The stable outlook for Moroccan banks reflects the country's gradually improving regulatory environment, commercial banks' better financials and the strong likelihood of government support amid a still challenging operating environment, says Moody's Investors Service in its recently published Banking System Outlook for the country.
The outlook also reflects the fact that, despite recent improvements and the concerted efforts of the government, the Moroccan economy remains significantly exposed to the performance of the agricultural sector, as well as the general population's low income levels, often insufficient customer financial information and lengthy judicial procedures for foreclosing collateral, all of which constitute barriers for dynamic lending and elevate credit risk. This is reflected in banks' historically high (though declining) NPL levels.
Morocco's banking system is fairly concentrated: the eight largest banks controlled more than 95% of the banking system's assets, and the three largest a high 64%. "State participation is gradually decreasing, while foreign shareholders -- and in particular French banks -- have significant participation in the country's banking sector, bringing valuable expertise, and facilitating modernisation of the system," says Stathis Kyriakides, a Moody's Analyst and author of the new report.
Banking sector penetration in Morocco is still relatively low and remains concentrated in urban areas while rural communities, which constitute 44% of the Moroccan population, have very little exposure to banking. Moody's notes that, given the low per capita GDP levels and very low levels of disposable income for a large proportion of the population, growth in retail banking will depend on the extent to which economic development will reach the general population.
However, the country's regulatory and supervisory framework is evolving, and over the past decade Morocco's banking system has undergone significant improvements, says Moody's. The 1993 banking law which went a long way in liberalising the banking industry was followed by a succession of reform bills aimed at enhancing the banking system and bringing it closer in line with international standards, while the latest regulatory developments occurred with the introduction in February 2006 of a new banking law that reinforced Bank Al-Maghrib's (BAM) role granting it greater autonomy and broader supervisory and regulatory authority.
However, information disclosure remains short of international norms, with banks currently reporting according to local accounting standards. "BAM's planned establishment of a credit bureau will, when fully functional, go a long way towards enhancing banks' credit risk assessment capacity, particularly in the case of retail and SME lending. However, credit quality continues to constrain the Moroccan banks' ratings, in spite of recent improvements with regard to NPL levels and better risk assessment," the analyst adds.
The rated banks have comfortable liquidity levels, with customers' deposits continuing to be the main source of the banks' funding, with deposits from non-resident Moroccans increasingly targeted. Capital levels for the sector appear adequate; but may be lower for state-owned banks. There would also appear to be considerable divergence between the profitability of private and state-owned banks, Moody's notes. Despite a marked improvement, the operating environment remains fairly challenging, reflected in the country's relatively undiversified (though improving) economy, heightened underlying credit risk, and lengthy judicial procedure for foreclosing collateral, which still impairs the banks' creditworthiness and constitutes a barrier for dynamic lending activity, the rating agency concludes.