In this work, we analyze the network of interbank payment flows settled via the SPTR (real time payment system) of the SPA (Angola financial system) and the systemic risk safeguard measures, with the aim of analyzing its stability (or vulnerability) in case of failures in the settlement of any bank payments. We intend to fill the gap among studies about Africa on this subject. To the best of our knowledge, this is the first study investigating the case of Angola.
Background
The financial crisis in 2007 deepened the concerns of monetary authorities about the stability of financial systems. To increase resilience to contagion risk, it is important to understand how contagion risk can spread through financial systems, as the failure of a bank can trigger defaults in other financial institutions. If financial contagion is widespread, it can seriously damage the economy.
Data/Methods
We perform a topological analysis of the network of interbank payments settled in SPA, relying on graph theory. Our sample consists of interbank payments that took place in the last trimester of 2016, included 33 banks.
Results/Expected Results
We conclude that the SPTR payment network is sparse with low connectivity, as 77% of the potential links between banks are not used. It is a free-scale network, with five banks with high connectivity (a money-center structure), which comprise about 47% of the total volume of payments settled in the SPTR. These banks represent the main origin and destination of the settled transactions, which constitutes a risk factor for contagion to the system. In addition, we conclude that the operational processes of each subsystem safeguard the SPA from systemic risk.
Policy Implications
We conclude that the SPA is resilient to systemic risk stemming from bank failures. Nevertheless, we believe the Angolan central bank can make use of this important tool as an auxiliary instrument for the supervision of banks, especially those that perform the role of money-centers, as they pose higher risk of contagion to other banks. The network approach can also provide important inputs for the elaboration of regulations aimed at strengthening the role of the Central Bank as regulator of the financial system such as exchange control and prevention of money laundering.