Fitch Ratings recently completed a peer review of the Moroccan banks under its coverage, accounting for approximately 77% of Morocco’s banking system assets. The banks are Attijariwafa Bank (AWB), Bank of Africa (BOA), Credit Immobilier et Hotelier (CIH), Societe Generale Marocaine de Banques (SGMB) and Banque Marocaine pour le Commerce et l’Industrie (BMCI). The international and national ratings (apart from AWB) were affirmed.
AWB’s National Long-Term rating was upgraded to ‘AA (mar)’/Stable, reflecting the bank’s extended record of resilient performance, particularly through the recent cycle, backed by a stable and diversified business profile and cautious growth. AWB’s National Rating is one notch above that of domestic peers but below the subsidiaries of large French banking groups, SGMB and BMCI as they benefit from potential support from their foreign shareholders.
The review also led to Fitch revising its outlook on the Moroccan banks’ operating environment to stable from negative. This reflects our view that pandemic-induced risks on the operating environment have sufficiently eased with the opening of the economy and Morocco’s export markets, and that, despite prevailing risks, the five banks will continue to deliver resilient financial metrics in 2022.
Asset quality at the five banks remained in line with our expectations, underpinned by the authorities’ comprehensive pandemic support measures in 2020. While debt relief measures ended in 2021 for most borrowers, the banks’ asset quality was supported by a strong rebound in GDP growth estimated by Fitch at 6.2% in 2021 (2020: a 6.3% contraction, one of the sharpest declines in Middle East and North Africa). At end-1H21, the consolidated Stage 3 loans ratio was 11.1% of gross loans in average for the five banks (unchanged from 2020). We expect the ratio to improve slightly to just below 11% in 2022 with higher loan recoveries and the continuing pick-up in business activity.
We gain comfort from the strong recovery in profitability in 9M21, primarily driven by loan growth and lower impairment charges, despite the benchmark interest rate remaining at 1.5%. The average consolidated return on equity (ROE) at the five banks increased to 10.3% in 9M21 from 5.5% in 2020. We expect a further strengthening in profitability this year although a return to the pre-pandemic return on equity of around 12% appears distant.
The banks’ capitalisation held up in 2021 although we believe buffers continue to be modest relative to regulatory minimums, particularly for banks exposed to large regional operations. In line with its efforts to move towards international best practices, Bank Al-Maghrib (BAM) introduced in 2021 a minimum Basel III leverage ratio of 3%, which the five banks meet with relative ease. Metrics are supported by healthy internal capital generation.
One key positive is that funding and liquidity conditions proved to be stable in 2020/2021. There were no deposit outflows and domestic capital markets continued to function well. Customer deposits, which represent the bulk of Moroccan banks’ funding, increased by 4% in 2021. The banks were able to issue additional Tier 1 and Tier 2 capital securities locally, which also strengthened their funding profile and helped them to better manage their liquidity mismatches.
Our concerns for 2022 centre around lower-than-expected economic growth (Fitch forecasts GDP growth of 3.2%), a delayed recovery in the country’s vital tourism sector, high inflation (1.8% in 2022) as well as sustained high unemployment (11.2% in 2022).