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Angola Gives Oil Firms Time to Adopt New Bank Law

Source: Reuters 11/30/2011, Location: Africa

Angola will give oil firms, commercial banks and monetary policymakers up to two years to adjust to a new law forcing oil companies to use the country's banking system, Central Bank Governor Jose de Lima Massano was quoted as saying. The new law, approved by parliament, means oil companies active in Africa's second largest crude producer after Nigeria will have to pay their taxes and bills from overseas sub-contractors and suppliers in dollars through local banks.

"This will bring greater capacity to the financial system in supporting the development of the national economy and will also allow a bigger integration of the oil sector into the Angolan economy," daily Jornal de Angola quoted Massano as saying. Angola's economy relies heavily on oil revenues, which make up over 90 percent of export income. Massano warned, however, that the new rules will pose some challenges for monetary policymaking and the central bank's goal of keeping the kwanza currency stable.

"There is a certain fear that with a great flow of foreign currency into our economy, we may see a great appreciation of the kwanza to above the desirable levels to continue stimulating economic growth," he was quoted as saying.

The central bank governor has been praised by the IMF and credit ratings agencies for improving Angola's monetary management, keeping the kwanza stable and curbing inflation. Analysts say around $10 billion could enter the financial system each year under the new law.

The central bank will therefore implement the new law in two phases, allowing it to adjust its monetary policy instruments and also giving time for the oil companies and local banks to implement the necessary operational changes, Massano added. In a first phase, the oil firms will have to use local banks to pay their taxes and bills from local providers, and only after one or two years will they be obliged to use Angolan banks to pay overseas suppliers. Until now, the oil firms were allowed to use overseas banks under a special regime, mainly because Angola's banking system unable to handle the transactions. But analysts say the Angolan banking sector is now solid, with its banks well managed and boasting strong assets.

The country's main banks include state-owned Banco Angolano de Investimento and units of Portugal's Banco Espirito Santo and Banco BPI, while Standard Bank, Africa's biggest bank by assets, entered Angola this year.

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