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© 2004 International Monetary Fund

March 2004

IMF Country Report No. 04/52

Republic of Mozambique: Financial System Stability Assessment Including Report on the Observance of Standards and Codes on the following topics: Banking Supervision, Payment Systems, and Anti-Money Laundering and Combating the Financing of Terrorism

This Financial System Stability Assessment on the Republic of Mozambique was prepared by a staff team of the International Monetary Fund and the World Bank as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on November 19, 2003. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of the Republic of Mozambique or the Executive Board of the IMF.

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Financial System Stability Assessment

Prepared by the Monetary and Financial Systems and African Departments

Approved by Stefan Ingves and Abdoulaye Bio-Tchané

November 19, 2003

  • This Financial System Stability Assessment (FSSA) is based on the work of the joint IMF/World Bank mission that visited Maputo as part of the Financial Sector Assessment Program (FSAP) during February 10-18 and March 27-April 8, 2003. The findings of the FSAP mission were discussed with the authorities in September 2003, as part of the 2003 Article IV Consultation.
  • The FSAP team was headed by Alain Ize (MFD) and Michael Fuchs (World Bank) and included Mses. Susana Sosa (MFD), Vera Luz (Central Bank of Portugal), Zeynep Kantur and Korotoumou Ouattara (both World Bank), and Messrs. Thorsten Beck, Peter Kyle, Thordur Jonasson, Ravi Ruparel, Walter Zunic, and Allan Schott (all World Bank), Carlos Perez Verdia (Banco de Mexico), Graham Stokes (Reserve Bank of South Africa), and Ursula Mcryslal (South African Financial Intelligence Center).
  • Notwithstanding a remarkable growth over the last decade, the Mozambican financial system is still small, mostly bank-based, and highly concentrated. Bank intermediation has been constrained by difficulties in channeling deposits into loans, reflecting high and volatile real lending rates (particularly in Meticais) and a poor lending environment (including a weak repayment culture and a number of legal and institutional impediments to effective credit selection and recovery). With some caveats, the banking system’s exposure to other risks (currency, interest rate, and liquidity) was found to be moderate.
  • To limit real interest rate (and inflation) volatility, a more forward looking and proactive monetary management is needed, supported by reforms to enhance the transparency and effectiveness of the monetary framework, strengthen BM’s financial independence, consolidate the market for short-term public securities, enhance the transparency of foreign exchange operations, and accelerate the introduction of a Real Time Gross Settlement System. Measures to limit credit risk (and, more generally, strengthen financial system oversight) include legal and institutional reforms aimed at facilitating lending, a gradual shift to International Accounting Standards, and further efforts to shore up bank supervision.
  • Looking ahead, a sound financial development and deepening will require phasing out the State’s ownership participation in the banking system, enhancing the transparency and accountability of the public pension system and insurance company, taking steps to facilitate the growth of private nonbank intermediaries and institutional investors, and expanding access by the poor to finance. Follow-up technical assistance will be needed in most areas touched upon by the report.
  • The main authors of this report are Alain Ize and Susana Sosa.
  • FSAPs are designed to assess the stability of the financial system as a whole and not that of individual institutions. They have been developed to help countries identify) and remedy weaknesses in their financial sector structure, thereby enhancing their resilience to macroeconomic shocks and cross-border contagion. FSAPs do not cover risks that are specific to individual institutions such as asset quality, operational or legal risks, or fraud.

Glossary of Terms


Automated Clearing House


Anti Money Laundering


Basel Core Principles


Bank of Mozambique.


Capital Asset Ratio


Combating the Financing of Terrorism


Core Principles for Systematically Important Payment Systems


Department of Bank Supervision


Financial Sector Assessment Program


International Accounting Standards


Instituto National de Seguranca Social


Mozambique Accounting Standards


Microfinance Institution


Ministry of Planning and Finance


Non Governmental Organization


Southern Africa Development Community

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