Mozambique cuts banks’ FX position limit from 20% to 2%
The Bank of Mozambique has cut the amount of foreign currency commercial banks can hold in excess of their foreign currency liabilities. The overall limit for long foreign exchange positions has fallen from 20% to 2% of a bank’s own funds. For a single foreign currency, the limit has dropped from 10% to 1%. The
Mozambique cuts banks’ FX position limit from 20% to 2%
The Bank of Mozambique has cut the amount of foreign currency commercial banks can hold in excess of their foreign currency liabilities. The overall limit for long foreign exchange positions has fallen from 20% to 2% of a bank’s own funds. For a single foreign currency, the limit has dropped from 10% to 1%. The changes come as businesses in Mozambique continue to struggle to access foreign currency.
Banks face tighter limits
A long FX position means a bank holds more foreign currency assets than liabilities. The previous rules gave banks more room to hold these positions. That room has now been cut sharply. The overall limit is down from 20% to 2%. The limit for individual currencies has fallen from 10% to 1%. Banks will therefore have less room to build up foreign currency holdings.
Businesses still need foreign currency
The changes come at a difficult time for companies that rely on foreign currency. Businesses need dollars and other currencies to pay overseas suppliers, settle international transactions and cover imports. Access to foreign currency has remained a problem for some companies. This is happening even though Mozambique had around $3.46 billion in net international reserves in June. The issue is not only how much foreign currency the country holds. It is also how much reaches businesses through the banking system. The International Monetary Fund has also pointed to foreign exchange shortages in Mozambique. The fund said the central bank had tightened foreign exchange rules and controls on capital outflows in response to the shortages.
What this means for banks
The new limits leave commercial banks with less room to hold large long FX positions. They will have to keep their foreign currency assets closer to their foreign currency liabilities. This could change how banks manage their FX books and respond to customers looking for dollars and other currencies. For businesses, access to foreign currency remains the main concern. The Bank of Mozambique has now put a much lower ceiling on the foreign currency positions banks can carry. Whether that improves access to foreign currency will depend on how much liquidity is available in the market.
