Chow, J.T.S. (2015): “Stress Testing Corporate Balance Sheets in Emerging Economies”, IMF Working Paper No. 15/216.
Cohen, B.H. and G.A. Edwards, Jr. (2017): “The new era of expected credit loss provisioning”, BIS Quarterly Review, March, pp. 39–56.
Drehmann, M., C. Borio, L. Gambacorta, G. Jiménez, and C. Trucharte, (2010): “Countercyclical Capital Buffers: Exploring Options,” BIS Working Papers, No. 298 (Basel: Bank for International Settlements).
Osano, H.M and H. Languitone. (2016): “Factors influencing access to finance by SMEs in Mozambique: case of SMEs in Maputo central business district”, Journal of Innovation and Entrepreneurship pp. 5–13.
Simione, F. and Y. Xiao. (2016): “Monetary Policy, Banking Structure and Interest Rates in Mozambique” in Selected Issues, IMF country report No.16/10.
By Mario Mansilla, Torsten Wezel, and Harold Zavarce.
Non-financial Public Corporations (NFPC) include 14 public corporations fully owned by the government and, in addition, private companies in which the government is a shareholder. Indirect and direct state shareholdings are not fully disclosed. A NFPC is considered an State-Owned Enterprise (SOE) if the government holds a share of 50 percent or more.
The 2016 disclosure triggered a sovereign debt downgrade from B- to CC by S&P.
The maturity of Proindicus and MAM loans are March 2021 and May 2019, respectively.
By end-2017 sovereign external arrears have been incurred including the Mozam Eurobond coupon, debt service of Proindicus and MAM, and two loans of the state-owned airports company, Aeroportos de Moçambique (AdM), for which a state guarantee has been called.
Balance Sheet Analysis (BSA) compiles all the main balance sheets in an economy using aggregate data by sector into a balance sheet matrix that shows asset and liability positions between key sectors. In Figure 2, the balance sheet matrix has as columns the creditor sector (i.e. the holder of the liability) and in the rows debtor sector. Each cell contains a net claim position (asset minus liability). The matrix serves as a starting point to diagnose risks and potential transmission channels of shocks, and sets the stage for deeper analysis (IMF 2015a).
In Mozambique, the increase in foreign currency borrowing by public non-financial corporates poses a substantial currency mismatch risk, if indeed unhedged. Also, public guaranteed borrowing is a source fiscal risk.
This information is preliminary and includes arrears incurred during 2014–16.
Risks correspond to the identified sources in the Risk Assessment Matrix (Staff Report for the Article IV 2017).
Risk may propagate through a recurrence of banking stress, public and private corporates liquidity issues, and household weak household demand.
This corresponds to the so-called prudential filter: voluntary provision above IFRS requirements.
One-sided Hodrick-Prescott filter with a smoothing factor of 400,000 appropriate for monthly data. A credit-to-GDP ratio exceeding ten percentage points or more above trend (upper threshold) issues the strongest signal of an impending crisis in terms of the noise-to-signal ratio (Drehmann and others, 2010). The lower threshold of 2 percent above the trend signals excessive credit growth or overheating (IMF 2014).
The Metical nominally has appreciated by almost 24 percent against the USD since October 2016.
The weight of imported products in the consumer basket and food are important. Annualized food inflation peaked at 42 percent in November 2016 against lows of 5.5 percent in December 2017.
In April 2017, in April 2017, the BM changed its operational target to a short-term interest rate (MIMO) as part of a longer-term transition to inflation targeting. The MIMO rate was set initially at 21.75 percent and the lending rate cut to 22.75 percent. See Selected Issues paper on transitioning the monetary policy regime.
Simeone and Xiao (2016, pp. 9–11) argue that despite Mozambique’s rapid banking sector expansion experienced in 2005–2014, interest rates on bank loans remained prohibitively high for SMEs, partly related to high market concentration. In addition, Osano and Languitone (2016) show that access to finance is also constrained by collateral requirements, structure of the financial sector (market concentration) and lack of awareness of funding opportunities among banks and entrepreneurs.
The main targets are: (i) 60 percent of the adult population with physical or electronic access to financial services; (ii) 100 percent of the districts with at least one formal access point; and (iii) 75 percent of the population with one access point within five kilometers. A 2018 interim target postulating that 40 percent of the adult population have access to electronic money has already been met.
T-bill auctions are conducted every Wednesday mainly for monetary purposes; recently some auctions were deserted. Some institutions have binding constraints (set internally or with their parent banks) for increasing their exposure to sovereign risk, which have been further tightened by the downgrade of the country’s risk rating.
Eliminating unnecessary costs in the process, especially for exporters which products have higher import content
Tight net open position regulations prompt banks to regularly sell the BM their surplus FX balances, which have increased given the low FX demand for imports.
The BM has been reorganized internally to implement greater financial surveillance through specialized divisions.
Two supervisory entities, the Ministry of Finance and Economy (MEF) and the State-owned Equity Holdings Management Institute (IGEPE) each control nine bank-indebted SOEs. While for most SOEs the existence of bank debt was verified by BM data as at end-November 2017, the bank debt of a few IGEPE-controlled firms that is not reported in the data set provided by BM is based on a survey reportedly conducted in the first half of 2017.
To what extent potential capital expenditure is limited by the financing constraint would have to be determined in each case. It also is not clear whether individual SOEs have run into lending limits notwithstanding the availability of state guarantees and comfort letters.
Interest payments are excluded because they depend on the financing structure of a firm (debt vs. equity financing); taxes vary across firms due to various idiosyncrasies, and depreciation and amortization costs depend on historical investments that firms have made and not necessarily on the current operating performance of the business. Still, EBITDA is not a perfect proxy for cash flow because actual cash flow depends critically on required capital expenditure to preserve the firm as a going concern; this expenditure may vary significantly across firms and industries, which is why analysis of free cash flow is conceptually superior. This said, for analyzing debt sustainability across the board, the net debt-to-EBITDA ratio has become analysts’ preferred measure.
In a few cases, cash flow was taken as the denominator if it was positive as opposed to a negative EBITDA.
For SOEs with negative EBITDA the ratio was undefined but would clearly be above the critical threshold if those firms instead showed small positive earnings or cash flows.
Risk weights on SOE exposures are ordinarily 100 percent (as with other corporate loans) and are unaffected by the increase in provisions. Therefore, only the numerator of the capital adequacy ratio needs to be recalculated.
Six out of 13 banks with SOE exposures have provisioned exactly 2 percent of the exposure (i.e. the general provision) and another three banks even less than that. Two banks have a provisions coverage ratio of 5 percent, although one bank has sizable impaired loans that arguably could have been provisioned more already. The remaining two banks have a coverage ratio of 69 and 100 percent, with provisions actually exceeding the impaired loan amount.
Under IFRS 9, expected credit losses have to be recognized to reflect the credit risk of financial assets. It is no longer necessary for a “trigger event” to have occurred before credit losses are recognized through provisions (or write-offs). Whenever credit quality is deemed to have deteriorated significantly and can no longer be deemed low risk, the loan would require a provision for the lifetime expected credit loss (Stage 2 of the three-stage classification system under IFRS 9); see Cohen and Edwards (2017). This treatment may conflict with provisioning regulation imposed by the central bank but the issue can be handled by adjusting regulatory capital for any difference between IFRS 9-based provisions and regulatory provisions.
Measuring housing wealth, mainly related to property values, will serve to assess balance sheet effect on household consumption and its feedbacks with mortgage financing.
The compilation was initiated in 2011. In June 2017, the central bank broadened the investor base for primary issuance of T-bills to include non-banks financial institutions. Producing the government balance sheet Table 6 of GFSM2014, including data on government security by holder and maturity, is needed. Technical assistance in this area is scheduled for 2018–2019.
This information is key to diagnose an increase in the maturity mismatch between assets and liabilities that could lead to a liquidity spiral creating financial instability and a bank run.