Carlos Panzo (ORCID ID: https://orcid.org/0000-0002-1238-3200)
Assistant Professor at Business and Economics School, ISG, Lisbon, Portugal
Email: [email protected]
Abstract: Despite Angola’s banking sector exhibiting high profitability by international standards, it performs relatively poorly in financial intermediation, especially when compared to other developing economies. This disconnect suggests that credit risk is not a primary driver of profitability, challenging conventional assumptions in the banking literature for emerging markets. This pa per investigates the determinants of bank profitability in Angola using panel data from 11 commercial banks over the period 2005 –2013. Employing panel regression techniques, the study explores the relationship between profitability and both bank-specific and macroeconomic factors. The findings reveal a strong correlation between bank profitability and fiscal and monetary policies. Specifically, the results highlight the role of indirect subsidies in the form of high yields on government bonds and favorable spreads in the foreign exchange market, which have significantly contributed to elevated net interest revenues. The analysis finds little justification for such high bond issuance – neither persistent fiscal deficits nor inflation targeting fully explain the government’s approach to debt management. The study concludes that these policy choices were likely designed to support and protect Angola’s nascent banking sector, with the broader aim of stimulating economic development. However, the data does not support the effectiveness of this strategy. Instead, the results suggest that the policy framework created perverse incentives, discouraging private sector lending and hindering the sector’s contribution to long-term, inclusive growth. These findings carry important implications for banking sector policy design in Angola and similar developing economies seeking to balance profitability with meaningful financial intermediation.
Keywords: Angola; Bank Profitability; Financial Intermediation; Bond; Monetary Policy.