© 2004 International Monetary Fund
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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International Monetary Fund
INTERNATIONAL MONETARY FUND
REPUBLIC OF MOZAMBIQUE
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.
- I. Overall Stability Assessment
- II. Short-Run Stability Analysis
- III. Managing Risk
- IV. Enhancing The Scope of Financial Intermediation
- V. Looking Ahead
- 1. Mozambique: Summary of FSAP Recommendations
- I. Observance of Financial Sector Standards and Codes: Summary Assessments
- II. Macro Financial Indicators
- Appendix Tables
- 1. Mozambique: Selected Macroeconomic Indicators, 1996-2002
- 2. Mozambique: Financial System Structure, 1997-2002
- 3. Mozambique: Financial Soundness Indicators for the Banking Sector, 1997-2002
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
Ministry of Planning and Finance
Non Governmental Organization
Southern Africa Development Community