ANGOLA'S BANKING SECTOR - LIMITS TO GROWTH?

UNCLAS LUANDA 000014

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EB/IFA/OMA AND AF/S

E.O. 12958: N/A
TAGS: EFIN ECON EAID AO
SUBJECT: ANGOLA'S BANKING SECTOR - LIMITS TO GROWTH?

REF: LUANDA 1261


1. (SBU) Summary. Angola's banking sector has grown rapidly since
the civil war ended in 2002. Commercial banking assets have doubled
to more than USD 6 billion since 2003 and the number of banks has
increased. Private banks are profitable, and new banks are looking
for market niches. Banks are lending more each year, but the
industry's overall lending rates remain low. Regulatory and legal
reforms will be necessary to broaden lending, and the National Bank
is working to introduce these. End Summary.

Rapid Growth of Angola's Banking Sector
--------------


2. (U) Since Angola's civil war ended in 2002, total assets of
commercial banks have grown from USD 2.9 billion in 2003 to USD 6.3
billion in 2006 (at 80.1 Kwanza per USD). In November, Angola's
fourteenth commercial bank, the Banco Privado Atlantico, opened for
business with USD 10 million in capitalization. The authorities
have since approved another commercial bank.

Role of Foreign Investment
--------------


3. (SBU) Foreign investment, and foreign banks, have helped fuel
banking's growth. Portuguese banks, including Banco Espirito Santo
and Millenium Bank, have either established operations in Angola, or
invested in new Angolan banks. Other foreign banks investing in
Angola include Spain's Banco Santander and South Africa's Standard
Bank. Angolan parastatals, such as Sonangol, the national oil
company, are also major investors. (Note: A spreadsheet of Angola's
commercial banks appears at the end of this cable and in a somewhat
different form in the 2007 Investment Climate Statement for Angola.
End note.)

Access to Credit
--------------


4. (SBU) Bank credit has expanded from USD 94 million in 2004 to
USD 146 million in 2005, according to the 2006 KPMG study. Lending,
however, remains low at 35 percent of assets, according to a late
November statement by BNA Vice-Governor Rui Miguens who argued that
banks should be lending at least 50 percent of their assets. The
Banco Nacional de Angola (BNA) requires banks to deposit with the
BNA the equivalent of 15 percent of their deposits. (Note: Banks
must also retain a capital adequacy ratio of 10 percent. End note.)
Miguens also noted that loans to business make up barely 11 percent
of loans, while 67 percent of the amount loaned has gone to
individuals. Commercial banks earned USD 226 million in profits in
2005, and Banco Espirito Santo Angola (BESA) earned 72 percent on
equity in 2005, according to KPMG. However, most banking profits
come from cash management services, foreign exchange transactions,
and service fees charged depositors, rather than loans.

Constraints Limiting Lending
--------------


5. (SBU) USAID Angola has studied which deficiencies in the legal
and regulatory system inhibit lending. Credit histories on
potential borrowers are unavailable, and even personal identities
are hard to verify. Few Angolan land titles are clear, so potential
borrowers cannot use land as collateral. The lack of a market for
rural land would make foreclosure an unpalatable option for banks in
any case. Ill-defined property rights keep real estate finance
undeveloped on both the credit and investment sides. Angola lacks
notaries to formalize contracts, and reliable courts to enforce
them. All of these factors limit access to credit, especially for
small and medium enterprises which lack experience with financing
and thus have difficulty proposing projects for which banks will
lend money.

Making Profits, but Not Loans
--------------


6. (SBU) Although the banks move large quantities of money, their
high turnover rates limit their ability to use the funds to build
assets. Angolan banks do not offer financial investment vehicles to
keep the money on deposit and use it to build assets. The lack of
financial instruments (such as certificates of deposits with a
positive real rate of return) reflects the risks of lending to
businesses in Angola. Banks have learned to operate profitably by
charging for services to businesses. Corporate customers are
themselves making good profits. The new Banco Privado Atlantico
will target only companies earning over USD 2 million per year.


7. Much bank credit goes to finance imports, leaving little for
Angola's non-petroleum economy. In some areas, although banks
appear to be extending credit, the real source of credit may be

elsewhere. For example, five-year bank loans for automobile
purchase is really financed by the dealership. The dealership
conveys title to the vehicle to the bank, which passes the
purchaser's monthly payments to the dealership.

Non-Performing Loans
--------------


8. (SBU) Angola's state-owned commercial banks are believed to be
carrying large, undisclosed sums of non-performing loans (NPLs) on
their books. Some bank NPLs have been restructured as government
debt. In addition, the BNA recently introduced a modified reporting
process permitting banks to write off NPLs, and thus free those
assets for lending, but it is not yet in use by the entire sector.
The declared rate of nonperforming loans by the end of 2004 was 8
percent of total credit granted (KPMG).


9. (SBU) Comment. Inadequacies in Angola's business and legal
environment keep banks from playing a larger role in helping
Angola's economy grow out of its focus on resource extraction.
Commercial banks have lending opportunities in construction, civil
works, transportation and manufacture. However, the Angolan
government, the biggest spender in the country, will have to do more
to provide the business and legal environment banks will need to
extend credit more broadly throughout the Angolan economy.
Government can encourage an improved business environment to help
development. The GRA can take steps to create an encouraging
environment for commercial banking.


10. (SBU) Angolan Commercial Banks

Bank Name Head of Bank Shareholders Clients
Title Svcs
-------------- -------------- -------------- --------------

Bco de Comercio Adriano Pascoal Govt Public
e Industria (BCI) Pascoal CEO Enterprises

Bco de Poupanca Paixoa Junio Govt Public Admin,
E Credito (BPC) gives some
microcredit

Bco Africano Jose Carlos Sonangol, Oil Cos.,
De Investimentos de Castro DPM A Jaime, Biz,
(BAI) Paiva Min of Petrol Priv.
CEO Desidero Costa Individs

Bco de Fomento Isidro Pinheiro Portuguese Business,
Angolano (BFA) CEO Investment Individs
Bank (BPI)

Bco Comercial Benvindo Pitra South African Medium
Angolano (BCA) CEO Bank (ABSA) Cos.,
Individs


Bco Sol Sebastiano S. Lavrador Micro-
Lavrador Ana Paula credit
CEO dos Santos Small
Cos.

Bco Regional Amilcar Silva A. Silva Agrobiz
Do Keve CEO Carlos Gomes


Bco Totta Mario Nelson Bco Totta & Private
De Angola Maximo CEO Acores Investors

Bco Millnnium Maria Nazare Dang Millenium BPC Priv.
Angola Genl Mgr (Port. Bank) Cos.

Bco Espirito Ricardo Espirito Grupo Espirito
Santo Santo CEO Santo (Port.)
Angola (BESA)

Bco de Credito Fernando Teles Grupo Amorim
Internacional CEO (Port.)
(BIC) Isabel dos Santos

Novo Banco Tom Mitro Chevron Micro-
Genl Mgr. World Bank credit

Bco de Negocios Mario Palhares Angolan Cos.
Internacional President Private Comm. Banks
Cos.

Bco Privado Carlos da Silva AAA Ins. Co. Lg &.
Atlantico CEO Global Pactium Med Cos


Bco de Desenvol- Paixao Franco State Funds Coops
Vimento de Junior micro
Angola (BDA) President credit and
guidance for borrowers

--------------
Notes to the chart above:

Bco = Banco = Bank

Ana Paula dos Santos is the wife of Jose Eduardo dos Santos,
President of Angola.

Isabel dos Santos is the daughter of President dos Santos.

AAA Insurance Company is a subsidiary of Sonangol, the national oil
company of Angola.

Global Pactium is a consortium of anonymous Angolan investors.

FERNANDEZ