Liquidity has been a frequent topic of discussion in the banking sector over the past number of years. However, as Hassan El Basri, director-general in charge of risks at Banque Centrale Populaire (BCP), indicates, liquidity in Morocco’s banking system reflects that of a “normal” banking system.
According to El Basri, people talk of illiquidity due to the fact that one can identify two distinct periods in Morocco’s recent banking history: pre-2007, when Morocco suffered chronic excess liquidity as a result of the massive influx of capital due to numerous privatisations and significant remittances from abroad, and post-2007, when liquidity started to tighten, in part due to the implementation of Basel II, which required banks to comply with minimum reserve requirements, and in part due to ever-increasing demand for credit from both individuals (in particular mortgages) and industry (especially industries such as construction that were implicated in the government’s National Pact for Industrial Emergence).
There is no doubt that Bank Al Maghrib (BAM), the country’s central bank, has become more active, injecting liquidity as and when required, keeping interest rates low and increasing flexibility in the type of collateral it accepts when giving advances (e.g. certificates of deposits, which were approved in 2011). Still, the environment has become such that, with banks increasingly reliant on deposits and loans from BAM, alternatives are needed – one reason why in 2013 BMCE became the first private financial firm in North Africa to raise funds on international capital markets, in a bid to strengthen and diversify its funding sources.
BMCE BOND: Taking advantage of a window of opportunity before the decision by the US Federal Reserve to begin tapering off its quantitative easing programme in December 2013, the group raised a total of $300m through issuance of unsecured bonds on international capital markets. While the final issuance was lower than the original $500m bond approved in June due to a dramatic rise in emerging and frontier market borrowing costs after the US first announced plans to trim quantitative easing, with a coupon rate of 6.25% and a yield of 6.5%, these 5-year bonds were ultimately priced competitively, only 200 basis points above Morocco’s 10-year sovereign bonds issued in December 2012. In terms of investor profile, 45% of investors were portfolio managers, 35% banks and 20% international organisations. By country, 43% of investors were from the UK, 19% from MENA, 13% from Switzerland and 10% from Asia.
MULTIPLE BENEFITS: This transaction is significant on a number of fronts. The transaction was oversubscribed and achieved a competitive coupon rate, suggesting that external investor appetite in Moroccan corporate bonds is high, thereby opening a cost-effective alternative to internal lending for banks.
Moreover, access to external capital markets allows banks to diversify their sources of liquidity, thus easing competition in the domestic market for access to BAM funds. Finally, as Kamal Mokdad, the managing partner at Mazars in Morocco, notes, access to external financing could accelerate the expansion of Moroccan banks throughout Africa. Indeed, BCME raised the funds specifically to finance its expansion in Africa, with the group aiming to be present in all 54 African countries in the long term. Other Moroccan banks, namely Attijariwafa Bank and BCP, previously signalled their intention to float bonds on international debt markets for much the same purpose. At its general assembly in May 2013 Attijariwafa Bank approved the issuance of a $500m foreign debt bond to support future expansion, while in July BCP indicated it was considering a short-term foreign debt issuance.
However, with Japan pursuing its quantitative easing programme and calls increasing for the European Central Bank to launch a similar programme in order to boost the eurozone economy and way-lay deflation, future opportunities to issue bonds on international markets at attractive rates may indeed arise in the not-so-distant future for Morocco’s banks.
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