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MOZAMBIQUE - 'Positive disruptors' in a hard economy.

Summary: Orlando Chongo, Managing Director of BancABC Mozambique, discusses the national economy and the ways BancABC is committed to growth

What do you see as the key challenges in achieving financial inclusion in Mozambique?

With Mozambique's 800,000 square kilometres encompassing 26 million people, including 14 million adults of which only 20 per cent have access to financial services, there is potential to grow. Expanding access to basic banking products, mainly in rural areas, [is possible] if basic support infrastructure and access to energy or telecoms is developed to balance with the excessive concentration of economic activities in a few main centres of the country.

The majority of the country [THORN]us active population operates in the agriculture and informal trade sectors, so there are limited options from product standpoint that can be offered at acceptable risk levels. Furthermore, there are five branches for every 100,000 Mozambican adults and eight branches for every 10,000 square kilometres-- this substantially contributes to a lack or limited understanding of financial systems and services.

There is a financial inclusion project, initiated by the central bank, to address this gap with the aim of expanding financial access and use of financial services, enhancement of financial systems infrastructure and financial education. BancABC is playing its part in this process by supporting the financial education initiative. We have recently sponsored an easy reading pocket book Financial Literacy Manual for Adults and Children with the main objective of, in simple language, promoting financial education and an understanding of banking activities with focus on savings.

What, in your view, is the most effective way to reach new customers or offer new products? Do you see this shifting in the near future?

Similarly to most African economies, Mozambique is a young, growing economy with its populations rapidly being exposed to a more technologically-based environment. Reaching potential clients will shift from the traditional 'brick and mortar' into a digital-focused expansion where successful financial institutions will be the ones that embrace innovation and nontraditional banking partnerships. The new generation of clients demands easy and fast access such as we see being offered through mobile wallet, plastic money, e-money, and many others.

How has BancABC evolved with regards to this?

BancABC as part of Atlas Mara has set its core target of leading the innovation in African financial services.

We are positive disruptors and see banking beyond basic vanilla products.

In Mozambique we are moving fast and so far have achieved several milestones with the development of agency banking. Within the partnership agenda we embrace, we are exploring cutting edge technological concepts to reach the unbanked population and provide basic and relevant financial products. Meanwhile, we continue to accelerate our investment in quality of human capital, systems and footprint as core supporting platform to our growth aspirations.

With recent development in the Mozambican economy, what are your own projections for growth in the near term?

We believe in long term prospects and the turnaround of the economy, however, as it stands, the Mozambican economy is currently weak with projected growth of 3.5 per cent in 2016, which is 350 basis point below historical averages. Political instability impacts economic performance and investments. The debt overhang stocks are currently estimated at around 85 per cent of the GDP; a commodity slump has reduced export revenue with the resultant sharp depreciation of the metical; that also increased domestic prices as well as the debt repayment costs. Despite the weak GDP growth, the BoM [Bank of Mozambique] will likely increase interest rates from current levels and this will be another headwind to economic activity.

The expected announcement of a final investment decision on Coral Floating LNG may initially uplift sentiments, rather than stoking a surge in FDI. However, due to sharp depreciation in metical, Mozambique's economic size is expected to decline by over 50 per cent in US dollar terms from $15 billion in 2015 to $7.5 billion in 2016.

In 2017, in US dollar terms, the economic size will further decline to $7.3 billion with GDP per capita declining from $650 in 2014 to less than $300 in 2016 and around $255 in 2017.

Due to fiscal pressures following the withdrawal of donor support and depressed revenue performance, the Government will try to match cash flows with expenditures by reviwieng some of the civil servants salary and overtime payments. Large spending cuts will impact business activities and a widening of the fiscal deficit will further constrain GDP growth.

Likewise, what you see as the biggest challenges in the Mozambican banking sector today, and how are you navigating these?

The banking sector overall has experienced significant improvement in innovation, although most processes are still manual and there is still a reliance on physical branch network in a growing technological environment. We will focus on differentiating ourselves by investing in the future, helping our customers with a one- stop shop banking concept through automated processing and digital channels capped with partnership, and most importantly, continue to build our valuable Atlas Mara brand equity. As a critical success factor, we will continue to responsibly maintain relationships with our customers, employees, shareholders, peers in the market and most importantly, the communities and regulators.

What segments of BancABC business do you see growing the most in the short and medium term, and why?

We are the SMEs' bank and will continue to consolidate our relevance in the value chain that feeds our customers through up to downstream. It's a segment that will experience difficulties in the short term given country macroeconomic challenges, with potential to grow in medium to long term. We will maintain our focus of being relevant not only to the target segment but also to their main clients, the large corporates, multinational companies and their staff. Furthermore, the size of our organisation provides nimbleness and exibility with adequate structure for a fast turnaround within all governance and compliance standards. Being an African bank with local relevance, we believe that we know our clients and their needs sufficient enough in order to build sustainable partnerships to simultaneously win and grow together.

What would you say distinguishes BancABC from other banks in the region?

We are an African bank owned by Atlas Mara [ATMA] group, with operations in seven Sub Saharian countries in SADC [Southern Africa Development Community], ECOWAS [Economic Community of West African States] and EAC [East African Community].

We invest significant amount of time, effort and capital in building an efficient organisation with robust credit risk management, corporate governance, and compliance, policies, processes and information technology to ensure that we sustainably grow our business in a responsible way. We support economic growth and strengthen the financial systems in the countries in which we operate. We aim to be present in more countries where we can be relevant and a scale participant. We are focused on creating value to our stakeholders and keeping our business model rounded to three main pillars which are buy, protect and grow. We have seen a lot progress and provides confidence that we are doing it right.

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Publication:Banker Africa
Geographic Code:6MOZA
Date:Oct 31, 2016
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