IMF Publishes Reports on 2018 Article IV Consultation with Angola
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
Featured Experts
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Nihil Patel
Data scientist; SaaS product designer; credit portfolio analyst and product strategist; portfolio modeler; correlation researcher
Previous Article
EU Blockchain Observatory of EC Publishes June NewsletterRelated Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
ECB is Conducting First Cyber Risk Stress Test for Banks
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
EU and UK Agencies Issue Updates on Final Basel III Rules
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards