third area of future development has to do with the problem of 2009, having passed all the test stages that have been planned". the cost of banking services, interest rates and the banking spread, and the structure of banking commissions, as well as with the evaluation of operating income and its interlink with competition, risk and transparency. Limits to financial Liquidity control Audit holdings (under 15% of own Banking industry adaptation funds and overall qualified As far as the financial institutions are concerned, the process of holdings under 60% of own funds) adaptation is welcome and inevitable, especially taking into account the developments that have taken place within the international financial system. Capital Minimum limits Limit of forex The introduction of the new Accounting Plan "demonstrates the position (up to 20% Adequacy (10% of Assets) of provisions (2% to 4% of the of own funds) Regulator's growth efforts to adapt the activity of the Angolan loan portfolio) financial system to best international practices", in the words of Carlos da Silva, chairman of the Board of Directors of Banco Privado Dependence Atlântico. Indeed, progressive adoption of the International Accou- on few customers Mandatory Reserves nting Standards "will allow greater articulation between national and (under 30% of own funds) international institutions, an important step towards obtaining a rating for our market", a process that will tend to strengthen "recognition and acceptance of the Angolan financial system by the major international players, a step essential to the insertion of the Angolan economy and financial system into the global financial chess- "Despite the complex and worrying board", concluded the BPA chairman, Of course, "the alteration of the present Accounting Plan is not an situation of the international economy, easy process", points out João Pinheiro, financial manager at Totta Angola has great hopes for its Angola. But "the adaptation has gone ahead as planned in con- junction with the National Bank of Angola through regular moni- economic and social future". toring meetings and involving training courses for our technicians". Couto Lopes/Finibanco ON THE WAY TO BASEL The Basel II Accord comes in the wake of Basel I, which fixed the Banks can use two rating systems, one the standard used by the minimum solvency level for banks with a view to ensuring the rating agencies, and another internal to the bank (IRB). SMEs are sufficiency of capital and competitive neutrality. The new Basel II not normally covered by the rating agencies and banks must Accord now refines and expands the scope of the Basel II Accord, therefore implement internal rating systems for these companies. and it is based on three pillars: Impacts on financial market 1 – Determination of the minimum capital adequacy requirements The main advantage of Basel II is the inclusion of capital to cover credit, market and operational risks; allocation requirements to minimise operational risks. A large 2 – Convergence of supervisory policies and practices (which can part of the collapse of financial institutions occurs through give rise, in particular, to fixing different minimum requirements in operational failures and there is often the risk of contagion, that the light of the risk profiles or the solidity of the institutions' is, failure of other smaller banks. Therefore, under the new rules, internal management and control systems); the volume of allocation of capital will be greater, responsibilities 3 – Provision of information to the market and to the public in are defined and managers' awareness of the importance of risk- general, so as to ensure greater transparency as to the financial management to the institution's competitiveness is higher. The situation and solvency of the institutions. level of exposure to major risks, in turn, will lie within What do these three pillars mean in practice? acceptable, manageable parameters, eliminating unnecessary In practical terms, banks will have to implement tighter risk-control controls, leading to lower costs and lending the market greater systems, and risk rating/scoring systems will have to be used. security and transparency. 6 BANKING IN REVIEW Angola 2008 "Application of Basel II should be gradual and progressive in the process of These "profound structural changes have to be faced if we are to promote our financial market as a reference on the African continent development and modernisation of the and, especially, in our region", states José Massano pragmatically, the entire banking industry in Angola". chairman of the Executive Committee of Banco Africano de Inves- João Pinheiro/Totta Angola timento (BAI), an institution that has a specific project under way to adopt in the new rules in full in 2009, particularly in terms of human resources training. With the increase of the prudential rules, "the capital base will have to be enlarged and we shall have to set aside provisions not only to tighter now, with significant direct impacts on the institutions' cover possible financial losses stemming from credit risks, but also the operating statements". operational risks", sums up Carlos Silva. Mr da Silva, too, focuses the solidity of his institution, although the With regard to the Basel II implementation process, the BPA chairman goals for 2008 – twofold increase of the volume of assets under agrees with the "principle, particularly since it is aligned with the most management, growth of the physical distribution channels and modern demands of the supervisors", though he adds that "it should threefold increase of net profits compared to 2007 – are being met. be gradual". This gradual nature is warranted because "these However, the strategy is "aimed at building up a solid fabric, based changes require profound reorganisation of the business and control on competent professionals and modern work methods, investing in models", and the fact is that "Even the leading international banks their training and ensuring the continuation of high quality service have not yet fully incorporated the highest levels of control of the levels, rigour and security of operations". These strategic priorities operational disk defined in Pillar I of Basel II", he added. lead to "high operating costs, probably higher than the rest of the In Totta's case, Mr Pinheiro explains that "with regard to credit risk we market, but customer response in terms of turnover attracted and the are still at a stage of adaptation of National Bank of Angola's Notice profits generated lead us to believe we are on the right path". on the matter of introducing alterations to the methodology to be employed in loan classification and the provisions coefficients required for each loan". Specifically with regard to Pillar I, "We shall subse- quently analyse the impacts of adopting the methods proposed by the Basel II Accord, particularly in the theoretical approach to the methods to be adopted". In the matter of the operational risk, the head of Totta mentions the "steps involved in job segregation", saying that "It TAKING ADVANTAGE is perhaps the only bank in Angola that applies the Sarbanes-Oxley Act". In risks of a third kind, market risks, Mr Pinheiro is of the opi- OF THE REDUCTION OF INFLATION nion that "Since we are part of a financial system still undergoing development, exposure to these risks has been identified and quan- tified on the basis of certain scenarios". He also supports "a step at a One of the objectives of monetary policy involves the increase of time", with "gradual and progressive application of Basel II in the credit extended to the economy and an alteration of its structure, process of development and modernisation not only of Banco Totta that is, a progressive penetration by private entities into the but also of the entire banking indusry in Angola". country's real economy. Bank profits have grown mainly as a Mr Massano points out another relevant aspect in matching capital to result of investment of their financial surpluses in Treasury and the Basel criteria as far as banks such as BAI are concerned, which, BNA securities. besides internal growth, are focusing on internationalisation. "The Solid development of the financial system requires macroeco- effort is greater but the calculation rules seem clear to us and, for this nomic stability both at home and abroad, allied to an increase of reason, at the General Meeting last April the bank's shareholders employment, of income and, naturally, of the wellbeing of the approved a US$ 150 million increase of the equity capital, bringing people. the own funds' structure up to about US$ 500 million". The government has therefore invested politically in nominal To sum up, in the words of Mr Pinheiro, "Adopting Basel II right now stabilisation, that is, in the control of inflation, in the robustness could possibly be a mistake, taking into account the industry's state of of external reserves and in the growth of 'bankarisation' of the development", but the approach strategy is interesting. In 2009, "the economy. Carlos Silva understands "the context of the monetary new prudential rules, which affect the solvency ratio and the new policy and the growing need for the Central Bank to use its methods of calculation of loan-loss provisions will be essential steps if monetary policy instruments to control the monetary base more we are to be able to face new stages in this process later on". efficiently, with a view to reducing pressure on the inflation rate". After all, in the medium and long term, the benefits of Commitment to the future lower inflation are reflected "in greater macroeconomic stability, "The banks have sent a strong signal to the market of their great providing better conditions for the growth of private invest- commitment to financing households and the business of com- ment". panies", Mr Pinheiro emphasises. This signal can be seen in the signi- The scenario will help to attract private investors who favour a ficant increase of the overall transformation rate of the Angolan climate of economic stability, understood as low inflation and banking system. As challenges of the future the BFA chairman lists: interest rates and stable exchange rates. sustained growth of the network; staff training from a "clear stan- Till now, the main basis of the Angolan banking industry has lain dpoint of training future leaders to act within the Angolan financial in the cash flows of the State Budget, but the capacity to system"; and efficient control of the processes of extending and channel the income generated by oil to the non-oil sectors recovering credit, "so as to reduce the risk and the need to set aside constitutes a base for the leverafge of the business of the banks. provisions, in that the new general loan-loss provision rules are far 7 BANKING IN REVIEW Angola 2008 Mandatory reserves penalise financial sector profitability BNA Instruction nº 4/2007, of August 30th (which revoked nº 2/2007 of April 18th) required banking institutions to increase substantially their mandatory reserves deposited at the Central Bank, with the consequent impact on liquidity management policies and on financial intermediation margins. Securities were eligible (up to a maximum of 5%) in setting up the mandatory reserves, which meant that, in practice, one third of the amounts set aside by the banks were in fact remunerated by the BNA. Only the increase of the returns achieved thanks to the upward trend of interest rates as a result of the alteration of the rates policy governing Central Bank Securities offset, even though indirectly, the loss of remuneration of the mandatory reserves. The excess liquidity in the system, largely the result of the fast growth of deposits in domestic currency at banks as a whole (and the fact that extending credit in domestic currency remains at a very low level), has contributed to the fact that there has been no major difficulty in meeting the requirements of the Central Bank in the matter of mandatory reserves. The difficulties mentioned lie mainly in the operational and management fields. In the former, as explained by Álvaro Sobrinho, chairman of the Executive Committee of Banco Espírito Santo Angola (BESA), "because the mandatory reserves scheme that has been established includes a basis of calculation that is out of step with the times. From a management standpoint, because there is always the question of the opportunity cost that the banks have to assume and of the liquidity needed to finance the projects required by the country". However, as Álvaro Sobrinho told 'Banking in Review', "The State must have a macroeconomic perspective. In this connection, my view is that the mandatory reserves legislation, together with the issue of treasury Bills with attractive rates and with the strong Kwanza policy, is intended to condition the level of physical currency in circulation and so to combat inflation. The model that has been instituted has been tested in other situations and tended For the National Bank of Angola (BNA) the measure is one of the to become less relevant as the means and electronic payment mechanisms to control and monitor the financial system's liquidity systems become more developed, robust and effective. I am and to safeguards the interests of depositors. therefore of the conviction that Angola will observe this trend as the For the banks, regardless of the merit that they attribute to the financial system becomes more developed, sophisticated and secure, Central Bank's goals in selecting its instruments to comply with the particularly with regard to the interbank money market." government's monetary policy, the measure is a costly one that "But it is obvious", adds the head of BESA whose bank was 'upsets' their profitability and, in some cases, is even classified as a distinguished at the beginning of July by the specialised magazine veritable tax on the banking industry. Global Finance and by Wolrd Finance as the 'Best Bank in Angola' The coefficient of 15% for mandatory reserves established by the and as the 'Best Bank of Sub-Saharan Africa in 2007', respectively, BNA is considered high when compared with other markets, even "that the present scheme impacts on the bank's liquidity and, taking into account the recent past of the Angolan economy consequently, on the readiness to extend credit to companies and (hyperinflation) and the industry's sophistication. On the other hand, individuals. Additionally, the obligation of maintaining the re- the requirement to comply with the daily balance and the backward quirement solely in domestic currency creates a mismatch in the step in remuneration of reserves implemented in August 2007 mean bank's balance sheets. This distortion has a major impact on an that the scheme has become even more penalising for the banks. economy such as ours that is still highly dollarized. Obviously, many Till then, the Central Bank Securities (TBC) and the Public Debt countries have already experienced levels of reserves such as those 8 BANKING IN REVIEW Angola 2008 now ruling in our country. The gradualism in the reduction of on the mandatory reserves, this instrument may not be very effec- mandatory reserves that the government intends to introduce and tive in monetary control. Nevertheless, we praise the introduction by the prudence that has been adopted are warranted in a climate of the Central Bank and by the Finance Ministry of other financial strong demand, as is currently the case in Angola." instruments on the Securities market that have also helped mone- tary policy directed at the control of inflation". From the viewpoint The demand for a daily balance and the non-remuneration of the head of this institution, all instruments must be carefully of the deposits are penalising appraised to ensure that the banks' role as lenders is not hampered. Emídio Pinheiro, chairman of the Banco de Fomento Angola (BFA) For the time being, he maintains that, "We no longer feel these Executive Committee states, however, that "Although from an effects, in that the system continues to have a relative surplus in historic standpoint one can understand the high coefficient of liquidity terms". reserves required – owing to a not too distant past of hyperinflation, In turn, Carlos da Silva, Banco Privado Atlântico CEO, declares that and bearing in mind the need to control liquidity in a market in the bank he heads has adapted naturally "to the Regulator's new which the inflows of funds are very significant and considerably guidelines, understanding the monetary policy framework and the greater than the economy's present capacity to absorb them, which Central Bank's growing need to use its monetary policy instruments could reignite inflationary pressures – this is clearly not the best to control the monetary base more efficiently, with a view to monetary control mechanism, to the extent that it tends to reducing pressure on the inflation rate. We believe that, in the me- perpetuate the incipience of the money market." On the other dium to long term, Angola's economic agents, including the hand, he adds that "With a high coefficient, daily compliance and financial institutions, will benefit from lower inflation, fostering unremunerated mandatory reserves, a practice that is being faded greater economic stability and providing better conditions, leading out around the world, the mandatory reserves policy acts as a tax to an increase of private investment. However", he adds, "this on banking activity, penalising the banking industry. In most Sub- process of increasing the percentage of mandatory reserves in 2007 -Saharan countries the reserves coefficient is less than 15%. Indeed, meant that the banks had to implement tighter liquidity mana- as pointed out in a recent work by the BIS (June 2008), the gement policies and to pay more attention to interest rates on loans mandatory reserves coefficients, even in the emerging economies, and deposits to keep net interest income and budget targets under are generally equal to or less than 10% (with exceptions for specific control, the whole in a scenario of great competition within the categories)." industry, subject to great pressure to cut margins, posing a major In the opinion of the chairman of the BFA Executive Committee, and challenge for all the banking institutions. We also believe that this since the interbank money market is still incipient and has a large measure is temporary and will be alleviated in the near future". surplus of funds, "The mandatory reserves play just two roles: João Pinheiro, financial manager of Banco Totta Angola, believes monetary control and source of income for the BNA. Indeed, they that mandatory reserves have always existed and will continue to do are of no help in liquidity management because the BNA does not so, not only in Angola but in almost every country of the world. actively modify the reserves coefficient with a view to balancing "They are an instrument that plays a role in money market liquidity within the system. However, to the extent that the banking management, in monetary control, that is used by central banks in system has surplus liquidity in domestic currency and as the implementing monetary policies they consider to be most correct in interbank money market is not yet very developed, hindering the the light of the country's economic surroundings, and therefore adoption of indirect monetary control mechanisms such as the constitute a mechanism of stabilisation of short-term interest rates definition of reference interest rates on liquidity injection and and of control of monetary expansion." mopping up, mandatory reserves are still used as an instrument of António Couto Lopes, chairman of the Executive Committee of direct monetary control." Finibanco Angola, has a position very similar to that of the previous Fernando Teles, chairman of the Board of Directors of Banco BIC interviewees. In his view, the 15% coefficient is too high to the and one of its leading shareholders, also considers that failure to extent that it "aggravates the interest rates on credit extended by remunerate the 15% deposits affects the institution's profitability. the banking industry, by virtue of the fact that the index of However, this top manager, who replied to the questionnaire sent transformation of deposits into loans is higher, reducing the banking by 'Banking in Review' just hours before flying to London to receive industry's profitability and the monetary mass in circulation, 'The Best Bank in Angola 2008' prize awarded to Banco BIC by the therefore influencing the interest rate on loans as well". specialised British magazine Euromoney – expects that, "In the short term, with macroeconomic stability, the Central Bank will reduce the mandatory reserves coefficient or will come to remunerate them". Brief note This article was written on the basis of replies to a questionnaire sent The banks' role as lenders should not be hampered out by the 'Banking in Review' magazine to all banks operating in the Banco de Negócios Internacional (BNI), wholly owned by Angolan Angolan market. Unfortunately, not all replied in time, preventing the capital, started up in 2007 when the current mandatory reserves inclusion of their views on a matter as sensitive as mandatory reserves. legislation was already in place. However, Ricardo Viegas d'Abreu, Besides the institutions mentioned in the article, 'Banking in Review' also deputy-chairman of the BNI Board of Directors sustains that "In the received messages from the management of Banco Comercial Angolano present state of development of the Angolan financial system, in and of Banco Keve, both of which declined the invitation since they which the variable used in extending credit to the banks is the consider it to be a matter to be discussed only in the proper forum and interbank market interest rate, which is little or not at all dependent directly with the Central Bank. 9 BANKING IN REVIEW Angola 2008 EMIS has New Card Issue and Management Platform under preparation To consolidate the Payment Card The "first acceptance of the VISA Card as an electronic means of payment within Angola's automatic payments network" Business Empresa Interbancária de took place in May 2007. How many Angolan banks are now working with the VISA network? Serviços de Angola (EMIS) has a We have been involved in a long process since May 2007, which project under way involving the crea- led to gradual accreditation of the Angolan banks by VISA, allo- wing these banks to be duly represented before the MULTICAIXA tion of a new multi-brand card issue network. By mid 2008 eight banks were affiliated under the VISA network with these MULTICAIXA ATMs and were able to accept and management platform to replace the VISA flag. Of the 8 VISA-affiliated banks, 5 are POS acquirers the present MULTICAIXA manage- and have been adding VISA contracts to the MULTICAIXA POSs that they support. ment platform, calling for an inves- tment in the order of 2 million euros. What is the volume of transactions to date (June 2008) invol- ving the use of credit cards in Angola? For José Matos, executive director of The number of transactions with acceptance of cards via the MULTICAIXA network in 2007 totalled 17.7 million via the ATM EMIS, besides other advantages, the and 651,000 via the POSs. From January to June this year, there new system "will allow 'On-Us Ac- were 13.7 million ATMs transactions and 486,000 POS transa- ctions. This movement, from January to June, includes 77,000 VISA ceptance' of international brand cards transactions via ATMs and 7,800 via POSs. issued by Angolan banks". How many subscribers are there? Does this come up to EMIS's expectations? A total of 1.2 million MULTICAIXA Cards have been issued, of which 30% are non-personalised cards. Of the cards 734,000 are 10 BANKING IN REVIEW Angola 2008 "The number of transactions via the MULTICAIXA network grew 97% compared to the previous year. This increase represented a sum of USD 932 million handled by the ATM network and volume of pay- ments made via the POS network in the sum of USD 65 million". José Matos Executive Director of EMIS live, that is, having at least one transaction using the network since understood that the international brand card is still a fairly its creation, providing a 60% activity rate. These figures are in expensive payment instrument that can hardly compete with a keeping with the company's Business Plan, domestic card aiming at mass use of electronic payments. Of the POSs that allow payments through the VISA network With regard to the MULTICAIXA network, what amounts how many are now working in Angola? were involved in transactions via the ATM and POS networks At this time (June 2008) about 60% of the MULTICAIXA POS have in 2007 and by the end of the first half of 2008? a VISA acceptance contract. It should be pointed out that one of The total amount dispensed via the ATM network in 2007 was USD the main factors of success, at this stage, in the consolidation of 932 million, while the volume of payments made via the POS the automatic payment service is communications and, in this, network that year totalled USD 65 million. In 2007 transactions via field, it must be said that that we still have some stability problems, the network increased 97% over the previous year. Growth in 2008 although the use of the GPRS services provided by operator UNITEL compared to 2007 is expected to stand around 80%. has made a major contribution. Another factor of success has to do with the support that the acquirers give to the tradespeople. The How many ATMs and POSs are there in Angola at this time? present multi-acquirer model may not be the one best suited to a At present (June 2008) 560 ATM and 1,740 POS are registered with stage of growth of the service. This is a matter that requires the MULTICAIXA network. About 30% of these terminals are reflection. located in the provinces. VISA transaction movement has not yet compensa- Angolan bankarisation rate growing ted the investment What percentage of bank account holders uses the MULTI- As from the moment the VISA affiliation is operational does CAIXA cards? How many were issued during 2007 and up to the process of subscription to other networks, such as the end of the first half of this year, and how many are still Master Card, AmEx, etc., become easier and faster? Is EMIS active? already preparing to join other networks? According to our estimates there are currently about 1.1 million The Angolan interbank company is the technological operator of bank customers (not accounts), which provides a gross bank- Angolan Payments System. It is neither an issuer nor an acceptor of banking cards, merely a 'processor'. EMIS does not therefore have the profile to represent international brands in Angola. That role belongs to the comercial banks. Certification of the MULTICAIXA Network for acceptance of the VISA cards was only possible because there were Angolan banks that became representatives of the brand and appointed EMIS as their processor. This will also "One of the banks' problems has to have to occur with the other international Brands (MasterCard, AmEx, etc.). As soon as an Angolan bank becomes their repre- do with the delivery of the cards. sentative and appoints EMIS as its processor, a start is made to the certification process. All the work previously done for certification Hence the importance of the 'non- of the network for the VISA world helps because a large part of the rules is common to the various international card brands. But is personalised' card, which can be should be understood, in the first place, that the question is no longer a technological but a business one. We are convinced that activated almost instantly and can only with a business case will there be more certifications. VISA was a special case because there was great political and institutional will, for the movement of VISA transactions has not therefore be handed over on opening yet compensated the investment made. It's true that compensation will come about in the medium to long term, but it must be the account". 11 BANKING IN REVIEW Angola 2008 arisation rate of 6.7% (or 12% of the active population). Of this banking population about 70% have been issued a MULTICAIXA "The movement of VISA card (which may not have been delivered) and 37% use it regularly (June 2008 figures). One of the problems with which the banks are transactions has not yet compensated faced has to do with delivery of the cards. Hence the importance of the 'non-personalised' card, which can be activated almost ins- the investment made. The tantly and can therefore be handed over on opening the account. international brand card is still a A great deal has been said about the possibility of reducing the risk in banking transactions in Angola through the adoption of agreements similar to Basel II. What is the fairly expensive payment instrument current situation of the Angolan Payments System in respect of standardisation? that can hardly compete with a At international level, a set of ten core principles of systemic importance to be met by the payment systems is now in place. domestic card aiming at mass use of These principles are contained in a document issued by the BIS (Bank of International Settlements) entitled 'Core Principles for electronic payments." Systemically Important Payment Systems' that has provided the guidelines for the whole of the sub-systems forming the Angolan Payments System (SPA) of which MULTICAIXA is a part. The SPA Act – Act nº 5/05 of July 29th – introduced in full the major inter- nationally-accepted principles as the guidelines of the country's Recovery was one of the company's initial concerns from a more payment systems. In this connection, Article 3 of the SPA Act short-term standpoint. The PCN, in turn, views the Company's busi- enshrined the Angolan Payments System's four public-interest ness as a whole and seeks to implement a support infrastructure objectives: Security, Reliability, Efficiency and Transparency. Article highly tolerant of failures (internal and external). The PCN has 4 of the Act stipulates the mechanisms and measures that are to be several components of which the prime one, at this stage, is the observed to ensure that the four goals listed above are met. The New Secure IT Centre (NCIS). The centre is being built from the MULTICAIXA Network was therefore conceived to comply fully with roots up. It has been conceived in accordance with the strictest se- this framework, one that is fully reflected in the respective curity and service continuity (failure tolerance) rules. This infra- regulations approved by the BNA. structure will allow the MULTICAIXA infrastructure to operate over two DPCs simultaneously. With a view to taking advantage of the New Card Issue and Management Platform scale effect of a project of this nature, a decision was taken to What are the major projects that EMIS has in hand and what consider additional spaces to support another business area for the are the main goals for 2008? Company related with server accommodation services for those of The Company's investment plans are directed at three principal its shareholders having an interest in this. The cost of this areas: the Business Continuity Plan (PCN), Consolidation of the investment is in the order of 10 million euros, and it is scheduled Payment Card Business and Development of new Business Areas. for conclusion towards the end of 2009. The PCN is an evolution of the Disaster Recovery Plan. Disaster Within the scope of the consolidation of the Payment Card Busi- ness, the Company has another project under way known as 'New Card Issue and Management Platform'. The aim is to create a new RECENT EVOLUTION OF THE multi-brand card issue and management platform to replace the BANKING INDUSTRY IN ANGOLA present MULTICAIXA card management platform. The three main drivers of this projects are the technological driver (evolution from 1995 2000 2004 2005 2006 2007 the domestic scheme to EMV, in step with the business trend and Commercial banks 6 8 11 12 15 17 increasing the security of the domestic product), the regulatory Branches N/D 42 160 237 279 318 driver (making possible "'Acceptance On-Us' of international brand Bankarised cards issued by Angolan banks, that is, domiciling in Angola the municipalities* N/D 19 25 29 34 41 clearance of transactions involving use of these cards within ATM - - 85 150 289 498 Angola) and the co-operative driver (to develop a card mana- Branches gement platform that will ensure that all banks that participate in 100,000 inhab. - - 1,1 1,4 1,7 2,0 EMIS will have equal access to credit-card management tools and ATM will provide a shared fraud-management solution). The estimated 100,000 inhab. - - 0,4 1,5 2,0 3,1 cost of this project is 2 million euros. Bankarisation rate (**) N/D 2,4% 4,6% 5,1% 5,7% 6,7% With regard to new business areas, what projects does EMIS (*) Includes head of province municipalities have in the pipeline? (**) Bankarisation rate: bankarised population over total population In new business areas the Company has a project under way Source: EMIS known as the 'Automatic Clearing House of Angola'. This ins- trument will open up the way to two new, very important services 12 BANKING IN REVIEW Angola 2008 for Angolan banking, the 'credit transfers' and the 'direct debits', platform. Within the scope of certification of new terminals, opening up not only new business areas for the Company but also certification has been concluded of two Wincor brand ATM models for its shareholders. The future Automatic Clearing House of already installed in the network (while the NCR brand certification Angola (CCAA) will undertake the clearing of various retail is nearing finalisation), Both brands will join the DeLaRue brand. payment services, such as cards, credit transfers, direct debits and The Company also expects to certify the Diebold and Itautec cheques. Priority has been given to credit transfers which, together brands. with the cards, will be the first two services to be supported by the As far as security is concerned. a project has been concluded CCAA. The cost of this project is estimated at 1.5 million euros. involving evolution to Triple DES cryptography so as to make the Within the scope of the consolidation of the present business we network compatible with International Standards (PCI) Another have another project under way, known as 'Universal Card project has also been finalised in respect of protection of the Acceptance Platform – Evolution to MG v5'. Its aim is to ensure the collector networks and of the interbank network (network technological evolution of the present multi-brand acceptance segregation and installation of firewalls). MULTICAIXA USERS CAN NOW TRANSFER UP TO ONE MILLION KWANZAS As from the beginning of July MULTICAIXA card users can transfer up to one million kwanzas from their account associated with their card every 24 hours. For EMIS this is a means of controlling risks, bearing in mind that "the MULTICAIXA network is a retail payments system and is therefore suited to payments of relatively small sums. Other systems and means are available for payments of large sums". A payment terminal such as the Automatic Teller Machine "is a terminal that is not appropriate for large-value transactions", in the words of an EMIS press release published by Jornal de Angola. The range of products offered by the MULTICAIXA network operated by EMIS includes 'automatic bank transfers via automatic teller (ATM)', a transaction whereby a user of a MULTICAIXA card can transfer sums from his account associated with the card in question to any account within the Angolan banking system, provided such an account is identified by its IBAN. The banks forming the MULTICAIXA system may impose a limit per transaction and may also limit any authorisations that are not given in real time. 13 BANKING IN REVIEW Angola 2008 Risk management Nuno Alpendre – Partner Deloitte Portugal Risk is part of any enterprise activity, but it has a crucial role within one the country is experiencing. On the other hand, the imple- financial institutions, especially Banks. In fact, when a bank grants a mentation of risk management integrated processes will force credit, it is buying risk for which it expects to receive sufficient changes and require investments on different areas such as the income for bearing it. Besides credit risk, banks are also exposed to organizational structure, human resources, processes and techno- other types of risks, such as foreign exchange risk, liquidity risk, logy. interest risk, market risk or operational risk, among others. The risk strategy must be aligned with the bank's global business Therefore, risk management must be a key component of the over- strategy and its implementation must be supported in a well defined all bank management processes. Additionally, risk management corporate governance model. Therefore, the set-up or expansion of must be seen not only as a way to ensure a bank's sustainability but autonomous risk management departments is foreseeable. The also as a means to optimize the bank's results through an efficient nature of functions of these departments will vary but can include trade-off between business growth and incurred risks. risk analysis of new operations or clients, the risk analysis of new In the last few years, there has been a great evolution within the products, global monitoring of different risks or the design of risk banking industry concerning the measuring, control and mana- measurement internal models. Within this context, internal gover- gement of risk. This evolution has been sponsored by international nance processes that manage the 'healthy conflicts' between the regulation and supervisory bodies which have encouraged the deve- risk and business areas are most relevant. lopment and application of integrated risk management systems. In terms of human resources, banks will have to provide training to On an international level, the Basel Committee, aiming to encou- its resources or hire specialized resources, such as credit risk analysts rage banks to improve their risks management practices, made or technical experts to develop and maintain risk measurement significant changes to the Capital Agreement. The new rules, com- models. Furthermore, the implementation of a risk culture along monly known as Basel II, are now being implemented on an with processes changes may force the need to implement a sensitive increasing number of countries. change management process. Within Basel II new rules, banks can choose between alternative Current business processes will also change in a way to include new approaches to calculate minimum capital requirements. The diffe- principles of risk identification and measurement. For example, with rence between these approaches is the way to measure the risk, the growing expansion of credit products for retail banking, the either by using standard indicators or through the use of internal application process for new proposals will tend to be decentralized models. Adopting internal models will have an impact on the way and supported by risk evaluation models such as scoring models. banks run their business and manage their risks, since capital The development of new credit and deposit products will also bring requirements will depend on the real risk of the banks´ activities and the need to a higher sophistication of the liquidity risk and interest portfolios. rate risk measurement methods. Another major revolution within the banking industry has been the The investment in information systems is essential to an effective growing adoption of the International Financial Reporting Standards implementation of risk management processes. Some of the needs (IFRS). Among other things, the IFRS take into account new features are at the legacy systems´ level such as, for example, scoring models related with risk management such as the treatment of the in- or operational risks alerts. Consequently, the need will arise for creasingly complex financial instruments and the new rules to cal- legacy systems to contain a more detailed set of information for risk culate credit risk provisions, also know as impairment losses. management purposes. Angola is following along this international trend, being a clear Besides these needs, the most relevant needs at the IT level will be example of the set of Notices and Instructions issued by Banco the implementation or upgrade of information management Nacional de Angola in September 2007 and the introduction of the systems. These systems can include data bases with sets of infor- new accounting rules in 2009 which take into account the IFRS mation of all bank's portfolio, either credits, deposits or financial principles. markets deals. This information will allow the control of business Within the new legislation it is important to point out BNA's Notice and risk evolution through key risk indicators such as provisions, 9/2007, which set new principles and rules regarding the classi- profitability returns or capital requirements. The analysis of such fication and provisioning of credit loans. This process will no longer indicators at several axes (for example, by product, branch or client) be just an accounting issue as it will have to be integrated with will allow bank managers to take decisions aligned with the bank banks risk management processes. In addition, it will allow a con- global strategy. vergence with IFRS as it establishes the use of criteria to individually Therefore, in this era of great economic growth, risk management assess client risk complemented with the use of statistical methods. must be seen not only as regulatory requirement but as an oppor- Implementing a risk culture and risk management processes within tunity to implement management processes that guarantee the a bank is a highly complex challenge. On one hand, it is easier to sustained growth of the institutions with optimized results to their disregard risks in a period of great economic growth such as the shareholders. 14 BANKING IN REVIEW Angola 2008 Bankarisation and new distribution models Pedro Leitão – Partner Deloitte Portugal The evolution that Angolan Financial System has witnessed, acted as a fundamental leverage for the country's economic development. For banks, the challenge lays in accelerating the population's bankarisation, with an economically feasible approach. Financial sector's good health has significantly contributed to Aiming to improve bankarisation index, financial institutions have economic growth and development, as a vehicle for capturing savings been developing their distribution models, contributing to a closer and directing them to activities with growth potential, as well as a and more familiar contact between population and financial services facilitator for economic transactions. offered, via more available, efficient and easy-to-use channels. However, in order to fully accomplish its role in the economy, financial Although the branch is still the key element in customer/Bank services need to be accessible, so population can actively take relationship for most Banks, a set of other channels such as ATM, advantage of the benefits banking services provide. This means that Internet Banking, Mobile Banking that allow simultaneously better population needs to be bankarised. customer service, transaction speed and comfort while freeing branch The concept of bankarisation, in its wider sense, is defined as the level resources to value added activities, are being developed. There are of access and of utilisation of financial services by people. Generally, also Banks that are already developing their business based on this concept is referred to as the percentage of adult individuals with branch-free distribution models. and open bank account, and is strongly correlated with a set of Bank branches have suffered deep changes and are currently looked factors such as socioeconomic situation, countries' cultures and upon by some financial institutions as a distinctive sales channel, education, banking services offer and pricing, market regulation and differentiated by segment or by range of service offered. Some banking network coverage . branches already present customer niche directed communication, Given the context, one shouldn't be surprised that developed functionalities, layout and service offering (e.g. affluent individuals, countries with stable socioeconomic conditions, higher education companies, students, etc.). indexes and greater range and coverage of financial services have superior bankarisation levels, when compared to developing Angola and Angolan banking: economies. accelerating bankarisation In recent years Angola has witnessed significant economic growth Figure 1 – comparison between bankarisation (average annual growth of 24% in the past 3 years), financial system and development indexes is clearly expanding and bankarisation index as shown some progress (6,5% in 2006 versus 2,4% in 2004). Despite the evidence of economic growth, other figures should also be considered, more specifically a poverty index of 40,2% and an adult literacy rate of 67,4%(2), that reveal a developing country where alterative distribution models can be implemented (complementary to traditional models) in order to reach rural and lower education populations. Given this context, it's useful to analyse successful alternative Banking distribution models in order to reach populations that are less familiarised with financial services, nominately microcredit, agent supported distribution or even the development of self help groups. (1) WorldBank – "Who are the unbanked", Junho de 2008 (2) Fonte: Relatório do Desenvolvimento Humano 2007/2008 15 BANKING IN REVIEW Angola 2008 Figure 2 – Evolution of distribution channels Relative Importance to Customer Channel Group: Branch Direct Alternative F2F ATM or Mail Low High 1980s Present Future High ATM ATM ATM Branch Internet Transaction Intensity Branch Alt. F2F Internet Mobile Phone Phone Branch Low Phone Mail Mail Mail Low Sales/Service High Intensity Microcredit Self Help Groups Microcredit, considered one of the most efficient poverty fighting Finally, the Self Help Groups model consists of associations of mechanisms, consists of providing small loans to individuals living in individuals on the brink of poverty, typically organised with the help the limit of poverty so that they can establish or expand sustainable of NGO's, with the objective of helping each other in order to business, creating virtuous development cycles in their local promote their development. Funds created by these groups are economies. deposited at the Bank in name of the group. Some institutions already operate in this area, such as Nobel Prize These groups are especially popular in India, where their success is winner Grameen Bank that boasts significant growth and operates in considerable, and where the development of these groups has also over 40 countries. been supported by microcredit, where 100 million people are The success of microcredit expansion relies on the distribution model estimated to be inserted in these groups in 2006(3). adopted by the financial institution since, as previously mentioned, Banking in Angola needs to lessen stages. The challenge remains in those populations are barely bankarised and seldom culturally accelerating the populations' bankarisation and to do it in an prepared for such bankarisation. There are, however, models based economically feasible manner, three ingredients are fundamental: on partnerships with local microcredit institutions (e.g. Deutsche 1. Develop a vision for distribution, concealing innovation and Bank) or more final-customer oriented (e.g. ABN AMRO). experience; 2. Implement stage-oriented capillarity, looking for lessons learned Agents to avoid pitfalls and maximising return on investment; Another model that financial institutions have recurred to has been 3. Join efforts from several stakeholders, also bearing in mind social Banking supported by an agent network, typically leveraged in non and educational dimensions in this expansion. financial partners (e.g. mail distributors, retail institutions), that allow for a considerable increase in banking network capillarity, without incurring in strong infrastructural overhead. Figure 3 – Channel specific transaction volume in a typical Despite allowing greater capillarity, this model only permits early stage European Bank financial service offering, since that Bank doesn't entirely control those channels. Transactions volume by channel (Europe) Although some countries register widespread utilisation of this model, most operations performed are payments or funds transfer. Credit and savings operations represent only a small percentage of the total (e.g. in Brasil, around 78% of State-directed payments and other invoices are performed by agents, while only 10% of all registered operations is related to credit or savings operations). (3) Source: Air India 16 BANKING IN REVIEW Angola 2008 Capital markets Opportunities in a crisis environment Vitor Lopes – Senior Manager GMS* Writing in the eve of the creation of Luanda's Stock Exchange Market about the technical, management, human, organizational, and system requirements that will allow financial agents to become active players of the Market, can arrive just out of time. In other hand, since 2008, the details of these requirements have showed to be much more complex than usual. They are no longer the classic views of a book of finance but a re-creation of several ideas still non-universally accepted. Indeed, 2008's first semester was struck by abrupt falls in both stock and bond markets throughout the strongest economies. To aggravate the scenario, some of the top institutions, like Inves- tment Banks or Hedge Funds, have reported great losses, revealed near-bankruptcy or are indicted in an investigation process, where their shareholders are negatively affected. When a institution like Bear Stearns becomes near-bankruptcy and is bought for a bargain, when thousands of Wall Street employees are fired, and when the English Government is obliged to nationalize a Bank in order to prevent it from bankruptcy, the entire Financial Market wonders: "What happened that urged this critical situation?". Truly, this question had already been made when the financial market was shocked by the first sub- -prime consequences and its parallel liquidity and confidence crisis. The causes of this crisis were identified and they vary between the naivety of the financial agents that believed in the profit of highly sophisticated products without assessing its risk; the mass failure of some Regulatory Institutions and Rating Agencies; and mainly the naivety of the investors that believed they could've achieved great profits in the Capital Market that could totally outstand the real economy. Unfortunately for all, the stock exchange markets collapsed and the real economies marked by structural crisis won. Nowadays the bad news isn't a surprise even with the commodities world crisis and the status of near recession that threats the main economies. In this scenario, the question that seems relevant is: "What to do to prevent this situation in the future?". It seems that this answer can fit either an international investment bank that struggles out of this crisis, or a bank from Angola that is preparing himself to enter the Stock Exchange Market. Either way, the answer to this question is connected with: i) the reco- gnition of all it was made and worth to be kept as a good practice and ii) the several guidelines that are being discussed in order to avoid the appearance of uniquely financial crisis that aren't an- ticipated. 17 BANKING IN REVIEW Angola 2008 "Nowadays, the financial activity is structured in function of solid knowledge and in real time of the financial risks that a company is exposed and that can ultimately lead to capital destruction or even bankruptcy." Thus, the first answer to this question remotes to what can be teristics of the various types of investment that can be made, named as the best practices to the correct implementation of the they will struggle to obtain investors in a sustained way. In Capital Market, namely: the other hand, the recruitment of highly skilled personnel, • Market transparency: the first rule of a stock exchange with experience in asset management, with constant access market is that all of its transactions and the price arrangement to technical lectures, totally aware of the researches about process are completely transparent. In this way, monitoring the markets they follow, are unique resources in an orga- acts of 'Market Abuse' are the primary concern of the nization and are essential in the success of any asset mana- Regulatory Institutions that have been investing in equipping gement firm. themselves with powerful software in order to detect throu- ghout the millions of transactions, a pattern of price mani- The second part of this question can be answered with the help of pulation. a set of discussions that are being focused in the most varied • Correct assessment of risk and profitability: the detailed forums in the financial markets that sustain the following definition of an investment profile concerning its risk and guidelines: profitability is essential in order to enlighten investors and to • Creating an Organization focused on a Risk Culture: manage a portfolio. Speaking in the language of funds having a culture of maximization of value discarding its risk management, 'beating a benchmark' consists in obtaining was proved to be disastrous for the investors. Nowadays, the better profits that a specific index without breaking the risk financial activity is structured in function of solid knowledge level. The implementation of this kind of management implies and in real time of the financial risks that a company is not only the use of software solutions of portfolio optimi- exposed and that can ultimately lead to capital destruction or zation according to different risk levels, but also the need for even bankruptcy. an internal organization that supports the monitoring of the • The reinforcement of the Regulatory Institutions: this board polices. point is no longer a discussion but instead a reality that has • Organization, Processes and Technology: the nature of gone mature. Crisis only prove that an efficient market needs portfolio management implies the execution of any task in more regulation. This way, the regulation that monitors ins- 'light speed' where its consequences are linked in the firm titutions actions and their solvency will be more confluent commitment of the Agents with the Market, since it can even. It also can be applied to the merge of Regulators of result in settlement or asset transfers. In this way, the Banking Institutions, of Insurance Institutions, of Hedge Funds architecture of the support process, the correct definition of and of Brokers. Plus, Rating Agencies will be in tight obser- each area's function, having the internal organization ruled vation. by the 'best practices', the investment in proven software that can assure the functioning of the business in a 'Front to Building a stock exchange market is clearly the ultimate step in the Back' perspective are essential to the survival of an asset process of perfecting the financial system. This step would mean management company. the beginning of a continuous improvement process of orga- • Diffusion of a Financial Culture: this theme has a double nizations and there internal control, the risk assessment methods meaning. In one hand, if the financial agents don't share and the efficiency of the management. And because of all these, correct and detailed information about their investments as it should be seen has a challenge and an opportunity to put the well as don't teach their clients target about the charac- Financial System of Angola in an International high level. * The GMS is a Portuguese management consultancy company, specializing in the financial sector and in telecommunications. Deloitte and GSM have a partnership for the development of some projects. 18 BANKING IN REVIEW Angola 2008 More and better banking in Angola Even with the slight drop experienced in 2007, the rate of profitability of banks in Angola remains at envy levels compared to developed markets. With the imminent entry into operation of the Stock Exchange and the emergence of new players, including asset management companies and investment funds', among others, banks in Angolan market prepare strategies for growth increasingly stringent and sophisticated. Sustainable growth is the watchword of a sector that is increasingly becoming an active partner in economic and social growth of the country. 19 BANKING IN REVIEW Angola 2008 BESA The future viewed with optimism Confident in the opportunities that the Angolan Financial System holds, BESA introduced BESAACTIF - Sociedade Gestora de Fundos de Investimento, S.A., at the end of June. Do results achieved in 2007 confirm the bank's expectations? the Commission for the Capitals Market and the Angolan Stock BESA's results for 2007 were clearly well above plan and, in this Market have shown themselves to be vigilant and to be weighing up context, more than confirm expectations. The pursuit of a well these conditioning factors. Realizing the Government's ambition to defined strategy, applied right from the start of the bank's activity, is encourage and open up a reference Stock Market in Sub-Saharan responsible for BESA's good performance, not only in terms of results Africa will certainly be a determining factor in the expansion of achieved but also in creating value for clients, shareholders and staff. economic activities and, consequently, of the financial sector. BESA encourages mutually positive relations, and is now a national and international reference due to its dynamic growth, profit levels Have the financial institutions trading on the Angolan market and efficiency. I am happy to say that proof of this lies in the fact faced increasing demands to play a more active role in sup- that BESA earned the award 'Best Bank operating in Angola" and porting the national private sector. How does the bank meet 'Best Bank in Sub-Saharan Africa", attributed by Global Finance and this demand? by World Finance, respectively. BESA backs value added projects by giving credit and technical support (in this case through investment banking), purchases and How would you assess market development and, in particular, renovates premises for its head office, Companies Center, and for its the Angolan Financial System, over recent months? agencies and provides employment for around 400 staff, most of I think that today no one has any doubt that the Angolan Financial whom are Angolan. In addition, the bank has a Social Solidarity System is on the right approach towards stability and reliability. The Fund, managed and audited independently and it supports the arts traditional banking business is about to become full fledged with the by sponsoring Angolan artists known internationally, helping them opening of the Capitals Market and with the incorporation of to transmit their message at home and abroad. In my opinion, BESA Management Funds. There is still a lack of specific regulation, but I clearly meets the goal of promoting the private sector (companies would say that the structural work has been completed successfully. and individuals) and the public sector in Angola and is proud to Specialized credit will be a reality in a short space of time and distinguish itself as a sponsor of the arts and provider of social requires only specific regulations to be issued. All of these aspects support. are challenges but also, and above all, opportunities for the sector. Viewing the number of financial institutions operating on the Could the financial reality of Angola change after the le- market, I think that fair competition is healthy when rules in force gislative elections in September 2008? are observed and applied in the same way by all concerned. Here, I hope that the legislative elections in 2008 will be a decisive the institutions with teams that are more experienced and skilled will moment to tell the world that Angola, which has already proved always be preferred by clients and others involved. I am optimistic capable and self-sufficient in bringing peace and reconciliation to the about BESA's future. country, as well as in designing and beginning the implementation of an ambitious program of successful national reconstruction, is What strategic areas will be targeted for expanding the today a prosperous country but one which works hard and long with bank's business? drive and dedication. I hope that the elections will leave the country BESA began trading with market niches and with very well defined strengthened in its ambitions to pursue the prosperity that will bring target clients and it has retained this initial strategy. The bank pro- it economic and social development. When this happens, all sectors vides high quality banking services, and has the confidence and trust of public or private economic activity will gain. of its clients. With this in mind, BESA continues to trade in the same strategic areas as always. In addition, on 27 June 2008, BESAACTIF, an Investment Fund Management Company, was formally intro- duced to the supervisory authorities, competitors, clients and the media. Obviously this is an area targeted by BESA, and it will benefit from the enormous experience and know how of its shareholder in handling this business. Lastly, we have specialized credit areas, which at this stage are relatively less important, as they still require the standards required to regulate heir activity. Will the introduction of the Capitals Market boost this ex- pansion? Having a Capitals Market with a regulator to supervise and justify clear and transparent rules, accompanied by a good technology platform in the system for negotiation, compensation and settle- ment, is necessarily geared to success. Any Capitals Market that Álvaro Sobrinho observes these three key factors encourages opportunities and an Chairman of the Board alternative to credit and traditional banking applications. I think that of Directors of BESA 20 BANKING IN REVIEW Angola 2008 BFA Strategy based on sustained growth An increase of more than 100,000 new clients, together with total assets for the Bank of over 3.5 billion USD, a rise of 54%, brought BFA to year end with a positive balance. Emídio Costa Pinheiro Chairman of the Executive Comittee of BFA Do results achieved in 2007 confirm the Bank's expectations? Will the introduction of the Capitals Market boost this ex- 2007 was highly positive for BFA: total assets exceeded 3.5 billion pansion? USD, a rise of 54%; deposits totalled 2.9 billion USD and the client BFA from the very start has been to the forefront in creating the credit portfolio reached 1.5 billion USD, increases of 51% and 71% Capitals Market in Angola. It is a founding shareholder in the Angolan respectively. We have over 400,000 clients, an increase of 100,000 Stock and Derivatives Market (BVDA) and, in the last two years, gave new clients. We also achieved a net result of 102 million USD, assistance in assembling the operations and regulation of the Capitals resulting in a Profit from Equity of 37.5%. These results are under- Market Commission and the actual BVDA. We feel that Angola has pinned by the growth strategy adopted by BFA right from the start, by the conditions right for developing the Capitals Market, as an macroeconomic stability and the tremendous boom in the Angolan alternative means to attracting resources for investment in companies economy. and, as I said earlier, this is a business area to which we attach priority in our strategy and actions. How would you assess market development and, in particular, the Angolan Financial System, over recent months? Have the financial institutions trading on the Angolan market As is well known, the Angolan Banking System in recent years has faced increasing demands to play a more active role in sup- seen a tremendous surge in growth while, at the same time, profit porting the national private sector. How does the bank meet levels have continued to be very attractive. In this context, it is natural this demand? for new operators to try to penetrate the market to draw benefit from There would be no development of the private sector in Angola these favourable conditions. The appearance of new banks leads to without the solid presence of the credit banks ready to back industrial more competition in the sector so it is natural for margins to drop and initiatives. Our daily routine is to provide credit, bring in deposits and this is likely to shape the future configuration of the sector. conduct operations. To give a more effective, quality response to the requests made to us, we have created a specialised network of What strategic areas will be targeted for expanding the bank's Company Centers and a Department for Corporate Risk. In addition, business? we have created specialised units to provide credit for construction BFA's strategy is based mainly on the idea of sustained growth. For and agriculture, two business areas that require specific responses. this to materialise the essential component is the extension of our Lastly, for investment operations that are large in volume or complex commercial network and strengthening the process of client and for the corporate banking area, we have an investment banking segmentation, adjusting supply and type of service to a range of unit that has been growing in importance and size. realities. At the same time, BFA is a bank that has brought financial innovation to the Angolan market and this approach will continue. In Could the financial reality of Angola change after the legis- terms of business, priority areas are credit for construction and lative elections in September 2008? agriculture, including livestock farming, for which we have created I do not think so. Three months from the legislative elections, the final specialised units. We also want to play an active part in investment preparations are being made. No surprises or social instability are banking, an area that we reinforced recently. expected once the results are announced. Quite the contrary, it is likely that current policies will continue and political risk will tend to be low. 21 BANKING IN REVIEW Angola 2008 Banco BIC The Banco BIC was elected 'The Best Bank in Angola' by Euromoney In 2008 the Bank BIC had the privilege of receiving the prize 'The Best Bank in Angola', by the excellence of their performance in overall commercial areas, quality of service and consolidated results. This prize is awarded annually by the British magazine Euromoney. Do results achieved in 2007 confirm the bank's expectations? Have the financial institutions trading on the Angolan The results of 2007 were the best in the three years in which market faced increasing demands to play a more active role Banco BIC has been operating, with a spectacular increase of in supporting the national private sector. How does the bank 146% against 2006, and totalling 80 million USD. The solid meet this demand? expansion of business with 80 agencies opened, giving the bank Long term growth depends on investment and BIC excels in full national coverage, as well as the rise in the balance sheet and creating an environment favourable to investment and the growth excellent risk management, have helped us achieve a profit on of companies, conducting direct credit operations for private assets of 4.7% and a profit on equity of 77%. The quality of the clients. The volume of credit made available to this sector rose loans portfolio is one of the best, with the ratio for credit due close 115%, with BIC granting 663 million USD to private clients and to zero. An aggressive growth plan and solid commercial drive small businesses and 643 million USD to large companies. BIC also allied to the quality of our employees, which in 2007 rose to 860 promotes private national investment, particularly in the provinces, employees, justify the excellent performance achieved once again by subsidising interest on loans to the agriculture and fisheries by Banco BIC. sectors and also to the construction sector. In these sectors real guarantees are very important and demand a careful analysis of How would you assess market development and, in par- the client, as well as demanding personal guarantees from com- ticular, the Angolan Financial System, over recent months? pany partners. Prospects are good for the Angolan Financial System. This is important as the system has been playing an increasingly aggre- Could the financial reality of Angola change after the legis- ssive role in the economy, supporting social and economic de- lative elections in September 2008? velopment, not only by encouraging public-private partnerships to The elections in September 2008 will begin a new development make major investments in infrastructure, but also by putting solid cycle for the country and this will have the knock-on effect of backing into the growing property market that has been emerging economic consolidation. The elections will attract more foreign recently. The rise in investment, seen in the growth of credit put investors as the country will become more credible to international into the economy, is a sign that the economy is going through a institutions because of democratic stability and the reduction of phase of prosperity with the main macroeconomic variables risk, as well as political stability. Like this the growth currently seen stabilising. Stabilising the inflation rate will be a determining factor in the Angolan Financial System as in Banco BIC will continue, and as this will lead to a reduction in the interest rate on public the best Financial Solutions will always be on offer. securities, essential to make economic growth viable and to reduce the public debt. This will all mean a fall in profits for banks, de- manding that they improve their management capacity. What strategic areas will be targeted for expanding the bank's business? Without a doubt the individual network, particularly those in the middle income bracket, adopting a mass market approach in pro- viding access to ATM and TPA, without overlooking the national industrial sector, promoting access to credit. Will the introduction of the Capitals Market boost this ex- pansion? The Capitals Market will play a fundamental role as it will increase the number of financing alternatives for companies, in this way promoting direct competition with the banks. BIC provides several types of corporate funding and can also participate as the unde- rwriter of financial values. Fernando Mendes Teles Chairman of the Board of Directors of Banco BIC 22 BANKING IN REVIEW Angola 2008 Finibanco Angola Taking off with a positive balance Within its first month in operation, Finibanco Angola managed to achieve results in line with the bank's initial expectations, both in terms of resources and credit. Finibanco Angola was inaugurated recently (June) in Angola. How would you describe the process of incorporating the bank? Have these early days of bank operations met with expectations outlined initially? The phases planned for the legal and physical incorporation of the bank went according to plan. We signed the incorporation deeds in September 2007, we searched for and purchased the premises and defined the respective layout by the close of 2007. Later, we started works at the premises and at the same time we began hiring personnel, beginning their training in Luanda (Instituto de Formação Bancária de Angola- IFBA) and in Portugal (Finibanco), up until the inauguration of the bank. The start-up period for a company is always one of adjustment, António Couto Lopes however, both resources and credit levels achieved in the first month fall within expectations. Chaiman of the Executive Comittee of Finibanco Angola How would you assess market development and, in particular, the Angolan Financial System, over recent months? Development in the Financial System, and in particular in the Banking System, has been guided by economic growth, and that has been at very fast pace. Bearing in mind the current number of banks operating, there is still room for more banks in the Angolan Financial System. However, banking opportunities have not always been the same since the attraction of resources is not the same for all operators, and this means that the growth rate of banks varies from bank to bank. What strategic areas will be targeted for expanding the bank's business? Attracting resources from the middle class and the SMEs, in such a way as to keep interest rates from being too high, and support for Angola's foreign trade, with special attention to trade between Portugal and Angola, serving as a bridge between Portuguese and Angolan industrialists. Will the introduction of the Capitals Market boost this expansion? Gradually, the Capitals Market has all the conditions to promote the expansion of the Angolan Financial System, and this will put the demand on companies to have precision and transparency in their accounting, so that they can stand up to analysis. Have the financial institutions trading on the Angolan market faced increasing demands to play a more active role in supporting the national private sector. How does the bank meet this demand? Finibanco Angola intends to be an active partner in backing the Angolan productive sector, analysing and supporting industrial initiatives and projects that are economically viable and socially useful. Could the financial reality of Angola change after the legislative elections in September 2008? Growth and economic development in recent years has been so obvious that no major changes are expected in Angola's financial situation in the short term, an encouragement to ever greater banking support for the real economy. 23 BANKING IN REVIEW Angola 2008 Banco Regional do Keve At the cutting edge of corporate support Banco Regional do Keve believes the Angolan Financial System must have diversification and targets the SME as the strategic business objective. Do results achieved in 2007 confirm the Bank's expecta- What are the strategic areas for expanding the bank's busi- tions? ness? Profit indicators showed a positive trend and suggest results Recently we made adjustments to our organisational structure and above plan, particularly with respect to the business plan adopted introduced investment banking and focused on the SMEs as a for the year in question. The increase in the bank's resources strategic business objective with considerable development poten- contributed significantly towards this and these resources meet tial. the needs of ever increasing client numbers, and a more diversified clientele loyal to the bank, as well as serving to expand Will the introduction of the Capitals Market boost this the network of outlets and to improve the quality and experience expansion? of staff. We are preparing the bank to be able to respond successfully in the near future to market developments, including the capitals How would you assess market development and, in par- market. ticular, the Angolan Financial System, over recent months? The Angola Financial System has accompanied market develop- Have the financial institutions trading on the Angolan ment, particular in terms of quality, already providing products market faced increasing demands to play a more active role and services with impact on end-users anxious to solve their in supporting the national private sector. How does the problems efficiently. However, we continue to believe that ope- bank meet this demand? ning new banks should involve quality services and innovation, so Whoever looks at our Balance Sheet for 2007 can easily see that that the competitive factor is always present. The growing eco- Banco Regional do Keve, for its current size, is to the forefront in nomy, which has risen to very high percentages, demands providing specific support measures for national industry, at all diversification, leaving room, in the near future, for the emergen- levels. ce of the SMEs required to bring down unemployment and in- flation, capitalised and well managed by individuals who unders- Could the financial reality of Angola change after the tand business, particularly in the productive sector, and giving rise legislative elections in September 2008? to an attractive business market with enormous potential. Meeting the democratic goals of the country will inevitably and favourably strengthen all markets, improving the factors critical to success – credibility, confidence and performance – essential to the growth of the country and its subsequent development. Amílcar Santos Azevedo da Silva Chairman of the Board of Directors of Banco Regional do Keve 24 BANKING IN REVIEW Angola 2008 Millennium Angola Increase in national coverage With an increase in client numbers of 65%, against December 2006, totaling 150 million euros, Banco Millennium Angola is preparing to extend its commercial network in both Luanda and the provinces. José Reino da Costa Chief Executive Officer of Banco Millennium Angola Do results achieved in 2007 confirm the Bank's expectations? Will the introduction of the Capitals Market boost this ex- Yes, we are growing throughout, and net results rose 87%, by around pansion? 5 million euros. Yes, opening the Stock Market will bring a new form of funding for The factors contributing most towards this result were the boom in those companies that meet the requirements for listing. The Angolan the Angolan economy, particularly development of construction and economy has a lot of liquidity, which will stimulate and drive the industry, both key sectors for national reconstruction. The country will market, and will affect the Financial System, in a country that is continue in the near future to be transformed into a 'worksite' for all growing so rapidly. types of infrastructure: basic drainage, housing, schools, roads, air- ports, communications, energy, etc., all of which will benefit from the Have the financial institutions trading on the Angolan market support of the Angolan Financial System. faced increasing demands to play a more active role in sup- porting the national private sector. How does the bank meet How would you assess market development and, in particular, this demand? the Angolan Financial System, over recent months? Millennium Angola is a strategic partner, both for financial support, The financial sector is increasingly more competitive with the using a wide variety of financing types, and for advising clients and emergence of new financial institutions and with existing ones com- managing their funds. Proof of this is the result of bringing in client peting with more investment and seeking to increase client numbers resources, which saw a rise of 65% against December 2006, totaling and to expand the market itself, that is, increasing the number of 150 million euros. The portfolio of loans already made by the bank banks in Angola. There are, however, some constraints to expanding rose 113.2%, totaling 115.9 million euros in December 2007. The banking business, such as the process for registering land, companies bank has grown 105% in client numbers, since December 2006, and and mortgages and certificate validation at notaries, the lack of 117% in the number of accounts opened. homes easily located in the mapping of the different provinces, the lack of information in the Risk Center of the National Bank of Angola Could the financial reality of Angola change after the legis- and the incipient accounting organization of companies. lative elections in September 2008? The elections are viewed as one more sign of stability, which will What strategic areas will be targeted for expanding the bank's contribute to reinforcing the confidence of economic agents and to business? increasing investment in Angola. For our part, we are confident in We are determined to bring in new clients and we are seeking out the Angola's future, so that we will continue to invest in the expansion of market of affluent individuals and companies, corporations and SMEs, our commercial network, in both Luanda and the provinces. in the main business sectors. 25 BANKING IN REVIEW Angola 2008 Novo Banco Continuing to back micro-finance The Novo Banco strategy involves the expansion of the network and the adequacy of the supply of products and services to the needs of target customers in the segment of micro-finance. Do results achieved in 2007 confirm the bank's expectations? What strategic areas will be targeted for expanding the bank's The BAI assumed shareholder control and management of the business? company on 1 December 2007, with a holding in share capital of Certainly those that shareholders consider adequate for the objectives 85.7%, in partnership with a company controlled by Chevron, which of social responsibility assumed, for planned investments and for the holds the remaining 14.3%. To serve as the support for the entry of goals of revenue expected. These areas include expanding the BAI in a new segment, that of micro-finance, a strategic plan was network, adapting the supply of products and services to the many designed that outlines the objectives and guidelines for action, among needs of target-clients in the micro-finance segment, continued de- other aims of the bank for the transition period from 2008 to 2010. velopment and human resources training. Up to 2007, the bank inherited assets that were most important for their command of a technology for financial intermediation to serve Will the introduction of the Capitals Market boost this expan- clients with no stable, formal salaried employment, and when sion? employed, at a low salary. In terms of results, the Novo Banco closed Having the Luanda Stock Market in operation, and the intermediation 2007 with a loss of around 900,000 USD. The factors responsible for agents and institutions regulated by the Capitals Market Commission, this are insufficient investment at a time when the main shareholders will certainly help give another dimension and security to investment and management were planning their exit from the market. in Angola. This could project business opportunities in the different sectors, bring in business with higher added value and more modern How would you assess market development and, in particular, technology, all favorable to Angola's economic growth. It is not yet the Angolan Financial System, over recent months? clear in the microfinance segment what impact the Capitals Market Market and Financial System development in 2007 was in harmony could have directly, but it could be relevant. with the good performance of macroeconomic stabilization policies and structural measures for reconstructing the social and economic Have the financial institutions trading on the Angolan market basis of the country over the past four years. The economic grounds faced increasing demands to play a more active role in sup- favorable to maintaining this good performance could continue over porting the national private sector. How does the bank meet the next three to five years, unless the international situation affecting this demand? financial markets, raw materials, and basic goods takes a down turn. A microfinance bank has a unique role to play in providing this In the first scenario, development of the domestic market and of support. Our informal sector of the economy is widespread throug- exports should encourage the growth of the financial sector in terms hout the country, employs vast numbers of people in the different of its assets and take the supply of banking services to the regions, and in some of these regions it is the only economic activity municipalities. Once regulations for financial services have been that is private - a trade that is vibrant from dawn to dusk, providing completed, the non-banking financial institutions envisaged in the a supply of assets and goods to businesses upstream and affects the framework law, namely specialized credit companies, long term formal business of the country. In the center of this informal sector leasing, etc., may emerge, besides interest in the market by the so- our bank helps micro and small business people with talent to emerge called first class financial institutions being confirmed. daily by providing credit, training and advice to help develop their Should the world economy slow or run into depression, Angola may businesses. be a safe haven because of the strategic value of its diversified raw materials and resources. Whatever the case, the biggest challenge and Could the financial reality of Angola change after the commitment for Government policies and the major, public and legislative elections in September 2008? private economic interests, will be to protect the human Angolans cannot waste the excellent opportunity that the dimension in developing Angola. Opening up the elections offer to wed the democratic constitutional financial market to micro-finance companies will regime to development opportunities for their lead to creating a more competitive environ- country, drawing advantage from an inter- ment between the institutions operating in national environment that is in their favor. this segment of the market and contribute These conditions appear once only in the life to distributing and making accessible cycle of a country, and only reappear after business opportunities to wider sectors of fifty or more years have elapsed. the population. Carlos Bessa Victor Chaves Executive Director of Novo Banco 26 BANKING IN REVIEW Angola 2008 BPA Reinforcing the investment cycle A pioneer in providing investment banking services, BPA aims to consolidate its position in the area of project funding for Angolan industrialists and managers. Carlos José da Silva Chairman of the Board of Directors of Banco Privado Atlântico Do results achieved in 2007 confirm the Bank's expec- Will the introduction of the Capitals Market boost this ex- tations? pansion? Results for 2007 were highly positive and in line with plan. I think We believe it will in that it will allow for the introduction of new our result is the response to the discrete and technical work that financial solutions for our clients, such as investment funds and has been done with the market and our clients. All business areas even the discretionary management of securities portfolios. (relational banking, investment banking and asset management) made a solid contribution towards the bank's results. Have the financial institutions trading on the Angolan market faced increasing demands to play a more active role in How would you assess market development and, in par- supporting the national private sector. ticular, the Angolan Financial System, over recent months? Market development is highly positive. The volume of assets being How does the bank meet this demand? managed has risen above 50% and, in the past three years, there From the time of incorporation we have been getting ready to be has been a significant increase in the conversion ratio of deposits a specialized bank, focused on structuring and technically advising to credit. Of course growth in Angola's economy and in the our clients and investors, both public and private, on the design, financial sector in particular, attracts new financial investors and structuring and shaping of their investment projects. We were the banks. Looking to the future, we expect the sector to continue to first bank in Angola to provide investment banking services so grow, although probably at a slower rate than what we have seen that we could be present throughout the whole investment cycle in the past. However, there are many and varied challenges that of our clients. We believe this is a clear demonstration that more will have to be faced, mainly: the prospect of tough commercial than just funding projects, we help industrialists and managers to competition, which will have an impact on financial margins; a ensure the success of their ambitions. healthy demand from clients for new products and services and, above all, the challenge of attracting, training and retaining Could the financial reality of Angola change after the human capital in the quantity and quality required to meet the legislative elections in September 2008? expansion of centers for client attendance, among others. The elections are a natural political and civic act that we feel does not affect the performance of the Angolan Financial System. The What strategic areas will be targeted for expanding the future of the financial system is above all related to the com- bank's business? mitment and the investment made by the banks, and which they Strategic business areas for us are those suited to our type of will surely continue to make, and with the continued good mixed operations involving investment banking and specialized performance of Angola's macroeconomic levels, which the poli- asset management services, based on the principle of relational tical and economic authorities have guaranteed in recent years. banking. The September elections will help towards this consolidation. 27 BANKING IN REVIEW Angola 2008 Banco Totta Angola Under the sign of growth Growth in the volume of business and opening four company centers and one outlet, added to the consequent increase in client numbers, are all factors proving that Banco Totta Angola is riding the wave of growth. Do results achieved in 2007 confirm the Bank's expecta- Have the financial institutions trading on the Angolan tions? market faced increasing demands to play a more active role We achieved planned objectives and, consequently, results met in supporting the national private sector. How does the with our expectations. Obviously financial plans are prepared on bank meet this demand? projection and do not reflect changes in monetary and exchange Banco Totta Angola significantly increased credit over recent years. policies that are implemented throughout the year and that have In fact, the bank tripled credit granted in the past two years, a direct impact on the bank's results. Nevertheless, these variables diversifying the portfolio in providing support for investment were overcome successfully and we managed to maintain a level projects, particularly consumer and housing loans. This bank has of return on capital within planned levels. The factors most an organic growth plan not only for Luanda but also for the contributing to this result were, without a doubt, growth in the provinces. Modernizing services and specializing in our client volume of business, and the opening of four company centers and attendance are factors that reinforce the role of the bank in giving one outlet, which led to an increase in client numbers. support to all these sectors of the economy. How would you assess market development and, in par- Could the financial reality of Angola change after the ticular, the Angolan Financial System, over recent months? legislative elections in September 2008? Over recent months the Financial System has been evolving very Yes, I think this will be an important step in bringing democratic positively, both in terms of quality of services and in the complexity stability to the country and, as a result, it will create an economic of the products on offer to clients, despite the lack of regulation in climate of confidence that will be even more favorable than what certain areas that we believe to be key areas for the sector, such as we are experiencing currently. The elections are seen by the vast leasing and factoring, for example, among others. It is fair to say majority of economic agents as an important landmark in the that the Financial System is without doubt one of the most country's development. This means that whoever wants to invest dynamic and modern sectors in the national economy. The rise in in Angola will be more motivated to do so, regardless of their the number of new banks brings challenges, increases competition origin (national or foreign). The country's development needs and promotes banking modernization and specialization throu- investment and growth in all sectors of productive activity and, ghout, with a direct impact on improving services to clients. obviously, this will reflect positively on the Financial System. What strategic areas will be targeted for expanding the bank's business? Continuing to focus on the major clients segment, which to date has been our preferred target, and also on individual staff members of major companies, by signing loan agreements. Due to the plan to extend the commercial network by opening new outlets and new companies centers in various parts of the country, in the near future, we are obviously looking to diversify our portfolio of clients, concentrating on Small and Medium sized companies and on high income individuals. Will the introduction of the Capitals Market boost this ex- pansion? A functioning Capitals Market is always an added value for a Financial System that wants to be modern and efficient, a pro- moter of business and one opening the way to developing other aspects of banking business. Apart from being a source of funding for companies that want to acquire and disperse capital, it leads to developing investment funds as a good way of channeling in- dividual savings into funding for companies, in this way boosting and diversifying the financial market. On the other hand, and no less important, the Capitals Market has a fundamental role to play João Pinheiro in the transparency of information made available by companies to Financial Director of Banco Totta Angola economic agents, bringing credibility to the market. 28 BANKING IN REVIEW Angola 2008 BCA Preparing to integrate banking of the future 2007 saw a rise in the volume of deposits and credit for BCA, as well as the start to a phase of radical restructuring, with a view to preparing the bank for the future and making it ready to meet international demands. Do results achieved in 2007 confirm the bank's expectations? BCA is going through a phase of restructuring and in 2007 a detailed analysis was done of the bank's organization and its internal control system, with a view to getting ready for the future. Measures were defined in a variety of areas to make the bank's standards in terms of control, efficiency and governance compatible with international demands. While this reorganization was taking place, attention was also paid to developing the bank's business, which led to growth in both deposit and credit volumes, and to BCA developing financially from a loss in 2006 to a gain in 2007. How would you assess market development and, in particular, the Angolan Financial System, over recent months? Angola continues to be one of the world's economies with the highest growth in GDP. Filipe Coelho Many investments are being made, both public and private, which also encourages Executive Chairman growth in the financial sector. I think we are going to see even more boom and of Banco Comercial Angolano competition in this sector and banks stepping up their respective processes for turning deposits into credit. They will also offer an even greater variety of financial products. What strategic areas will be targeted for expanding the bank's business? We consider that training and development for our human resources is highly important for expanding BCA business. Besides local training for our staff, we also want them to be aware of other international realities, to this end benefiting from the potential of the Barclays/ABSA Group. We also want to cover parts of Angola that we have not yet reached, proceed with client segmentation and invest significantly in technology. Have the financial institutions trading on the Angolan market faced increasing demands to play a more active role in supporting the national private sector. How does the bank meet this demand? Bearing in mind the economic growth boom in the country, Corporate and Medium sized companies will be strategic for growth in our business. Consequently, the national private sector is one of the segments we are targeting, and will continue to target, for business in the future, particularly for making loans. Could the financial reality of Angola change after the legislative elections in September 2008? We do not feel the current reality will change much. Growth is still expected and we are convinced that the political players will act responsibly, reinforcing the way towards stability and confidence for economic agents in our country. 29 BANKING IN REVIEW Versão Portuguesa Angola 2008 Propriedade Deloitte Angola • Patrocínio ABANC 63 Study Property Deloitte Angola • Sponsorship ABANC BANKING IN REVIEW Angola 2008 Contents Macroeconomic review 33 Preamble and bases of preparation 37 Introduction 38 Assets structure 39 Customer deposits 41 Credit to customers 44 Study Credits Profitability 47 Participating Banks Conclusion 49 Banco Africano de Investimentos S.A. The banks' financial information 50 Banco Comercial Angolano S.A.R.L. Banco de Comércio e Indústria S.A.R.L. Banco Millennium Angola Banco Espírito Santo Angola S.A.R.L. Banco de Fomento Angola S.A.R.L. Banco BIC S.A. Banco de Poupança e Crédito S.A.R.L. Banco Totta de Angola S.A.R.L. Banco Regional do Keve S.A.R.L. Novo Banco S.A.R.L. Banco Sol S.A.R.L. Banco Privado Atlântico S.A. Banco de Negócios Internacional S.A. Banco de Desenvolvimento de Angola E.P. Banco Angolano de Negócios e Comércio S.A. VTB Angola S.A. Project Management Roberto Fernandes • ABANC Secretary General Nuno Vaz • Managing Director Deloitte Angola Project Team André Sousa • Manager Deloitte Angola Luis Alves • Manager Deloitte Angola Gilberto Diogo • Consultant Deloitte Angola Pedro Leitão • Partner Deloitte Portugal Nuno Alpendre • Partner Deloitte Portugal Vitor Lopes • Senior Manager GMS Portugal 32 BANKING IN REVIEW Angola 2008 Macroeconomic review A world in economic turmoil 2007 was a turning year for global economy. The subprime financial credit crisis, the oil price surge (in 2007 it suffered a 84% increase, taking as reference the OPEC basket), the commodities price increase, the real state bubbles bursting in the main markets (United States, United Kingdom) and the continuous dollar depreciation, brought to the economic future an high level of uncertainty and pessimism, unseen since 9/11. The first semester of 2008 has confirmed and strengthen most of these trends, in particular the oil price surge, which as we write this study has already surpassed the 140 dollar a barrel level, adding another trend: the surge in food prices, which could have a devastating effect on the populations of underdeveloped economies and of those more dependent on external aid. 1. Oil Price Evolution (Opec Basket) 2007 was a turning year for global economy Source: Opec The main impact of this set of trends, has been the lost of strength and consequentially the influence capabilities of the economies traditionally considered the more powerful ones (United States and European Union), in contrast with the evermore vigor and dynamism of some of the emerging economies (China, India, Brazil, etc.), although some structural fragilities. The emergence of sovereign wealth funds (funds backed up by national excess of liquidity) and the massive acquisition of assets in the United States and Europe by them is one of the symptoms of the creation of a new economic global order. 2. Sovereign Funds Deals Evolution Source: Dealogic 33 BANKING IN REVIEW Angola 2008 Continuous economic growth In this economic and global turmoil, and with some of the trends beneficiating local economy, Angola maintained during 2007, the high level of economic growth, totalizing four consecutive years with two digit GDP growth. Impressive achievement in the global economic landscape (only other four countries have attained such an accomplishment, among them China). The political, social and macro economical stability environment have been the pillars of this continous economic growth. 3. Angola GDP Growth Evolution (03-07) Source: Finance Ministry The estimated GDP growth The estimated GDP growth rate in 2007 is 20,9%, which represents a slight increase comparatively to 2006, and which position Angola, for the third year in a row in the Top 3 rate in 2007 is 20,9% countries with the biggest GDP growth rates, consolidating a stabilizing and influential geopolitical role in the African continent, in particular in the austral Africa community, where in comparison with the other countries Angola presents a growth rate, in the last three years, averaging three times the growth of his regional neighbors. 4. GDP growth benchmarking - Africa (05-07) Source : IMF, Deloitte Analysis 34 BANKING IN REVIEW Angola 2008 Although the oil price increase, in addition to the boost in oil production in Angola, who The Agriculture sector ended 2007 with a daily production of 1,87 million barrels, have an huge positive influence in the this year GDP growth rate, we are obliged to emphasize the contribution that the non-oil represents around 9,8% sector had in the economic growth, in particular the Agriculture and Fishing sector, along with the Construction sector. This fact is more relevant, in social terms, since these sectors are more , of the GDP while the labor intensive (particularly the Agriculture) than the oil business. In 2007, the Agriculture Construction sector has sector represents around 9,8% of the GDP, while the Construction sector has almost duplicated, in the last three years, its GDP weight, reaching in 2007 around 5,8% of the GDP. almost duplicated, in the last three years, its GDP weight 5. Angola GDP Breakdown (05-07) Source: Finance Ministry Focused on the real economy The huge increase in credit extended to the economy, with a global increase of 75% in relation to 2006 and an increase of 81% in the corporate credit, granted by the commercial The credit extended banks during 2007, is a proof of the sustained and continuous economical development of to individuals increased 62% Angola, mainly the non-oil sector, with particular emphasis in the Construction, Services and Retail & Wholesale, which represent a considerable share of the corporate credit. It is also during 2007 important to highlight the increase in credit extended to individuals, which increased 62% during 2007. In spit of the huge increase, there is still a lot of market potential, as the percentage of credit extended in relation to the GDP is still extremely low. Additionally, it is also important to highlight that the Agriculture Sector has been neglected by the financial sector as they present a very low share of credit extended, in comparison to its weight in the national GDP. 6a. Total credit granted 6b. Corporate credit granted Fonte: BNA 35 BANKING IN REVIEW Angola 2008 In result, partially, of the huge private and government investment, which the latter has almost duplicated in 2007, growing from 323 billion kwanzas to 529 billion, the imports amount has increased 33,3%, with a continuous diversification of the countries with which Angola has developed and strengthen commercial relations. Among the four top countries, in terms of value of imports, we find Portugal, China, Brazil and the United States, although the US has been showing a declining trend in the last years. On the exports side, the oil production capacity increase in addition to the surge in oil price during 2007, lead to a considerable increase in the value of exports, which reached almost 40 billion dollars, with the oil exports accounting 95,3% of total exports. 7. Trade Account Source: BNA, Deloitte Analysis International reserves reached The fiscal revenue resulting from oil exports, the contracting of external financings and the issuing of dollar treasury bonds, enabled the maintenance of the growing trend of a total of around 11,2 billions international reserves, which reached in 2007 a total of around 11,2 billions dollars, the dollars in 2007 equivalent to almost 12 months of imports. Inflation maintenance Despite the efforts of macroeconomic policies of the government and the National Bank of Angola, mainly by increasing the rediscount rate and the supply of Central Bank' securities in the market, in 2007 inflation did not continue along with the decreasing trend seen in recent years, reaching around the same values of last year (12.2%), about 11.8%, slightly above the government target of 10%. 8. Foreign currency appreciation towards AKZ Source: OANDA, Deloitte 36 BANKING IN REVIEW Angola 2008 The devaluation of the Angolan currency against the currencies of some major trading The growth of the payment partners (Europe and Brasil) and the rising price of commodities, so vital to the activities of national reconstruction, are among the factors that the pressured for high prices. means in 2007 occurred The growth of the payment means in 2007 occurred mainly in the component related to the mainly in the component national currency, whose growth in the period was about 83%, compared with 25% growth related to the national in foreign currency, representing a clear increase in confidence of economic agents in the local currency. currency The BTC's downward trend observed last year has been reversed and during the year 2007 was verified a gradual rise in interest rates, achieving values of around 15% (in the case of 182 days BTC) at the end of the year. This movement by the Central Bank had as its main objective the maintenance of the rate of inflation, given the high liquidity in the market. Alongside, there had been an increase in the return rates of fixed-term deposits and the maintenance of credit's interest rate. 9. Interest rates evolution Source: BNA Preamble and bases of preparation This is the third edition of study that includes, besides the usual analysis on the market and banks evolution, the vision of Deloitte specialists about relevant themes for the development of the sector in the next year. The analysis of the sector results from the compilation of financial information provided by the different banks, the consolidation of a wide variety of data collected from other markets and information provided by BNA. The macroeconomic analysis of Angola and the sub-Saharan region is based on data released by BNA, Ministry of Finance, IMF and OPEC as well as several expert reports. In the individual analysis of each of the banks, the indicators presented resulted of the analysis to the Financial Demonstrations using uniform criteria for all banks. This way we tried to ensure maximum comparability between banks in the different indicators. In the analysis of this year we have incorporated additional data relating to 2006 and recalculated the various indicators. It resulted in minor corrections to the values of last year. The aggregate values for the sector, unless expressly mentioned, result from the sum of the values of all banks considered in the study. The study includes the 17 banks operating in Angola. Bellow we present the list of banks operating in Angola on December 31, 2007 and were included in our study: 37 BANKING IN REVIEW Angola 2008 Table 1 BANKS IN ANGOLA IN 2007 INICIALS NAME SINCE BAI Banco Africano de Investimentos S.A. 1997 BCA Banco Comercial Angolano S.A.R.L. 1999 BCI Banco de Comércio e Indústria S.A.R.L. 1991 BMA Banco Millennium Angola 1993 BESA Banco Espírito Santo Angola S.A.R.L. 2002 BFA Banco de Fomento Angola S.A.R.L. 1993 BIC Banco BIC S.A. 2005 BPC Banco de Poupança e Crédito S.A.R.L. 1976 BTA Banco Totta de Angola S.A.R.L. 1993 KEVE Banco Regional do Keve S.A.R.L. 2003 NOVO BANCO Novo Banco S.A.R.L. 2004 SOL Banco Sol S.A.R.L. 2001 BPA Banco Privado Atlântico S.A. 2006 BNI Banco de Negócios Internacional S.A. 2006 BDA Banco de Desenvolvimento de Angola E.P. 2006 BANC Banco Angolano de Negócios e Comércio S.A. 2007 VTB VTB Angola S.A. 2007 Source: BNA Introduction During the year 2007 the sector has increased its weight in the economy, the M2 indicator grew 39.2% and the total assets 61.9%, well above GDP growth. The growth of the sector was less steep than in the previous year, deposits grew 45.4%, compared with 70.1% in 2006 and credit to customers 82.8%, compared to 102.7% in 2006. Still a remarkable performance of the sector that can be expected to remain in the coming years as GDP growth expected for 2008 (16%) and 2009 (13%) and the opportunities that the development of a capital and stock market in Angola will bring to the sector. During the year two new commercial banks started their operations in Angola: • BANC - Banco Angolano de Negócios e Comercio, with 100% Angolan capital. Started his business in June 2007. • VTB with 66% of Russian capital and 34% of Angolan capital. Began operating in March with the initial purpose of finance projects in the sectors of oil, diamonds, electricity and telecommunications. In the distribution network the efforts to expand increased with the 5 largest banks opening 138 new branches against 76 in the previous year. The increase of distribution network is the result of more intense competition to the rapidly expand the customer base and offer better service levels to existing customers. The segmentation of the distribution network is also a reality with banks using alternative models to universal branch. In some players you can find in its distribution network distinct models such as service points, universal branch, SME branches, corporate centers and Private banking branches. The payment system has evolved and has achieved the interconnection to the Visa International which allowed, from April 2007, the use of debit and credit cards from visa network in ATMs and TPAs. 38 BANKING IN REVIEW Angola 2008 Asset structure There was an increase in the weight of credit in the assets representing in 2007 37% compared to 33% in the previous year, yet still far from other more mature markets where the credit represents about 60% of the total asset value. 10. Consolidated asset structure 2% 3% 5% 7% 16% 18% 27% 32% Cash 59% 37% 33% 57% Loans and credit 27% 69% Bonds and securities 38% 19% Other remunerated assets 22% 5% 28% 18% Other unremunerated assets 19% 25% 22% 18% 11% 23% 13% 10% 8% 9% 6% 7% 7% 1% Angola 2007 Angola 2006 Angola 2005 Brazil Portugal USA South Africa Source: Bank Financial Statements, BankScc In bonds and securities the trend from previous years changed and there was an increase in weight of this type of assets representing 28% of the assets in 2007 compared to 19% in 2006, this should not be separated from the increase in Central Bank Bonds (TBCs) interest rates. Additionally, this also results of high returns obtained with securities and the struggle to grow even more the credit to customers. This shift in the structure of assets shows an improvement in asset management, with a reduction, compared with 2006 and 2005, of unremunerated assets (cash and other liquid assets). Still the sector presents high values at the level of unremunerated liquid assets in 2007. There is still a potential for efficiency gains when compared with the more advanced markets where this type of assets account for 2% to 7%. The development of a capital market will bring to sector the financial instruments that will allow a more efficient management of these assets. 11. Consolidated "funding" structure The sector presents high values at the level of unremunerated liquid assets in 2007 55% 60% 66% 66% 74% 71% 71% Deposits Other liabilities Equity and generic provisions 34% 23% 23% 33% 15% 18% 21% 11% 11% 11% 11% 8% 10% 7% Angola 2007 Angola 2006 Angola 2005 Brazil Portugal USA South Africa Source: Bank Financial Statements, BankScc 39 BANKING IN REVIEW Angola 2008 In the assets funding structure there was a decrease in the share of deposits from 74% to 66% compensated by the increase in weight of the other liabilities from 15% to 23%. These figures are relatively aligned with the assets funding structure in more mature markets. The equity financing maintained its relative weight, around 11%. 12. Credit over deposits 160% Portugal 152% 120% South Africa 98% 80% 56% 45% 37% 40% 0% 2005 2006 2007 Source: Bank Financial Statements The net credit ratio over deposits continued its growth reaching 56% in 2007. This figure is still far from other more mature markets where this ratio is near or above 100%. The Angolan financial sector still has a large margin to grant credit, in this sense it is necessary to develop the internal capabilities to do so, ensuring the maintenance of good levels of risk management. The net credit ratio over deposits continued its growth reaching 56% in 2007 Editando (photo made in Ferpinta Angola) 40 BANKING IN REVIEW Angola 2008 Customer deposits Aggregated vision The total value of costumer deposits in commercial banks in Angola reached 895 billion kwanzas representing a growth of 45.4% over the previous year. There was also a significant increase in share of deposits in national currency, result of the exchange rate stability experienced particularly in the second half of the year. The deposits in national currency grew from 35% in 2006 to 58% in 2007. 13. Deposits structure by currency National Currency National 35% Currency 58% Foreign Currency Foreign 65% Currency 42% 2006 2007 Source: BNA In the composition of customer deposits, non-interest deposits continue to have a significant predominance representing in 2007 around 81% of total deposits from customers. This, although advantageous in the cost of funding, has an impact in liquidity management and consequently the potential to increase in credit granting. 14. Customer deposits structure Non-interest deposits continue to have a significant predominance Million Akz representing in 2007 around 714.649 81% of total deposits from 451.424 customers 164.672 181.385 2006 2007 Non-interest deposits Interest deposits Source: Bank Financial Statements 41 BANKING IN REVIEW Angola 2008 Customer deposits Relative position of banks BAI due to a higher growth of customer deposits compared to its two largest competitors became market share leader in customer deposits with 24%. BPC, despite a growth below market average climbed to second position overcoming BFA. BFA showing a growth below market average lost 6.5 pp of this market share. BIC, with the highest growth among the five largest banks, 78%, gained 2.4 pp of market share strengthening the fourth position and significantly reducing the distance to third place. Table 2 CUSTOMER DEPOSITS RANKING 2007 2006 RANKING BANK SHARE (%) BANK SHARE (%) 1 BAI 23.7 BAI 23.5 2 BPC 20.0 BPC 21.5 3 BFA 17.0 BFA 20.2 4 BIC 13.4 BIC 11.0 5 BESA 10.1 BESA 8.6 6 BCI 3.8 BCI 4.5 7 BTA 2.7 BTA 3.3 8 SOL 2.5 SOL 2.2 9 BPA 1.8 BPA 1.7 10 BMA 1.5 BMA 1.5 11 BCA 1.3 BCA 1.2 12 KEVE 1.0 KEVE 0.5 13 BNI 0.9 BNI 0.2 14 NOVO BANCO 0.1 NOVO BANCO 0.1 15 BANC 0.0 - - 16 VTB 0.0 - - 17 BDA 0.0 - - Source: Bank Financial Statements The five largest banks in Angola account for a deposits market share of 84%, somewhat similar to the previous year with 85%. This level of concentration is similar to the one found in other markets, like for instance, Portugal. 15. Growth on customer deposits (%) Biggest 5 banks 78% 72% 60% 51% 44% 24% 20% 17% 16% 13% 10% 5% BP C BFA B AI BE S A BIC Others Share 2007 Growth 06-07 Source: Bank Financial Statements 42 BANKING IN REVIEW Angola 2008 For the remaining banks, we underline the growth of BPA, which grew its market share from 0.2% to 1.8% in 2007, unlike the majority of the other banks which have lost market share in 2007 (with exception for Banco Sol, BNI and BMA). Consequently, BPA, which raised four positions, ended up in ninth position immediately after BCI, BTA and Banco Sol that have maintained their respective positions. 16. Growth on customer deposits (%) 1136% Other banks 4% 3% 3% 2% 1% 2% 1% 1% 24% 21% 46% 0% 0% 12% 21% 168% BCI BIA SOL BCA KEVE BCP 25% B NI BPA NOVO BANCO Share 2007 Growth 06-07 Source: Bank Financial Statements 43 BANKING IN REVIEW Angola 2008 The current methodology only considers customer deposits. Nevertheless there are other re- sources, such as, bonds sold with repurchase agreement that, given their growth in 2007, should be mentioned to contextualize the analysis. So, we also present the deposits ranking, using BNA aggregation criteria. According to this indicator we can observe an upholding of the relative position of the five major banks in 2007 when compared to 2006. Table 3 BNA DEPOSITS RANKING 2007 2006 RANKING BANK SHARE (%) BANK SHARE (%) 1 BAI 22.4 BAI 23.5 2 BFA 20.1 BFA 22.0 3 BPC 17.0 BPC 19.2 4 BIC 14.4 BIC 13.0 5 BESA 8.3 BESA 7.4 6 BCI 3.7 BCI 4.2 7 SOL 3.0 BTA 3.0 8 BTA 2.5 SOL 2.3 9 BNI 2.4 BCA 2.0 10 BPA 1.9 BCP (BMA) 1.4 11 BMA 1.6 KEVE 1.2 12 BCA 1.4 BNI 0.4 13 KEVE 1.0 BPA 0.2 14 BDA 0.2 NOVO BANCO 0.1 15 BANC 0.1 - - 16 NOVO BANCO 0.1 - - 17 VTB 0.0 - - Source: BNA Credit to customers Aggregated vision The credit continues to show strong growth and the credit extended to customers reached 502 billion kwanzas, a growth of 83% over the previous year. This growth trend, observed in the last years, resulted from a strong focus from the banking sector in the financial intermediation business. Consequently in 2007 the banks financial margin grew 84%. The currency breakdown remained stable, the weight of credit in foreign currency, in 2007 was 52% compared to 50% of 2006. 17. Credit structure by currency Foreign Foreign Currency Currency 50% 52% National National Currency Currency 50% 48% 2006 2007 Source: BNA 44 BANKING IN REVIEW Angola 2008 The five largest banks Credit to customers continue to represent 85.1% of the market, a figure Relative position to banks slightly below previous year's 86.9% In the credit, we highlight BFA that, though losing some market share, took the lead with 21.9% deployed. BESA with an increase of 3.8 p.p. in its market share gained the fourth position in the raking surpassing BAI. The five largest banks continue to represent 85.1% of the market, a figure slightly below previous year's 86.9%. Table 4 CREDIT TO CLIENTS RANKING 2007 2006 RANKING BANCK SHARE (%) BANCO SHARE (%) 1 BFA 21.9 BPC 25.1 2 BPC 19.8 BFA 25.0 3 BIC 18.3 BIC 15.6 4 BESA 12.6 BAI 12.3 5 BAI 12.5 BESA 8.8 6 BNI 2.6 BCI 3.3 7 BMA 2.5 BTA 2.8 8 BTA 2.3 BMA 2.1 9 BCI 2.3 SOL 1.6 10 SOL 1.8 KEVE 1.6 11 KEVE 1.6 BCA 1.4 12 BCA 1.1 NOVO BANCO 0.2 13 BPA 0.6 BNI 0.0 14 NOVO BANCO 0.1 BPA 0.0 15 BDA 0.0 - - 16 BANC 0.0 - - 17 VTB 0.0 - - Source: Bank Financial Statements 45 BANKING IN REVIEW Angola 2008 Editando/Pedro Magalhães For the remaining banks, the highlight is the rise of BNI (which in one year captured 2.6% of market share), the BMA and the Banco Sol and the lost of market share of the remaining banks, with emphasis on the BCI which lost 1 pp and went from sixth to the ninth place position. BIC maintains a leadership among the five largest banks in terms of efficiency to transform deposits in credit. BFA increased significantly the transformation ratio moving closer to the levels of BIC. Among the five biggest banks only the BPC has not improved its ratio. 18. Credit over deposits (%) Portugal 152% The provisions registered an overall decrease South Africa 98% 72% 76% in the provisions over gross 55% 55% 70% 63% 56% 48% 46% 45% credit ratio 30% 25% BF A BA I BP C BE S A BIC Angola 2007 2006 Source: Bank Financial Statements, BankScc The provisions registered an overall decrease in the provisions over gross credit ratio. This indicator does not reflect the potential increase in the risk level associated with the accelerated growth of credit in the market. 19. Credit provisions/Credit (%) Brazil 6% 3.9% Portugal 2.6% 3.3% South Africa 2% 1.3% 0.5% 2006 2007 Specific provisions Generic provisions Fonte: BNA 46 BANKING IN REVIEW Angola 2008 Profitability Aggregated vision The operating income of commercial banking reached 91.7 billion kwanzas representing an increase of 55% over the previous year. This increase resulted in largely from the increase in the financial margin generated by the significant increase in the volume of credit granted, while maintaining interest rates relatively stable throughout the year. The financial margin rose 84% over the previous year while the non interest margin rose 29% compared to 2006. The return on average capital (ROAE) fell slightly in 2007 and is now of 31.9% compared to 33.9% in the previous year. The profitability of the sector is still very high compared with other markets, which results from: • Higher intermediation rates. The deposits collected are not remunerated or remunerated at low rates and the interest rates paid on credit are high. • High non-interest margin resulting primarily from gains in financial operations, manly currency related. • A low cost-to-income ratio that results in part from lower operating costs and from high concentration of business in high value customers. With the expansion of retail distribution networks the operating costs will rise. With the expansion of retail distribution networks the operating costs will rise. With the reduction of intermediation margins that competition will bring the cost-to-income tend to approach the values closer to more mature markets. Table 5 PROFITABILY INDICATORS ANGOLA OTHER COUNTRIES 2007 2006 2005 2004 BRAZIL PORTUGAL USA SOUTH AFRICA Financial Margin (% of assets) 4.8 4.2 5.6 6.4 5 1.9 3.1 2.7 Non-interest Margin (% of assets) 3.7 4.6 3.9 7.3 3.3 1.9 2.3 3.0 Opertaing income (% of assets) 8.4 8.8 9.4 13.7 9.1 3.8 5.4 5.7 Cost-to-income (%) 44.4 47.9 40.1 40.2 0.0 0.0 0.0 0.0 Operating costs (% of assets) -3.7 -4.2 -3.8 -5.5 -6.3 -2.6 -3.2 -3.6 Return on Average Assets (ROAA) (%) 2.9 3.1 4.1 3.8 1,7 0.7 1.3 1.1 Average Leverage Rate 11.0 10.7 10.4 8.9 9.4 15.6 10.4 14.1 Return on Average Equity (ROAE) (%)31.9 33.9 42.5 34.2 15.9 11.6 13.6 15.7 Source: Bank financial statements Editando/Pedro Magalhães 47 BANKING IN REVIEW Angola 2008 DR (Sonangol courtesy) Profitability Relative position of banks BIC and BESA maintain the two top positions in profitability, followed by BNI and BPA that in the second year of activities took over the third and fourth position among the most profitable banks. Table 6 RANKING DE CREDIBILIDADE (ROAE %) 2007 2006 RANKING BANCO ROAE BANCO ROAE 1 BIC 71 BIC 81.9 2 BESA 57.7 BESA 59.6 3 BNI 53.3 BFA 41.4 4 BPA 42.6 BAI 37.9 5 BAI 40.2 Sol 32.9 6 Sol 34.5 BTA 24.6 7 BFA 31.8 Keve 23.1 8 BPC 25.5 BPC 22.8 9 BTA 22.9 BCI 9.7 10 BMA 14.1 BMA 8.3 11 Keve 13.6 BNI 1.1 12 BCI 10.1 Novo Banco 0.7 13 BCA 1.5 BCA -1.9 14 Novo Banco -17.9 BPA -14.7 15 BDA -20.0 - - 16 Banc 138.1 - - Source: Bank financial statements 48 BANKING IN REVIEW Angola 2008 In terms of return on assets the banks that bet on more aggressive credit strategies and are more efficient to transform deposits into credit (BFA, BIC and BESA) are the ones that can present greater returns. 20. Profitabilitu biggest banks (% of average assets) 3.3% 5.1% 4.1% 3.7% 3.7% Non-interest margin 2.8% Interest margin 5.1% 4.4% Operational costs 5.8% 3.4% 3.9% 2.9% 2.5% 5.0% 5.0% 1.7% ROAA (%) 4.8% 3.8% BF A BE S A B AI BIC BPC Angola 2007 -3.6% -1.8% -3.3% -2.8% -3.7% -5.3% Source: Bank Financial Statements, BankScc When looking at the leverage rate, in addition to the five largest banks, Banco Sol and BPA are the banks with higher leverage rates and higher growth in this indicator representing a growth of assets above the growth of capital. This could lead to future needs of equity increases to equilibrate the balance sheet. 21. Leverage rate 24.3 22.5 15.8 15.3 15.7 12.8 11.9 9.4 8.4 7.2 6.3 7.0 5.0 3.7 3.8 2.9 1.9 O NC I A) VE VO BNI BIC I A A A B A BA A L C NC BC SA SO VT BT BF BD BP BC BP BA M KE BE BA (B P BC NO Leverage 2007 Leverage 2006 Angola 2007 Angola 2006 Source: Bank Financial Statements, BankScc 49 BANKING IN REVIEW Angola 2008 Conclusion In conclusion, we have seen in 2007 a further growth of the Financial Sector, in line with previous years. The distribution network of major banks has nearly doubled during 2007, demonstrating the strong bet in the growth and development of the bankarization of Angola. In 2007 the banks financial The entry of new banks in 2007 did not significantly alter the picture of the sector; there are five major banks, which in total represent about 85% of the market. There were minor margin grew 91% changes in the rankings of credits and deposits, which led to some exchanges of position between banks, BAI taken the lead in customer deposits, exchanging its position with the BFA, which in its turn took the lead in the credits, exchanging, in this case, the position with the BPC. In the smaller banks group, the highlight goes for the rise of BPA to 9 th place in the ranking of deposits and the BNI to 6 th place in the ranking of credit. Transformation ratio (deposit into credit) also improved, to 56%, still far from the one achieved in more mature markets. The profitability of the sector has remained at high levels, despite the slight decline compared with the previous year in ROAE. In 2007, the trend of declining financial margin observed since 2004 inverted, registering a rise of 0.8 pp compared to 2006. It is expected, given the growth prospects for the coming years in Angola and the opening of the capital market soon, that the financial sector continues to grow rapidly. In this sense, it is required to banks to monitor this growth to achieve sustainability, making their internal capacities grow, and ensuring ways to assure the current levels of profitability and high levels of risk management. 50 BANKING IN REVIEW Angola 2008 The banks' financial information Consolidated Assets & Liabilities • 2007 / 2006 / 2005 Consolidated Income Statement • 2007 / 2006 / 2005 Banks Assets & Liabilities • 2007 / 2006 Banks Income Statements • 2007 / 2006 Consolidated Performance Indicators • 2007 / 2006 / 2005 Banks Performance Indicators • 2007 / 2006 51 BANKING IN REVIEW Angola 2008 Consolidated assets & liabilities Million kwanzas CONSOLIDATED ASSETS & LIABILITIES 31-12-2007 31-12-2006 31-12-2005 ASSETS Cash and deposits Cash and due from Central Bank 175.816 107.540 102.548 Demand deposits with credit institutions 44.915 43.724 33.615 Loans to credit institutions 170.081 185.895 91.505 Customer loans 502.079 274.567 135.470 Bonds and other securities 373.655 161.575 111.248 Other unremunerated assets 81.234 58.328 33.353 TOTAL DO ASSETS 1.347.780 831.629 507.738 0 LIABILITIES 0 Banks deposits 57.138 7.423 2.855 Customer demand deposits 714.649 451.424 277.883 Customer term deposits 181.385 164.672 84.391 Other unremunerated assets 251.197 119.088 87.176 Provisions 20.874 11.387 9.397 0 0 0 SHAREHOLDER FUNDS 122.533 77.635 46.037 TOTAL LIABILITIES AND SHAREHOLDER FUNDS 1.347.776 831.629 507.738 Source: Banks Financial Statements Consolidated income statement Million kwanzas 2007 2006 2005 1. Interest and similar income on loan portfolio 73.144 39.523 38.012 2. Interest expenses on loan portfolio 20.962 11.140 13.351 3. NET INTEREST INCOME [1-2] 52.182 28.383 24.661 4. Other net operating income 39.780 30.734 17.201 5. GROSS OPERATING INCOME/(LOSS) [3+4] 91.761 59.117 41.862 6. Provisions 11.443 5.817 4.131 7. OPERATING INCOME/(LOSS) NET OF LOSS PROVISIONS [5-6] 80.319 53.299 37.731 8. Operating costs 40.595 28.305 17.016 9. NET OPERATING INCOME/(LOSS) [7-8] 39.595 24.994 20.715 10. Extraordinary Gains/(Losses) 566 1.012 457 11. NET INCOME/(LOSS) BEFORE TAX [9-10] 40.159 26.006 21.172 12. Income tax 8.278 5.023 3.219 13. NET INCOME/(LOSS) AFTER TAX [11-12] 31.882 20.983 17.953 Source: Banks Financial Statements 52 BANKING IN REVIEW Angola 2008 Banks assets & liabilities 2007 Million kwanzas BAI BCA BCI BMA BESA BFA BIC BPC ASSETS Cash and deposits Cash and due from Central Bank 37.856 2.820 9.658 4.101 14.086 30.969 23.561 33.281 Demand deposits with credit institutions 16.887 353 1.303 117 2.914 1.804 1.881 13.083 Loans to credit institutions 99.813 2.376 7.854 1.345 1.149 10.434 8.400 20.257 Customer loans 62.672 5.506 11.302 12.665 63.201 109.789 92.069 99.262 Bonds and other securities 42.794 5.890 16.396 5.249 55.340 101.904 43.345 25.181 Other entities' funds and other liabilities 14.156 1.223 7.116 2.023 8.246 11.590 5.324 22.905 TOTAL ASSETS 274.178 18.167 53.628 25.499 144.937 266.490 174.580 213.968 LIABILITIES Banks deposits 945 - - 3.592 40.537 5.494 0 138 Customer demand deposits 202.011 7.629 31.541 8.655 51.932 130.439 90.779 135.017 Customer term deposits 9.973 4.115 2.640 5.149 38.827 21.629 29.585 44.076 Other entities' funds and other liabilities 40.651 4.145 11.583 3.725 1.596 74.348 40.524 15.299 Provisions 3.190 109 448 326 747 6.085 2.245 5.795 SHAREHOLDER FUNDS 17.407 2.169 7.416 4.052 11.298 28.495 11.447 13.642 TOTAL LIABILITIES AND SHAREHOLDER FUNDS 274.178 18.167 53.628 25.499 144.937 266.490 174.580 213.968 Source: Banks Financial Statements Million kwanzas BTA KEVE NOVO BANCO BSOL BPA BNI BANC BDA VTB ASSETS Cash and deposits Cash and due from Central Bank 5.898 2.699 313 6.259 2.423 1.661 143 22 67 Demand deposits with credit institutions 733 622 31 507 1.070 3.243 136 220 11 Loans to credit institutuions 4.176 1.978 0 3.714 6.530 933 224 453 445 Customer loans 11.580 7.806 694 9.034 3.013 13.154 105 137 90 Bonds and other securities 12.849 2.460 56 14.066 11.742 13.182 749 22.284 168 Other entities´ funds and other liabilities 1.743 1.591 170 1.871 1.150 1.026 309 611 180 TOTAL ASSETS 36.979 17.156 1.264 35.451 25.928 33.199 1.666 23.727 961 LIABILITIES Bank deposits 941 667 140 - 3.520 1.164 - - - Customer demand deposits 18.885 6.096 523 14.632 9.987 6.113 344 - 66 Customer term deposits 5.360 3.142 215 8.104 6.122 2.234 15 - 199 Other entities´ funds and other liabilities 3.925 2.055 34 10.879 4.886 20.649 1.065 15.637 196 Provisions 442 553 20 378 262 248 3 20 3 SHAREHOLDER FUNDS 7.426 4.643 332 1.458 1.151 2.791 239 8.070 497 TOTAL LIABILITIES AND SHAREHOLDERS FUNDS 36.979 17.156 1.264 35.451 25.928 33.199 1.666 23.727 961 Source: Banks Financial Statements 53 BANKING IN REVIEW Angola 2008 Banks assets & liabilities 2006 Million kwanzas BAI BCA BCI BMA BESA BFA BIC ASSETS Cash and deposits Cash and due from Central Bank 20.454 1.825 6.271 2.959 8.725 15.695 10.301 Demand deposits with credit institutions 23.032 300 1.302 136 3.605 1.992 1.636 Loans to credit institutions 74.906 2.552 9.029 1.911 6.647 49.127 13.862 Customer loans 33.821 3.970 9.042 5.808 24.290 68.773 42.749 Bonds and other securities 23.220 7.263 9.712 2.419 15.295 42.544 28.259 Other entities' funds and other liabilities 10.011 1.332 8.671 968 5.879 7.194 3.425 TOTAL ASSETS 185.444 17.242 44.027 14.201 64.441 185.325 100.232 LIABILITIES Banks deposits 1.200 197 0 2.836 1.333 528 Customer demand deposits 121.169 6.791 24.453 6.223 29.837 95.504 40.859 Customer term deposits 11.539 3.663 3.210 3.238 22.967 49.169 26.789 Other entities' funds and other liabilities 38.415 4.471 10.736 1.035 1.206 15.234 25.431 Provisions 1.412 118 328 184 438 3.647 1.178 SHAREHOLDER FUNDS 11.709 2.200 5.103 3.520 7.158 20.438 5.447 TOTAL LIABILITIES AND SHAREHOLDER FUNDS 185.444 17.242 44.027 14.201 64.441 185.325 100.232 Source: Banks Financial Statements Million kwanzas BPC BTA KEVE NOVO BANCO BSOL BPA BNI ASSETS Cash and deposits Cash and due from Central Bank 31.285 3.479 2.597 290 2.997 458 204 Demand deposits with credit institutions 6.209 352 690 43 1.338 242 2.847 Loans to credit institutions 13.633 7.876 1.437 0 3.652 1.263 0 Customer loans 68.839 7.809 4.364 592 4.434 1 75 Bonds and other securities 18.470 8.024 500 52 3.966 543 1.308 Other entities' funds and other liabilities 16.051 1.441 1.033 174 1.366 312 471 TOTAL ASSETS 154.487 28.981 10.621 1.151 17.753 2.819 4.905 LIABILITIES Banks deposits 850 0 0 80 0 399 0 Customer demand deposits 94.180 15.974 4.426 431 8.350 1.029 2.198 Customer term deposits 30.471 4.058 3.205 160 5.016 274 913 Other entities' funds and other liabilities 15.139 2.870 918 32 3.054 370 177 Provisions 3.284 361 268 22 145 0 2 SHAREHOLDER FUNDS 10.562 5.718 1.804 426 1.188 747 1.615 TOTAL LIABILITIES AND SHAREHOLDER FUNDS 154.487 28.981 10.621 1.151 17.753 2.819 4.905 Source: Banks Financial Statements 54 BANKING IN REVIEW Angola 2008 Banks income statements 2007 Million kwanzas BAI BCA BCI BMA BESA BFA BIC BPC 1. Interest and similar income on loan portfolio 11.341 1.282 2.741 1.436 6.952 16.694 9.984 13.243 2. Interest expenses on loan portfolio 2.625 464 597 311 2.900 3.573 3.202 4.064 3. NET INTEREST INCOME [1-2] 8.716 818 2.144 1.125 4.052 13.121 6.782 9.179 4. Other net operating income 6.433 498 518 819 5.367 7.485 5.100 7.538 5. GROSS OPERATING INCOME/(LOSS) [3+4] 15.149 1.316 2.662 1.944 9.419 20.606 11.882 16.717 6. Provisions 2.159 91 -126 173 283 3.367 1.348 2.982 7. OPERATING INCOME/(LOSS) NET OF LOSS PROVISIONS [5-6] 12.990 1.225 2.788 1.771 9.136 17.239 10.534 13.735 8. Operating costs 4.094 1.185 2.669 1.102 3.767 6.362 4.532 9.744 9. NET OPERATING INCOME/(LOSS) [7-8] 8.896 40 119 669 5.369 10.877 6.002 3.991 10. Extraordinary Gains/(Losses) -114 -6 513 77 -36 120 -1 -20 11. NET INCOME/(LOSS) BEFORE TAX [9-10] 8.782 33 632 746 5.333 10.997 6.001 3.971 12. Income tax 2.923 214 12 3.228 0 891 13. NET INCOME/(LOSS) AFTER TAX [11-12] 5.859 33 632 532 5.322 7.769 6.001 3.080 Source: Banks Financial Statements Million kwanzas BTA KEVE NOVO BANCO BSOL BPA BNI BANC BDA VTB 1. Interest and similar income on loan portfolio 2.379 1.105 275 1.818 1.256 1.304 56 1.237 41 2. Interest expenses on loan portfolio 383 248 30 626 636 618 19 662 4 3. NET INTEREST INCOME [1-2] 1.996 857 245 1.192 620 686 37 575 37 4. Other net operating income 1.216 987 34 1.071 1.232 1.361 21 100 0 5. GROSS OPERATING INCOME/(LOSS) [3+4] 3.212 1.844 279 2.263 1.852 2.047 58 475 36 6. Provisions 148 306 35 135 262 248 4 25 3 7. OPERATING INCOME/(LOSS) NET OF LOSS PROVISIONS [5-6] 3.064 1.538 244 2.128 1.590 1.799 54 450 34 8. Operating costs 929 872 312 1.539 1.186 635 219 1.255 322 9. NET OPERATING INCOME/(LOSS) [7-8] 2.135 666 -68 589 404 1.164 -165 -805 -288 10. Extraordinary Gains/(Losses) 30 10 0 -18 0 11 0 0 0 11. NET INCOME/(LOSS) BEFORE TAX [9-10] 2.165 676 -68 571 404 1.175 -165 -805 -288 12. Income tax 659 237 0 114 0 0 0 0 0 13. NET INCOME/(LOSS) AFTER TAX [11-12] 1.506 439 -68 457 404 1.175 -165 -805 -288 Source: Banks Financial Statements 55 BANKING IN REVIEW Angola 2008 Banks income statements 2006 Million kwanzas BAI BCA BCI BMA BESA BFA BIC 1. Interest and similar income on loan portfolio 6.851 1.038 1.839 493 3.339 10.306 4.333 2. Interest expenses on loan portfolio 2.505 378 493 97 1.101 1.573 1.565 3. NET INTEREST INCOME [1-2] 4.346 660 1.346 396 2.238 8.733 2.768 4. Other net operating income 4.296 626 1.827 429 3.980 6.234 3.171 5. GROSS OPERATING INCOME/(LOSS) [3+4] 8.642 1.286 3.173 825 6.218 14.967 5.939 6. Provisions 267 361 175 62 273 1.914 994 7. OPERATING INCOME/(LOSS) NET OF LOSS PROVISIONS [5-6] 8.375 925 2.998 763 5.945 13.053 4.945 8. Operating costs 3.497 976 2.829 423 2.635 4.696 2.335 9. NET OPERATING INCOME/(LOSS) [7-8] 4.878 -51 169 340 3.310 8.357 2.610 10. Extraordinary Gains/(Losses) -158 7 211 47 2 803 4 11. NET INCOME/(LOSS) BEFORE TAX [9-10] 4.720 -44 380 387 3.312 9.160 2.614 12. Income tax 1.177 133 112 16 2.212 13. NET INCOME/(LOSS) AFTER TAX [11-12] 3.543 -43 247 275 3.294 6.948 2.614 Source: Banks Financial Statements Million kwanzas BPC BTA KEVE NOVO BANCO BSOL BPA BNI 1. Interest and similar income on loan portfolio 7.566 1.753 655 227 1.054 7 62 2. Interest expenses on loan portfolio 2.690 254 173 26 283 1 1 3. NET INTEREST INCOME [1-2] 4.876 1.499 482 201 771 6 61 4. Other net operating income 7.475 1.040 608 39 801 26 182 5. GROSS OPERATING INCOME/(LOSS) [3+4] 12.351 2.539 1.090 240 1.572 32 243 6. Provisions 1.522 78 50 23 97 0 1 7. OPERATING INCOME/(LOSS) NET OF LOSS PROVISIONS [5-6] 10.829 2.461 1.040 217 1.475 32 242 8. Operating costs 8.051 752 530 214 1.054 86 227 9. NET OPERATING INCOME/(LOSS) [7-8] 2.778 1.709 510 3 421 -55 15 10. Extraordinary Gains/(Losses) -11 71 49 0 -13 0 0 11. NET INCOME/(LOSS) BEFORE TAX [9-10] 2.767 1.780 559 3 408 -55 15 12. Income tax 616 507 194 0 50 0 6 13. NET INCOME/(LOSS) AFTER TAX [11-12] 2.151 1.273 365 3 358 -55 9 Source: Banks Financial Statements 56 BANKING IN REVIEW Angola 2008 Consolidated performance indicators CONSOLIDATED INDICATORS (%) ANGOLA 2007 2006 2005 SIZE AND GROWTH Growth in customer deposits 45.4 70.1 64.3 Growth in customer loans 82.9 102.7 44.0 Growth in assets 62.1 63.8 47.0 LIQUIDITY Shareholders' funds/total assets 9.1 9.3 9.1 Net advances/client deposits 56.0 44.6 37.4 Term deposits/total deposits 20.2 26.7 23.3 QUALITY OF ASSETS Generic provisions/total credit 3.3 3.9 3.9 Specific provisions/total credit 0.5 1.3 2.5 Bad debts/total credit 3.8 5.2 6.4 PERFORMANCE Return on average equity (ROAE) 31.9 33.9 42.5 Return on average total assets (ROAA) 2.9 3.1 4.1 Net interest income/average total assets 4.8 4.2 5.7 Other operating income/average total assets 3.7 4.6 3.9 Total income/average total assets 8.4 8.8 9.6 EFFICIENCY Operating costs/gross operating income 44.4 47.9 40.1 Operating costs/average assets 3.7 4.2 3.9 Source: Banks Financial Statements and BNA 57 BANKING IN REVIEW Angola 2008 Banks performance indicators 2007 BAI BCA BCI BMA BESA BFA BIC BPC SIZE AND GROWTH Growth in deposits (%) 59.74 12.34 23.56 45.9 71.88 5.11 77.93 43.68 Growth in credit to customers (%) 85.3 38.69 24.99 118.06 160.19 59.64 115.37 44.19 MARKET SHARE Customer deposits (%) 23.66 1.31 3.81 1.54 10.13 16.97 13.43 19.99 Customer loans (%) 12.48 1.10 2.25 2.52 12.59 21.87 18.34 19.77 LIQUIDITY Shareholders' funds/total assets (%) 6.35 11.94 13.83 15.89 7.8 10.69 6.56 6.38 Net advances/client deposits (%) 29.56 46.88 33.07 91.75 69.64 72.2 76.49 55.42 Term deposits/total deposits(%) 4.70 35.04 7.72 37.30 42.78 14.22 24.58 24.61 PERFORMANCE Return on average equity (ROAE) (%) 40.2 1.52 10.09 14.05 57.67 31.75 71.04 25.45 Return on average total assets (ROAA) (%) 2.5 0.19 1.29 2.68 5.08 3.44 4.37 1.67 Net interest income/average total assets (%) 3.8 4.62 4.39 5.67 3.87 5.81 4.94 4.98 Other operating income/average total assets (%) 2.8 2.81 1.06 4.13 5.13 3.31 3.71 4.09 Total income/average total assets (%) 6.6 7.43 5.45 9.79 9 9.12 8.65 9.07 PRODUCTIVITY AND EFFICIENCY Operating costs/gross operating income (%) 27 90.05 100.26 56.69 39.99 30.90 38.14 58.29 Operating costs/average assets (%) 1.8 6.69 5.47 5.55 3.6 2.8 3.3 5.29 Source: Bank Financial Statements and BNA BTA KEVE NOVO BANCO BSOL BPA BNI BANC BDA VTB SIZE AND GROWTH Growth in deposits (%) 21.03 21.06 24.87 70.10 1136.30 168.31 - - - Growth in credit to customers (%) 48.29 78.87 17.23 103.74 301200.0 17438.67 - - - MARKET SHARE Customer deposits (%) 2.71 1.03 0.08 2.54 1.8 0.93 0.0 0.0 0.03 Customer loans (%) 2.31 1.55 0.14 1.8 0.60 2.62 0.0 0.0 0.02 LIQUIDITY Shareholders' funds/total assets (%) 20.08 27.06 26.27 4.11 4.44 8.41 14.3 34.01 51.79 Net advances/client deposits (%) 47.76 84.5 94.04 39.73 18.70 157.59 29.2 - 34.0 Term deposits/total deposits (%) 22.11 34.01 29.13 35.64 38.0 26.76 4.2 - 75 PERFORMANCE Return on average equity (ROAE) (%) 22.92 13.62 -17.94 34.54 42.57 53.34 -138.1 -19.95 -115.96 Return on average total assets (ROAA) (%) 4.57 3.16 -5.63 1.72 2.81 6.17 -19.8 -6.79 -60.05 Net interest income/average total assets (%) 6.05 6.17 20.29 4.48 4.31 3.60 4.4 4.85 7.60 Other operating income/average total assets (%) 3.69 7.11 2.82 4.03 8.57 7.14 2.5 0.84 0.05 Total income/average total assets (%) 9.74 13.28 23.11 8.51 12.88 10.74 7.0 4.00 7.56 PRODUCTIVITY AND EFFICIENCY Operating costs/gross operating income (%) 28.92 47.29 111.83 68.01 64.04 31.02 377.6 264.21 867.40 Operating costs/average assets (%) 2.82 6.28 25.84 5.79 8.25 3.33 26.3 10.58 67.05 Source: Bank Financial Statements and BNA 58 BANKING IN REVIEW Angola 2008 Banks performance indicators 2006 BAI BCA BCI BMA BESA BFA BIC SIZE AND GROWTH Growth in deposits (%) 64.9 71.2 - 129.8 77.9 50.4 264.8 Growth in credit to customers (%) 47.6 51.9 - 233.3 165.7 65.6 585.8 MARKET SHARE Custumer deposits (%) 21.5 1.7 4.5 1.5 8.6 23.5 11.0 Customer loans (%) 12.3 1.4 3.3 2.1 8.8 25.0 15.6 LIQUIDITY Shareholders' funds/total assets (%) 6.3 12.8 11.6 24.8 11.1 11.0 5.4 Net advances/client deposits (%) 25.5 38.0 32.7 61.4 46.0 47.5 63.2 Term deposits/total deposits (%) 8.7 35.0 11.6 34.2 43.5 34.0 39.6 PERFORMANCE Return on average equity (ROAE) (%) 37.9 -1 9.7 8.3 59.6 41.4 81.9 Return on average total assets (ROAA (%) 2.5 -0.3 1.1 2.4 6.4 4.4 3.9 Net interest income/average total assets (%) 3.0 4.0 6.1 3.5 4.3 5.6 4.1 Other operating income/average total assets (%) 3.0 3.8 8.3 3.8 7.7 4.0 4.7 Total income/average total assets (%) 6.0 7.7 14.4 7.3 12.1 9.6 8.8 PRODUCTIVITY AND EFFICIENCY Operating costs/gross operating income (%) 40.5 75.9 89.2 51.3 42.4 31.4 39.3 Operating costs/average assets (%) 2.4 5.9 12.9 3.7 5.1 3.0 3.5 Source: Bank Financial Statements and BNA BPC BTA KEVE NOVO BANCO SOL BPA BNI SIZE AND GROWTH Growth in deposits (%) 28.7 47.8 79.0 169.1 8.7 - - Growth in credit to customers (%) 64.4 79.4 89.4 69.1 82.7 - - MARKET SHARE Custumer deposits (%) 20.2 3.3 1.2 0.1 2.2 0.2 0.5 Customer loans (%) 25.1 2.8 1.6 0.2 1.6 0.0 0.0 LIQUIDITY Shareholders' funds/total assets (%) 6.8 19.7 17.0 37.0 6.7 26.5 32.9 Net advances/client deposits (%) 55.2 39.0 57.2 100.2 33.2 0.1 2.4 Term deposits/total deposits (%) 24.4 20.3 42.0 27.1 37.5 21.0 29.3 PERFORMANCE Return on average equity (ROAE) (%) 22.8 24.6 23.1 0.7 32.9 -14.7 1.1 Return on average total assets (ROAA) (%) 1.5 5.0 3.9 0.3 2.2 -3.9 0.4 Net interest income/average total assets (%) 3.4 5.9 5.2 22.6 4.7 0.4 2 Other operating income/average total assets (%) 5.2 4.1 6.6 4.4 4.9 1.8 7.4 Total income/average total assets (%) 8.6 9.9 11.8 27.0 9.5 2.2 9.9 PRODUCTIVITY AND EFFICIENCY Operating costs/gross operating income (%) 65.2 29.6 48.6 89.2 67.0 273.5 93.4 Operating costs/average assets (%) 5.6 2.9 5.7 24.0 6.4 6.1 9.3 Source: Bank Financial Statements and BNA 59 BANKING IN REVIEW Angola 2008 About Deloitte Our values On a global level, Deloitte is an organization that provides integrated professional services solutions in Audit, Tax, Consulting and Corporate Finance, including a wide range of technical skills and competences. Our global vision is to be "the standard of excellence", reached for being unequivo- cally respected from the community and for being: • The first choice of the most pretended talents in the world, motivated by our reputation, culture and diversity; • The first choice of the most required clients, attracted by the range and penetration of our services. We offer a comprehensive vision that allows us to face challenges in depth and range. The Deloitte offer is a unique combination of integrated services in Audit, Tax, Consulting and Corporate Finance, addressing the complex issues of its clients. We operate in more than 140 countries, supported by more than 150.000 professionals and we reported 20.000 million dollars in revenues in 2006. Deloitte is, consequently, in a unique position to effectively support its clients. Deloitte Angola Deloitte Angola was incorporated in 1996 and began its activity in May of 1997 with an office in Luanda, providing professional services in Audit, Tax, Consulting and business process application solutions in all industry sectors. In 2007 the firm was providing professional services to a majority of the biggest national and multinational companies in the country and relies on nearly 90 dedicated highly motivated professionals to exceed clients' expectations. Facing the potential growth and actual challenges, since 2003, Deloitte in Angola was definitively integrated in the Portuguese offices, so that its employees could develop their skills at the international required standards, as an outstanding leader in the professional services segment. Deloitte has became one of the main and most respected professional services firm in Angola, contributing to the modernization and development of management practices, and by doing so, giving a contribute to the economic development of Angola. 60 BANKING IN REVIEW Angola 2008 About ABANC The "Associação Angolana de Bancos" (ABANC), it's a non-profit non-governmental institution with a local scope, created under the Law n.º 14/91, of 11th of May, to defend the interests of its associates, the banks with head offices or branches in Angola. Its headquarters is in Luanda but may establish delegations and will last for an indefinite period. The ABANC aims to promote and practice all acts which could contribute to technological, economic and social progress of their members activities and to pursue and defend the interests of these before any public or private, domestic or foreign. It was created on the 31st of December of 1998 when there were only two state owned banks, one mutual association and two branches of Portuguese banks. Nowadays, it has a significant number of associate members that are becoming members at the same time they become banks. It has seventeen associate members. The master guidelines of ABANC are built upon the rule of developing actions of cordiality between banks with the intention of defending and strengthening the banking system: • Develop and disclosure research and opinions on economic, financial and technical matters of national, regional or trade banking interest; • Provide technical and legal assistance to its members; • Promote in collaboration with the Institute for Banking Training, professional training of banking staff; • Promote among the government measures designed to streamline the banking system; • Promoting coordinated actions in the scope of banking protection and security; • Providing services and any information to their associates related to the areas that are part of its goal. The objectives that ABANC pursues are included in their statutes and aim to be able to offer its associates all the institutional support that it's reflected in its subject, being the strengths of its activities the fact of developing opinions and draw up documents in line with its business, sending them to the government organs that request them and beyond, including the Central Bank and the Ministry of Finance. Besides the credit activity of each one of the members, some Banks affiliated to the ABANC have been organizing themselves in trade unions to finance state development projects, especially for the acquisition of aircrafts, the construction of economic neighbourhoods, among others. In the area of training, ABANC in partnership with the Institute for Banking Training of Angola, the "Universidade Lusófona de Humanidades e Tecnologias" in Lisbon and Ulege Angola - School of Advanced Management Studies, has carried out some training activities, like seminars and meetings about different matters, with highlight to the Annual Meeting of Banking Jurists of Angola, now in its fourth consecutive year, the completion of the first Post- Graduate Management in Banking course conducted in Angola, for senior management of banks and other entities close to the system, apart from a seminar about credit and guarantees given to Economic Journalists of the country and a Workshop on Basel II to the managers of the banks involved. ABANC does not interfere with the expansion policy of banks, to be a highly competitive activity, so depending on the strategic vision of each member. However, with the advent of peace achieved six years ago, is already clearly visible the strong growth of branch openings, which spread through the country, which already holds 29.25% of the 508 existing branches at the national level. At the end of 2007 there were competing in the Angolan banking system, in addition to BNA, 17 banks, three public and 14 of private equity. To the present date, one more commercial bank started its activity and it is already authorized the opening of two more. 61 BANKING IN REVIEW Angola 2008 We believe that the opening of more banks, with projects and financing models and other banking products more modern and diversified, as well as the consequent opening of branches in the country, will be the basis for confidence that businesses have in the system and the market, and the security they can enjoy: the facilities, technical means and employees, across all the Angolan territory. ABANC visited and has a friendship relationship with the Association of Banks of Macao (China) and in Africa cooperates and is part of the Southern Africa Regional Banks Association, being one of its founding members. It is also a member of the CPLP Business Council. The major challenges facing ABANC in the near future are the reinforcement of its own activity, for which it has established and regulated the operation of a specialized section called "Group of National Users of the SWIFT Service" and are still creating the technical conditions for the development of efforts to help in the design and assembly of a Risk Central for the system and the improvement and implementation of the Code of Conduct for Banks and its Rules. Its governing bodies are the following: Board of the Annual General Meeting Banco Regional do Keve Amílcar dos Santos Azevedo da Silva Chairman Banco Totta de Angola Eduardo Pompeu Tendinha da Silva Secretary Banco de Fomento Angola Emídio José Bebiano da Costa Pinheiro Secretary Executive Management Banco Africano de Investimentos José de Lima Massano Chairman Banco Sol Coutinho Nobre Miguel Vice-President Banco de Poupança e Crédito Joaquim Pedro Fernandes Member Banco Millennium Angola Adriano José de Sousa Mota Member Board of Auditors Banco Espírito Santo Angola Denise Nair Brito Rocha Santos Henriques Chairman Banco BIC Vera Tangue Escórcio Member Novo Banco Florindo Panzo Member General Secretariat Roberto José Fernandes General Secretary Associates BANC • BAI • BCA • BCI • BDA • BESA • BFA • BIC • BMA • BNI • BPA • BRK BPC • BS • BTA • NBC • VTB 62
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