5% this year, 8.4% next

Bank lending in Mozambique grew by 2.7% last year and is set to grow by 5.0% this year and 8.4%   next,       thanks to improved macroeconomic conditions and financial support from the International Monetary Fund, according to Fitch Solutions, an economic consultancy.

“We forecast [growth in] loans to customers of banks in Mozambique to accelerate from 2.7 percent in 2021 to 5 percent in 2022, mainly due to improved business conditions and the financial adjustment programme of the International Monetary Fund,” reads a note from Fitch on the country’s banking sector.

According to the report, which was sent to clients and which Lusa has seen, analysts at the Hong Kong branch of the consultancy – part of the same group as financial ratings agency Fitch Ratings – the forecasts represent “a downward revision from the previous forecast of 8 percent growth for this year, reflecting the increase in borrowing costs due to the tightening of monetary policy to contain inflation.”

The latest data from the Bank of Mozambique shows 6.4% growth in bank loans in March, against 7.5% in March 2021. That, according to Fitch Solutions, reflects high starting values and also high inflation, which is limiting credit applications. Inflation was 7.9% in March, up from 5.8% in the same month a year earlier, but loan growth is still set to rise compared to 2021 essentially for two reasons: first, better business conditions, which will encourage corporate borrowing, and the IMF’s financial adjustment programme, which is providing $456 million (€432 million), giving banks more scope to lend to the private sector. On the first factor, Fitch Solutions analysts write that “improved business conditions are already showing up in indicators on business activity, and the easing of restrictions to combat the Covid-19 pandemic, as well as increased consumer spending, will boost sales and economic sentiment, encouraging companies to borrow more to increase investment.”

On the other hand, they conclude, the Extended Credit Facility (ECF) – the first since Mozambique’s ‘hidden debts’ scandal broke in 2016, prompting the country to default and lose access to finance from international institutions – will give domestic banks more scope to lend to private customers, as the state will no longer need to turn to them for financing. Still, the rise in bank lending foreseen in Mozambique this year and next represents a downward revision from the previous forecasts from the consultancy’s analysts in Hong Kong.

“Although we previously expected the Bank of Mozambique to maintain the benchmark interest rate at 13.25 percent in 2022, the central bank implemented an increase in March to 15.25 percent as a result of inflationary pressures originating from the Russia-Ukraine war and tropical storms and cyclones,” they write, forecasting an acceleration in inflation from 5.6% last year to 8% this. That, in turn, they argue, will limit consumer spending, keeping the country from achieving the average rise in the value of loans that it saw between 2012 and 2021, at 11.4%.