How has the banking system evolved in recent years, and what are the priorities going forward?
BENJELLOUN: There is general consensus about the strength of Moroccan banks, which play a healthy role in financing the economy, driving structural reforms and supporting companies and small and medium-sized enterprises (SMEs). Some key areas of success over the last 20 years include total assets, private equity, net banking income and resources. In addition, the number of banking agencies has increased six-fold, while the volume of credit in the economy is nine times that of 1995. Strengthening the performance of the banking system, which has gathered pace through convergence of prudential standards under the Basel III framework, is related to the timeframe of locked-in savings for banks and overcoming delays in the release of finances, particularly for long-term infrastructure projects. Promoting long-term savings is a collective and lengthy process. Nonetheless, the country seems to be on the right track with Casablanca Finance City and its ability to attract new flows of foreign investment for more dis-intermediated savings. BENCHAÂBOUN: Firstly, the Moroccan banking system has undergone major restructuring since 2000. This has allowed for a significant reduction in the loss ratio. Strengthening and aligning regulation with international standards, meanwhile, has protected local banks from the global economic crisis.
At present, and similar to other banking systems, the kingdom is exposed to the wider environment in which it operates. Thus, we need to double our attention, particularly through the establishment of sectoral surveillance via an especially preventive provisioning policy. All banks are aware of this, as evidenced by the rise in risk-related costs over the past three years. There is also an incentive for banks to reduce their dependence toward a customer or a group of customers to limit their risk inherent to a single group’s activity.
With three Moroccan banks now pan-African, owing to their presence in several sub-Saharan countries, the sector is showing its maturity. While this may be a source of vulnerability, in view of the increasing share of these subsidiaries in their respective GDP, it is also a means of diversification which can alleviate the economic downturn in one or more countries where Moroccan banks are present. In 2014, for example, local banks operating overseas performed remarkably, despite the credit slowdown in the kingdom.
What are the challenges to assisting SME growth?
BENCHAÂBOUN: Small and micro businesses in the kingdom almost exclusively resort to financing from banks for their growth and operational needs. This raises the question of the necessity to develop other alternative tools to support the development of these types of businesses. Access to credit has eased in recent years in the wake of various instruments created to define risk. Greater expertise in risk assessment has allowed banks to have a more realistic view of small businesses, thus allowing better qualified financing. Moreover, dedicated distribution networks, enhanced expertise and tailored offerings have emerged to cater to SME needs.
Other initiatives have also improved access to finance for SMEs. These include different safety mechanisms around mortgage management, flexibility and costs, as well as transparency and development of private equity offers, and business sustainability.
Financial education, however, remains a key issue, as only through a greater understanding of financial issues by business leaders can banks establish better communication with SMEs.
BENJELLOUN: SMEs are under-banked in Morocco, thus bringing assistance to SMEs can build success in commercial banking and create opportunities for investment banking activities. Banks are therefore supporting strategies for SME development by providing structures through business centres with proven skills and know-how spread across important regions in the kingdom. In partnership with economic operators, including the banking community, the authorities have developed a series of programmes to improve access to credit for SMEs in their investment programmes and modernise their production tools.
Thanks to this set of measures, there has been an undeniable improvement in the risk profile of SMEs over the last 10 years. This is rooted primarily in the management quality of these businesses and strengthening their self-financing capacity. Nonetheless, there remains a ways to go in terms of enhancing capitalisation, structuring, transparency and the quality of human resources available for SMEs.
What segments can help to increase the banking penetration rate over the long term?
BENJELLOUN: Backed by a commitment from banks and the government, the national banking rate rose from 20% to almost 65% in 20 years, thanks to the measures taken in product and services dissemination and approximation to clients, both rural and urban.
The possibilities of expanding the sector are still vast and relate to rural populations, SMEs and micro businesses, young entrepreneurs, and Moroccans living abroad, among other segments.
Promoting banking penetration is also being carried out through the development of an adapted commercial offer, encouraging the launch of innovative products, especially mobile banking, free saving accounts, special housing and education savings accounts, and retirement bancassurance products, among others. Further, the expected commercialisation of more participatory products should contribute to greater financial inclusion among the population. BENCHAÂBOUN: Low-income banking (LIB) remains, in the case of Morocco, the segment that is most likely to support and increase the banking penetration rate. This is partly because segments belonging to classic structured sectors are already banked, while those related to other areas, particularly self-employment and the informal sector, which includes much of the rural population, remain outside of the banking circuit. This makes LIB an interesting niche that could increase banking penetration. However, this depends on banks taking a new approach and offering flexible products.
How is reduced liquidity affecting the sector?
BENCHAÂBOUN: The liquidity situation has continued to improve since 2014. This can be explained by several factors, one of which is a much healthier trade deficit as a result of lower costs for imported energy and the consolidation of exports.
An increase in foreign assets, meanwhile, accentuated through the international expansion of Moroccan companies, has seen more than Dh15bn (€1.63bn) injected into the sector in recent years.
The lowering of reserve requirements by Bank Al Maghrib (BAM) has also had an effect, with market liquidity improving by more than Dh8bn (€870.4m). By the first quarter of 2015, intervention by BAM had decreased sharply, from Dh60bn (€6.53bn) in the first quarter of 2014 to Dh30bn (€3.26bn) year-on-year. The weighted average rates reached 2.95% in 2014 against 3.06% in 2013. This is due to the lowering of key rates on two occasions to 2.5% currently.
BENJELLOUN: The need for liquidity is diminishing thanks to a more efficient economy. Morocco is in a unique situation whereby the oil price in dirhams is sharply depreciating (-40% since 2014) and phosphate prices are recovering (+25% over the same period).
The kingdom is on course to overcome the 2008 crisis and will achieve, for the first time, current and trade deficits at a level closer of those of 2007.
This macroeconomic consolidation will have a positive effect on liquidity in two different ways. In the first instance, the economy will need less currency, therefore less counterparty in dirhams, and secondly, the decline in hydrocarbons prices will limit the budget of the compensation fund and thus the budget deficit by issuing T-bills. Demand for liquidity has already dropped to less than 50% between 2013 and 2014.
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