In hand with sustained economic growth in recent decades, Morocco has been able to establish one of the region’s most competitive and sophisticated banking sectors. This has translated into significant penetration levels for banking services, a wide array of products and a handful of large-scale banking players with international reach across the continent. Despite the years of development, though, the sector has had to contend with slower rates of lending and a lukewarm economic context of late. This has led to some strategy realignment, both by the country’s lenders as well as by the monetary authorities, who are keen to maintain the industry’s role as a dynamic factor in the kingdom’s economy.
Evolution
The sector is embarking on a new development phase, as participatory and tech-oriented players expand their presence in the market. Recent regulations overseeing non-banking payment institutions and a new mobile payment system are opening the door for the digitalisation of bank processes and fresh ways for institutions to interact with customers. Additionally, the implementation of Basel III solvency requirements is progressing towards its final stages, set to be completed in 2019. Banking institutions are thus expected to continue to strengthen solvability not only in their domestic operations, but across their networks of subsidiaries on the continent. Overall, the sector has been able to maintain a steady pace of growth. In 2017 the total number of bank accounts in Morocco increased by 6.4% to reach 26m, following a 4.9% increase in 2016, according to Bank Al Maghrib (BAM), the central bank. Meanwhile, bank assets were worth about 122% of the kingdom’s GDP in 2018.
Sector Makeup
Morocco’s banking environment has undergone several recent changes. The number of onshore banking institutions that operate in the country jumped from 19 to 24 after BAM granted operating licences to five participatory banks during 2017. Besides the new sharia-compliant institutions, three traditional banks operated a participatory window as of the end of that year. According to the “2017 Annual Report on Banking Supervision”, published in July 2018 by BAM, the sector includes 19 traditional banks, five participatory banks, 32 financing firms, 13 microcredit associations, nine specialised money transfer firms and six offshore banks. Two state-owned institutions, Caisse de Dépôt et de Gestion and Caisse Centrale de Garantie, are also part of the landscape, tasked with financing investment projects that have a significant impact on the kingdom’s broader economic development.
With the three major sector players – Attijariwafa Bank, Groupe Banque Centrale Populaire (GBCP) and BMCE Bank of Africa – accounting for roughly 65% of assets, the local banking sector is highly concentrated. However, we have not observed a distortion of the competitive balance and instead have seen gains in the matter as demonstrated by the growing capacity of the banking offer, the development of bank account holding rate at 70% and the penetration rate of bank credit at 80%. When including the fourth- and fifth-largest banks, the sector’s top-five institutions represent 79% of banking assets.
Despite the industry being top-heavy, BAM has maintained a steady hand as the regulator, ensuring the solidity of the system is preserved and that potential risks that might emerge from banks’ exposure abroad or slower growth in credit domestically are kept at bay. “The central bank has continued to do a great job and is always a step ahead in developing regulation for the sector. This ensures that banks do not reduce prices excessively in order to gain market share, because some banks are tempted to do this in the context of a market slowdown,” Karim Gharbi, partner at CFG Bank, told OBG.
Foreign expansion has allowed the sector’s biggest players to escape the limitations of a crowded local market and increase their size. Over the 2012-17 period Attijariwafa Bank, GBCP and BMCE saw their total assets grow by an average of 6.1%, compared to the 4.1% growth of Morocco’s banking sector as a whole. “About 33% of Attijariwafa’s results now come from outside Morocco, while for GBCP that rate is about 20%,” Gharbi told OBG. “These banks continue to explore options as they grow abroad, given that Morocco is largely a saturated market.”
Top Tier
Attijariwafa Bank remains the sector’s largest player. Holding firm Al Mada, formerly known as Société Nationale des Investissements and controlled by Morocco’s royal family, is the biggest shareholder in the bank, with participation of 47.9%. The bank’s total assets reached Dh493.4bn (€44.4bn) as of September 2018, up from Dh471.5bn (€42.4bn) at the close of 2017. All activities combined – including finance companies, transfer of funds and stock market intermediation – the bank had 4306 branches in 26 countries at the end of 2017, 3407 branches of which were located across the kingdom, and serviced over 9m customers. In late 2018 Attijariwafa stated the bank would continue its expansion throughout Africa and was looking at opportunities in Rwanda, Ethiopia and Kenya. The latest step in its expansion drive came in May 2017, when the bank acquired Barclays Egypt.
The market’s second-largest bank, GBCP, comprises national banking operator Banque Centrale Populaire and 10 regionally located cooperative banks that have a combined stake of 52% in the group. GBCP’s assets were Dh376.7bn (€33.9bn) by the third quarter of 2018, down from Dh383.5bn (€34.5bn) at end-2017. The bank accounted for 26.3% of total deposits that year, according to its 2017 annual report. In October 2018 GBCP expanded its international presence by acquiring Banque des Mascareignes in Mauritius from Groupe BPCE, a French cooperative lender. GBCP is also looking to buy majority stakes in BPCE units in Cameroon, Tunisia, Madagascar and the Democratic Republic of the Congo. “Moroccan banks’ presence in Africa should not be limited to West Africa. Several operators are already present in Central Africa and in the east of the continent, in countries such as Madagascar and Mauritius, in order to channel investments from the Pacific to Africa. Many opportunities lie in states such as Rwanda, Ethiopia and Kenya, where the experience gained by Moroccan banks thus far can be a great asset,” Laïdi El Wardi, CEO of retail banking at GBCP, told OBG.
The third-biggest player, BMCE Bank of Africa, had assets of Dh297bn (€26.7bn) in June 2018, less than the Dh320bn (€28.8bn) in mid-2017 but more than the Dh282bn (€25.4bn) of June 2016. The bank is present in 31 countries across Africa and Europe, and opened a branch in Shanghai, China in January 2019. The new Chinese subsidiary offers banking services for trade and corporate finance. Moroccan businessman Othman Benjelloun has a 36% stake in the bank through his holding firm FinanceCom.
Lending
After experiencing strong growth at the beginning of the decade, credit allocation decelerated sharply. Having expanded by 10.6% in 2011, credit growth dropped to 3.9% in 2012 and to 2.2% in 2013 and 2014. Financing growth then rose to 4.2% in 2016. Bank loans for the sector as a whole reached Dh836.7bn (€75.3bn) in 2017, a 3.2% increase on the 2016 figure, according to BAM’s latest annual report. Total credit was equivalent to 79% of the country’s GDP. “Credit growth remains really low compared to nominal GDP expansion. The economic context is not great, but this still remains a very low rate of credit expansion,” Gharbi told OBG.
Indeed, besides the market’s level of maturity, credit allocation has maintained low growth in part because of the current economic environment. Credit for industrial equipment, for instance, which was key to the sector’s development over the past decade, has slowed significantly in recent years. “There was a slight increase in this type of credit in 2017, but I think that was a momentary improvement because overall we are in a context where people are not investing much,” Gharbi added. “There is a real lack of visibility for the future, which has made many investors cautious.”
In an effort to promote credit adoption by economic actors, a committee encompassing BAM, the General Confederation of Moroccan Enterprises and the Moroccan Bankers Association has been established to study and address some of the reasons why companies cannot access loans, and why credit is not expanding at a faster rate.
Moroccan banks have nonetheless been able to improve the diversification of the sector’s loan portfolio. Just under one-third of total banking credit was allocated to Moroccan households in 2017, followed by industry at 17.1%, financial services at 12.7% and the construction sector at 11.3%. Commerce activities represented 6.7% worth of credit to businesses, followed by agriculture and fishing activities at 3.8%, BAM data show.
Deposits
The total value of deposits in Morocco, meanwhile, progressed by 5.5% in 2017, reaching Dh901bn (€81bn), or about 85% of GDP. This figure builds on the Dh854.1bn (€76.8bn) recorded in 2016 and Dh819.2bn (€73.7bn) in 2015, with BAM stating that customer deposits accounted for two-thirds of the expansion of banking resources in 2017. This performance has been helped by the fact that the majority of bank deposits are non-remunerated. Demand deposits increased by 8.3% to Dh553.3bn (€49.8bn) in 2017, while total term deposits in the system were valued at Dh168.2bn (€15.1bn) after undergoing a 2% reduction from 2016. Deposits in the form of savings accounts equalled Dh153.4bn (€13.8bn), a 5.4% increase relative to 2016. Demand deposits accounted for 61.4% of all deposits, followed by term deposits at 18.7%.
Profitability
An effective reduction of non-performing loans (NPLs), coupled with growing deposits and the sector’s ability to maintain some degree of growth in credit allocation, has helped to move the sector’s overall profitability upwards. Total sector profits jumped by 17.6% in 2017 to Dh10.8bn (€953.4m), while return on equity (ROE) stood at 9.5% and return on assets (ROA) at 0.9%.
Results were influenced by a steep reduction in the cost of risk, which was down 22.8% in 2017 at Dh6.8bn (€611.6m). The decrease not only followed a 4% increase in 2016, but it represented the first time the cost of risk fell since 2008. The cost of risk absorbed 28.7% of gross operating income in 2017, compared to 37.6% the year prior.
The sector’s biggest players saw significant gains. According to the institution’s annual report, Attijariwafa Bank registered a 16.5% increase in net income in 2017, which settled at Dh6.6bn (€593.8m). Furthermore, Attijariwafa reached a ROE of 14.9% and ROA of 1.4%. At GBCP, 2017 brought a 12.3% rise in net income, moving the bottom line from Dh3bn (€269.8m) to Dh3.4bn (€305.8m). The group recorded ROE of 8.6% and ROA of 0.9%. BMCE Bank of Africa, however, saw net income grow by a marginal 0.3% to Dh2.84bn (€255.8m). ROE came in at 11.5%, while ROA was 0.9%.
NPL
The rate of NPLs in the sector stood at 8.3% at the end of 2017 – representing Dh86bn (€7.7bn) in bad credit – after rising by 3.7% over 2016’s figure. Although bad loans are a problem in any country’s financial system, data from the IMF’s 2017 Article IV Consultation report, published in March 2018, show that the rate of increase seems to be winding down, especially when compared with years of high NPL growth, such as 2015 and 2016, when bad loans expanded by 10.4% and 6.4%, respectively.
“NPLs are still rising, but at a lower rate, which means that the cost of risk is going down,” Gharbi told OBG. “This is especially relevant under new regulations, where all credit extended needs to be provisioned.” The level of provisioning in the sector is on an upwards trend, reaching Dh63bn (€5.7bn) in 2017. This represents a coverage level of 73%, up from 69% in 2016 and 68% in 2015.
Risk is expected to rise somewhat with the sector’s ongoing expansion into other African markets, which, as the IMF mentions, “provides diversification and profit opportunities, but is also a channel of risk transmission given the riskier local operating environment and lower regulatory standards in host countries”. However, the sector has been able to cope despite such hurdles. The total volume of NPLs in Moroccan banks’ foreign subsidiaries was Dh15.3bn (€1.4bn) in 2017, putting the rate of NPLs at 9.6% – a stable level according to sector authorities. Coordination between BAM and supervisory authorities in some of the African markets where Moroccan banks now operate has improved the rate of risk provisioning in foreign subsidiaries to 80%.
By expanding their presence regionally, Moroccan banks have been able to adequately disperse risk. “We have seen local banks successfully absorb recent acquisitions and prepare for new ones,” Mamoun Tahri-Joutei, director of economic intelligence at BMCE Bank of Africa, told OBG.
Regulatory Change
Improvements in sector oversight are a significant factor in maintaining the banking system’s solidity. Passed by the Parliament in December 2014, Morocco’s new banking law was promulgated on January 22, 2015 and represents a key step in aligning the sector with international standards. These changes are expected to bring new growth opportunities for banks. The 2015 law set the stage for the creation of a participative banking segment. It also included provisions for the entrance of non-banking payment institutions, which are expected to accelerate digitalisation efforts within the banking sector in coming years. These two measures are widely anticipated to improve banking penetration rates (see analysis).
More importantly, the law has brought about new requirements for the overall health of the sector. Not only does the regulator now have extended powers to oversee financial conglomerates that effectively control credit providers, but BAM has also improved its capacity for cross-border supervision and risk management on a consolidated basis, which is critical to overseeing the system’s entire condition as it continues expanding into African markets.
“As the regulator, we have had to implement new capabilities within our structure to properly follow banks’ activities abroad, establishing a dedicated team for this,” Hiba Zahoui, director of banking supervision at BAM, told OBG. “To set up a cross border supervision, we’ve also increased our cooperation with the supervisors of the countries into which Moroccan banks are expanding into.”
International Input
Indeed, regulatory improvements have benefitted from international cooperation. The 2015 Financial Sector Assessment Programme (FSAP), conducted by the World Bank and the IMF, led to a series of recommendations that the kingdom’s monetary authorities have been implementing to improve the sector’s strength. One key change resulting from the programme is the harmonisation of Morocco’s criteria for the classification of borrowers with the standards applied globally. Previously, the criteria evaluated defaults to include elements such as a closer assessment of borrowers who exceeded their credit lines repeatedly. Besides launching a study on the impact that the new criteria will have on the local sector, BAM is also developing new rules to guide the treatment of collateral passed on to banks from clients in difficulty, such as real estate.
Another major shift relates to the regime under which debt and provisioning are managed. Previously, the identification of at-risk debt – loans that are still classified as healthy but which show some vulnerabilities – were identified by banks according to specific internal criteria. BAM, however, is moving to align these various rules with universal sector standards that will apply to all banking institutions.
Anticipating Challenges
In line with regulations and in hand with the recommendations proposed in the FSAP, officials have also been working on a framework to adequately handle banks in distress. Part of this will be done via new rules that requires banks to establish internal crisis-management plans that must be tailored to deal with unanticipated shocks that can damage their overall stability. The contingency plans will then require approval from BAM. Additionally, the overarching role and capacity that BAM has to deal with failed banks will evolve, but this requires more sweeping regulatory changes to allow for elements such as a deposit guarantee scheme and bail-in powers, according to the IMF’s Article IV Consultation report.
“With new international regulations and financial instruments coming in, the Moroccan banking sector will align step by step with international standards.” Baldoméro Valverde, chairman of the board at Crédit du Maroc, told OBG. “As for prudential rules, the central bank has asked all banks to comply within five years. It is a careful approach to not unsettle the whole sector at once.”
Regional Expansion
These changes are set to give lenders a stronger base as they continue to grow abroad. Over more than a decade, Moroccan banks have made a name for themselves across the continent with an aggressive expansion strategy that has seen them take strong positions in many fast-growing African economies. Part of this was the result of proper anticipation of conditions in the Moroccan market, which was moving progressively towards a level of maturity and a stabilisation of credit demand. The first Moroccan banks began operating abroad in 2006-07, and as of December 2017 these banks were present in 26 African countries with a network of over 1400 branches handling approximately 7.2m accounts. “The African expansion of Moroccan banks has continued, and they have had to transform the institutions they acquired to incorporate them into their operations,” Zahoui told OBG. Although integration of newly acquired subsidiaries can require time and resources, the expansion of Moroccan businesses has allowed local lenders to have a head start in other markets. In many ways this growth resembles the kingdom’s own banking sector evolution of a few decades ago, which has given Moroccan players a clear advantage over other international banking groups wanting to increase their presence in sub-Saharan economies.
Participatory Banking
Back home, a major addition to the sector landscape is the arrival of participatory banking institutions. The 2015 banking law made way for their entrance by establishing the necessary regulatory changes for their operation and oversight. Although the kingdom’s banking law had already allowed banks to offer some sharia-compliant products since 2007, the participatory segment had yet to see any tangible growth.
The new legal framework allows for both the operation of fully fledged participatory banks as well as the participatory windows of existing traditional banks. The presence of this new type of financial institution required the banking authorities to create a central sharia board of elders to advise on and help establish the segment’s regulation. Following the new regulation, BAM issued participatory banking licences to five institutions in January 2017. The first of these to enter the market, Umnia Bank, is a joint venture (JV) between Morocco’s Crédit Immobilier et Hôtelier and Qatar International Islamic Bank. It began operating in May 2017 through two agencies in Casablanca and one in Rabat. Other institutions followed. Bank Assafa, currently the only participatory bank that has 100% Moroccan capital, rose out of an Attijariwafa Bank subsidiary that was transformed into a standalone participatory bank in July 2017, taking advantage of its existing network to begin operating with 21 branches. Another entrant, Bank Al Tamwil Wal Inmaa, is the result of a JV between BMCE Bank of Africa and the Bahraini-Saudi group Dallah Albaraka. The bank began its activities in the second half of 2017.
GBCP and Saudi-based Guidance Financial Group launched Bank Al Yousr in August 2017. Another participatory institution, Al Akhdar Bank, was established through a partnership between Crédit Agricole du Maroc and the Islamic Corporation for the Development of the Private Sector, a unit of the Islamic Development Bank. It opened its doors in October 2017. As of November 2018 the combined network of these five participatory banks had more than 70 branches, according to BAM.
In October 2018, with its first full year of operations complete, Umnia Bank announced that it attracted Dh228m (€20.5m) in deposits and allocated Dh523m (€47m) in finance, mostly for housing and automotive acquisition. The average financing ticket for real estate was Dh500,000 (€45,000), with the bank stating that nine out of 10 of its customers had never requested a bank credit before. By October 2018 Umnia Bank had expanded is presence to 20 branches around the country.
By October 2018 the five participatory banks and three participatory windows of traditional entities had opened 50,000 new accounts, extended Dh3bn (€269.8m) in finance and received Dh1.2bn (€107.9m) in deposits. Given that the participatory banks began operations at different times in 2017, BAM expected performance to continue improving in the final months of 2018 and in early 2019.
Several market observers who spoke with OBG believe that these banks, while likely unable to shift sector dynamics in the kingdom in any particular direction, are forecast to reach 5-10% of the country’s population that is currently not part of the banking system due to religious reasons. The necessary investment for new participatory institutions is not too high and has been supported to a large extent by JVs with Middle Eastern banks that have a track record in the participatory finance segment of other markets. “It is true that a significant amount of people were waiting for sharia-compliant solutions, and participatory finance currently represents 10% of the market,” Valverde told OBG. “But is the pipeline of potential customers now dry, or is it a product that will keep attracting new customers regularly? We will need to wait until mid-2019 to fully understand how deep the market is.”
Besides opening up the sector to participatory institutions, financial authorities are looking at ways to position the country as a participatory finance centre, which could help diversify the types of investment it can attract. In October 2018 the kingdom inaugurated its participatory bond market, selling Dh1.1bn (€98.9m) worth of sukuk (participatory bonds). The sukuk sale was 3.6 times oversubscribed and has a five-year maturity with an annual yield of 2.66, according to international media reports.
Growing Domestically
Although it is too soon to tell whether participative banking will considerably expand the sector, future domestic growth strategies will likely require creativity, given Morocco’s high banking penetration and a generally mature environment. Despite the crowded space, some growth avenues remain. “European banks earn up to 45% of their revenue from commissions. In Morocco, commissions account for between 15% and 20%, so there is still some room for local institutions to increase some of the returns they get through margins,” Tahri-Joutei told OBG.
The monetisation of payment mechanisms, in particular, could be a specific route to growth. According to BAM, the number of bank cards in circulation expanded from 11.8m to 14.1m between 2015 and 2017, and although Morocco remains a largely cashbased society, the proliferation of electronic payment methods will allow for the development of new service channels. “Although 70% of Moroccans own a bank account, only 9.5% of total transactions are made with credit cards,” El Wardi told OBG. “People still predominately use cash in their daily life. Changing this habit implies a deep mindset switch, and investment from banks in digital and mobile payment solutions and ATMs.”
Outlook
As one of the region’s most developed banking industries, Morocco is showing the hallmarks of maturity. Although this context presents some opportunities for growth in certain niches, it also likely ensures that the largest banks’ main sources of expansion will come from abroad. In hand with this, regulatory changes have continued to align the sector’s solvability requirements and debt-classification criteria with international norms. This is allowing sector authorities to successfully mitigate both domestic and external risk.
While participatory banking institutions are new to the local landscape, first-year activity seems to indicate that they will fulfil a specific need in the market. Additional niche markets will be catered to with the development of mobile banking and other fintech services. The incorporation of new non-banking actors in the financial sector is, however, likely to bring about several regulatory challenges in terms of consumer protection, cybersecurity and the prevention of money laundering, which are needed to maintain structural order.
Moreover, much of the sector’s future development will be tied to broader economic performance. Over the medium term, banks may have to cope with slightly higher interest rates. While this will initially bring increased costs as short-term resources become more expensive, a more favourable context is likely to emerge as lenders begin allocating credit at higher rates and improving their margins.
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