Having been hit hard by the global financial crisis, Angola’s economy is now gathering momentum, with robust GDP growth above the five percent mark, supported by strong fiscal and external balances, a stable exchange rate and moderate inflation. Government policy is implementing enhanced fiscal controls and tighter public financial management, greatly modernising the country’s financial industry. These key moves are also enabling the government to accelerate public investment that will support broad economic diversification and more rapid job creation, while reducing Angola’s considerable vulnerability to external shocks.

These improvements in the investment climate and in the financial regulatory structure have enabled the rapid expansion of the banking sector, despite credit constraints limiting the economy to some extent. The extensive and abrupt changes to the composition of Angola’s overall economy have changed the local financial sector significantly. Banks have to accommodate new and booming sectors, as well as tackle the influx of international banking groups, making for an increasingly competitive sector.

In the early 2000s, the financial sector comprised just nine banks, the two largest of which were state-owned. Now, the Angolan financial sector consists of over 20 banks, and privately owned firms command a dominant share of the market. In addition, the financial sector’s total assets grew from less than $3bn in 2003 to more than $57bn in 2011, according to the World Bank.

Established in 1996, Banco Angolano de Investimentos is one of the original banks betting on the Angolan economy and was essentially the first private bank in Angola. The firm has expanded its network to comprise of over 120 branches nationwide, with representation in Portugal, Cape Verde and South Africa.

Boosting business
As it has for many of its competitors, the liberalisation of the Angolan finance sector has resulted in the dramatic growth of financial assets, infrastructure and transaction volumes for Banco BAI. Bank branches have proliferated throughout the country, extending even to remote and rural areas, while ATMs and credit cards are becoming increasingly common. Even though the overall supply of credit to the economy remains limited, the Angolan credit market has been growing by a remarkable average of over 50 percent per year for the past five years, according to the World Bank.

This boost to the credit markets has allowed Banco BAI to specialise in catering to individuals and SMEs, as well as to capitalise on the country’s oil and gas prospects in the coming years. The bank has also outlined plans to support the country’s economic diversification through industrialisation and service-orientated business developments.

“Inflation rates in Angola are at a historic low (6.9 percent change in one year to June 2013),” explains Fábio Correia, Marketing and Communications Director at Banco BAI (see Fig. 1). “These low inflation rates are enabling more affordable credit or financing policies and therefore the use of productive capital to develop public infrastructures, housing and factories for families, SMEs, large corporations and government investment initiatives.”

According to KPMG, the environment is also challenging because the Angolan banking sector saw a decrease of 30.9 percent in terms of net income in 2012, as a result of lower growth in the operating income of the sector. This volatility has put pressure on banks to ensure their business is diverse and financially strong enough to withstand external shocks, as Angola continues to remain dependent on foreign investment and exports. Nevertheless, increasing robustness within the sector – as well as efforts from firms to be present in most provinces of the country and to offer clients more diversified products – bodes well for the future of banks operating in Angola.

Serving the unbanked
The majority of Angola’s population continues to remain unbanked. A safe bet for profit growth and stable income is to access this largely untouched market. As such, banking services access for the Angolan population remains a central goal of the financial sector, and has driven the increase in the number of banking branches (which almost doubled from 2009 to 2012) and its decentralisation from Luanda.

With less than a quarter of the population using banking services, the need for innovative banking offerings that can reach a broad segment is ever-increasing. This has, in part, fostered a positive trend in the use of several means of payment and new electronic channels as a way to access major banking operations – no matter how remote your location. For although most contacts between banks and (future) customers are made in a bank branch, about 75 percent of Angolan banks already have an internet banking service. ATM transactions have also seen exponential growth, increasing by more than 35 percent year-on-year since 2011 and with point of sale transactions increasing by about 72 percent.

With its strong focus on local economic development and social responsibility, Banco BAI has made it a key point to reach out to as many Angolans as possible. The bank has done this through its various mobile and online banking offerings, as well as its branches that serve every need – from savings, to loans, to payment transfers. This strong foothold has helped place the bank as the leading financial institution in Angola, as well as a top-25 bank in Africa.

Strength through diversification
In order to uphold this position – and given a recent slowdown in lending activity – Banco BAI has been adjusting its strategy to safeguard against negative repercussions on its business activity and bottom line. BAI has been carefully evaluating its exposure to the sectors of the economy that currently represent higher risk levels, as well as tightening controls on the increasing number of past due loans. It is also enhancing its credit recovery department by introducing new procedures and improving the efficiency of the existing ones. The bank has developed procedures for monitoring companies that have signalled greater difficulties in terms of liquidity, in order to anticipate eventual difficulties in fulfilling their obligations.

“In the next 12 months, BAI will be working towards the consolidation and expansion of our position in the Angolan banking market, with the aim of being a pillar for national economic development,” says Correia. “We’ll also be improving our human resource policies in order to recruit, develop and retain the best professionals. By improving our segmentation model we also hope to strengthen our skills in client financial advisory and best practices in risk management in order to consolidate a prominent position in the market.”

Betting on oil
Banco BAI has been serving Angola’s thriving oil and gas industry for years. Banks that target oil companies are required to constantly improve their product offering in order to remain competitive. For BAI, this has resulted in a consolidation of its business unit for the oil sector service providers, as well as a department dedicated to the oil sector operators. Furthermore, the bank has implemented automated platforms, which allow operating companies to issue straight through orders quickly and efficiently.

Because Angola remains one of the leading countries in terms of receiving foreign direct investment – thanks to money flowing into natural resource industries – banks have also had to tackle the influx of foreign investors and the ensuing boom in currency exchanges. This has historically caused elevated volatility of the kwanza against the US dollar, and has prompted the Angolan Executive to promote stabilisation of the exchange rate. As a result, the exchange rate was stable and almost linear throughout 2012 and 2013. Additionally, there has been a gradual de-dollarisation of the economy, both in terms of deposits and loans, after the Angolan Executive implemented measures such as the establishment of maximum sales limits and supervision of compliance with the Foreign Exchange Law (NFER). For instance, the new exchange regime for the petroleum sector approved in 2012 will oblige the amounts paid by the oil companies to foreign contractors to provide services in Angola to be traded through banks operating in Angola. This is expected to increase market liquidity, the volume and number of transactions, the efficiency of the payment system, and the net interest margin of the banks, as well as change the market share of each bank.

With competitiveness set to surge, Banco BAI is betting the NFER will boost transactions significantly for oil-focused firms such as itself. With that, Angola’s banking future has never been brighter.