June 11, 2018

IMF published its staff report and selected issues report under the 2018 Article IV consultation with Angola. Directors stressed the importance of preserving the health of the banking sector, including the need for concrete actions to complete asset quality review and to strengthen crisis management, emergency liquidity assistance, and the anti-money laundering and combating the financing of terrorism (AML/CFT) frameworks. They supported ongoing efforts to reinforce capital and liquidity buffers while strengthening governance at the state-owned banks.

With respect to developments in the banking sector, the staff report notes that the National Bank of Angola (BNA) increased by threefold the minimum regulatory capital requirement for commercial banks to be met by the end of 2018, which could lead to some consolidation in the sector. In addition, banks continue to suffer from subdued lending and, in the case of state-owned banks, very high non-performing loans (NPLs). The economy’s heavy dependence on oil is a challenge for banks. Oil price volatility and pro-cyclical public spending create feedback loops for liquidity and credit, leading to windfalls for some banks while building vulnerabilities for others, especially state-owned banks. The key recommendations of IMF for strengthening the banking system are as follows:

  • Intensifying efforts to complete the second phase of bank asset quality reviews, with a view to gauge capitalization needs of banks
  • Pursuing a swift resolution of NPLs to strengthen bank balance sheets and ensuring enforcement of loan provisioning and monitoring loan restructuring
  • Raising the efficiency of state-owned banks by fully implementing their restructuring plans
  • Monitoring liquidity position of banks in both foreign and local currency and taking prompt corrective action when problems are identified
  • Strengthening crisis management and emergency liquidity assistance frameworks

The selected issues report examines the impact of lower oil prices on banks by articulating the transmission mechanism of the shock, stress testing the resilience of the banking sector over time, and investigating the nexus between the sovereign and banks. Static event analyses and stress test results confirm a deterioration of banks’ soundness indicators as lower oil prices linger—and this is more pronounced for state-owned banks. Moreover, sectoral balance sheet analyses confirm growing exposures of banks to the sovereign. Panel regressions on the performance of banks show that weakly capitalized and poorly run banks are adversely impacted while suggesting that sound macroeconomic policies should help mitigate the impact of the shock.

Stress tests conducted for individual banks for successive years are used to determine the evolution of banks resilience in the wake of the oil price shock. The tests focus on credit risk. The credit risk shock comprised an aggregate increase in NPLs focusing on downgrade of classified loans across the entire credit spectrum. Stress tests confirm a deteriorating capacity to withstand oil price shocks. The capital position of the banking system declines by 6 percentage points in 2013 but overall banks remain well-capitalized. Reverse stress testing was also used to gauge bank resilience to the oil price shock. 

 

Related Links

Keywords: Middle East and Africa, Angola, Banking, NPLs, Stress Testing, Financial Stability, IMF

Related Articles
News

FCA Publishes Its Business Plan for the Coming Year

FCA published its Business Plan, which sets out the main areas of focus and priorities for 2019/20.

May 17, 2019 WebPage Regulatory News
News

IASB Issues Work Plan and Meeting Updates for May 2019

IASB published an updated work plan, along with the update of its meeting in May 2019.

May 17, 2019 WebPage Regulatory News
News

CFTC Proposes to Amend Derivatives Clearing Organization Regulations

CFTC proposed amendments to certain regulations applicable to registered derivatives clearing organizations (DCOs) under Part 30 of the CFTC regulations.

May 16, 2019 WebPage Regulatory News
News

APRA Licenses Societe Generale As Foreign Deposit-Taking Institution

APRA granted Societe Generale a license to operate as a foreign authorized deposit-taking institution under the Banking Act of 1959.

May 16, 2019 WebPage Regulatory News
News

EBA Provides Updates on Its Work on Basel III Impact Assessment in EU

EBA is working to finalize the impact assessment on implementation of Basel III standards, in response to the EC call for advice, which was received on May 04, 2018.

May 16, 2019 WebPage Regulatory News
News

ISDA Publishes Two Consultations on Benchmark Fallbacks

ISDA published two consultations on benchmark fallbacks, the comment periods for which expire on July 12, 2019.

May 16, 2019 WebPage Regulatory News
News

Sam Woods of PRA Speaks About Style of Regulation in UK After Brexit

Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of PRA, spoke at the UBS Financial Institutions Conference in Lausanne.

May 16, 2019 WebPage Regulatory News
News

FED Publishes Report Summarizing Regulatory and Supervisory Activities

FED published a report that summarizes banking conditions and the supervisory and regulatory activities of FED, in conjunction with semiannual testimony before Congress by the Vice Chairman for Supervision.

May 15, 2019 WebPage Regulatory News
News

US Agencies Propose to Amend Regulatory Framework for Foreign Banks

US Agencies (OCC, FED, and FDIC) proposed a regulatory framework for foreign banks operating in the U.S. that would more closely match the rules for foreign banks with the risks they pose to the U.S. financial system.

May 15, 2019 WebPage Regulatory News
News

ECB Consults on EONIA to €STR Legal Action Plan

ECB published a consultation, which was launched by the working group on euro risk-free rates, on recommendations to address the legal implications for new and legacy contracts referencing the euro overnight index average (EONIA), as a result of the proposed transition from EONIA to the euro short-term rate (€STR).

May 15, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3089