Interview: Abdellatif Jouahri
What are the major challenges facing the Moroccan banking sector as it works to implement Basel III, and how can these be overcome?
ABDELLATIF JOUAHRI: In August 2013, Bank Al Maghrib published the provisions of the Basel III framework relating to the capital and liquidity coverage ratio requirements. Regarding the capital requirements, the new standards have raised both the quality and quantity of the regulatory capital base. These introduce new adjustments to the required regulatory capital, mostly at the level of common equity, including investments in the capital of other financial institutions. The central bank has introduced transitional arrangements to implement the new standards in order to ensure that the banking sector can meet theses standards, while still supporting lending to the economy.
With respect to the liquidity coverage ratio requirements, banks must maintain sufficient high-quality liquid assets to offset the net cash outflows they could encounter over a 30-day horizon under a crisis scenario. However, there are two major challenges that we are facing in pursuing the full implementation of the ratio. The first one relates to the limited size of the domestic financial market in terms of eligible liquid assets. The second challenge is in determining the ratio at the consolidated level, given the growth of large Moroccan banking groups in Africa.
The central bank has adopted a transition phase approach. The rules are set to be applied by July 1st, 2015, following an 18-month observation period that would allow the introduction of any necessary adjustments. During the first phase, the ratio will be set at 60% of net cash outflows, and it will be gradually increased by 10% annually to 100% by January 1, 2019.
What types of preventative measures could be taken to help further reduce the ratio of non-performing loans?
JOUAHRI: After reaching a peak of 19.4% in 2004, the non-performing loans ratio for banks trended downwards to reach 4.8% in 2010, supported by a cleanup process of banks’ balance sheets, by significant debt collection operations, the rejuvenation of outstanding loan stock and enhanced risk management framework. However, since 2011, the non-performing loans ratio has increased due to a less favourable environment, reflecting the difficulties faced by businesses operating in sectors exposed to international competition and lower foreign demand. In the end of 2013, the average non-performing loans ratio stood at 6% approximately.
Bank Al Maghrib has focused on the quality of banks’ credit portfolios and asked banks to strengthen the monitoring of cyclically sensitive loans that should be covered by macro-prudential provisions. The central bank also ensures that non-performing loans are adequately provisioned and banks are required to conduct stress testing to assess their resilience.
What safeguards has the central bank put in place to help protect against higher external inflationary pressures?
JOUAHRI: One of the core functions of Bank Al Maghrib is to ensure price stability through monetary policy, which is developed using an analytical framework that takes economic, financial and monetary variables into account, both nationally and internationally. External inflationary pressure is assessed by analysing how external demand puts pressure on prices through output capacity. It is also gauged by monitoring imported inflation from the purchase of goods and services, or commodities, particularly energy products, which Morocco mostly imports.
As a result, since the 1950s the government has established a mechanism to subsidise energy products and food staples, which was revamped in June 2012. Additionally, the country has implemented a fixed exchange rate regime in which the dirham is pegged to a basket of currencies based on foreign trade structure, mitigating any major fluctuations.
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