Morocco's banking sector sees asset growth, expanded lending and greater penetration

Among the best-developed banking sectors in Africa is that of Morocco, where penetration is rising rapidly and recent improvements in macroeconomic fundamentals have helped resolve previous liquidity shortages. The sector’s product offering also continues to evolve, most notably through a banking law passed in early 2015, which has set the stage for the creation of fully sharia-compliant banks. Morocco’s institutions include some of Africa’s largest banks, and several have become major players on the continent and continue to expand their footprint.

Assets & Deposits

The sector has seen substantial, steady annual growth in recent years. This has been driven in part by broader improvements in the economy – despite a slowdown in 2014 arising from exogenous pressures (see Economy chapter) – as well as steady capital spending in the construction and industrial sectors. Consumer credit has also been growing as purchasing power strengthens and retail penetration improves: financial inclusion is now at 62%, due in part to the recent roll-out and branch expansions of Al Barid Bank, owned by the national postal service, Poste Maroc.

At the end of 2014, total bank assets in Morocco were worth Dh1.13trn (€123.8bn), up from Dh1.1trn (€119.6bn) a year earlier, according to the kingdom’s central bank, Bank Al Maghrib (BAM). Including money market funds, the figure stood at Dh1.2trn (€132bn), up from Dh1.17trn (€127.3bn) at the end of 2013. The value of banking deposits stood at Dh768.8bn (€83.6bn) – a rise of 7.4% on a year earlier – of which Dh435bn (€47.3bn) were held in demand deposit accounts and Dh159.3bn (€17.3bn) in fixed-term accounts and certificates of deposit.

Profitability

The sector saw a slight improvement in absolute income in 2014, although profitability ratios have not kept pace with broader growth. Net income across the sector in the first half of 2014 was Dh6bn (€652.8m), compared to Dh5.9bn (€641.9m) for the same period the previous year. Relative to assets and equity, profitability in the sector has been falling over the long term; its return on assets (RoA) stood at 1% in 2013 and 2012, according to IMF data, down from 1.2% in 2008, 2009 and 2010, while return on equity (RoE) stood at 10.6%, down from 16.7% in 2008 and having fallen every year in between. A range of factors have contributed to this, including a rise in the ratio of non-performing loans (NPLs), which grew from 4.8% in 2010 and 2011 to 6.5% in mid-2014, according to the IMF. In the last two years especially, profits have been constrained by higher provisioning for growing sectoral risks – though factors unrelated to performance also played a role, such as banks’ moves to boost capital following an increase in regulatory requirements in 2013. In time, profitability indicators improved: in the first half of 2014, the sector’s overall RoA and RoE rose to 1.1% and 12%, respectively.

Lending

Lending has picked up in recent years as well – although, as in many emerging markets, short-term loans continue to dominate the loan books. According to BAM figures, the value of bank loans stood at Dh763.4bn (€83.1bn) at the end of 2014, up from Dh747bn (€81.3bn) a year earlier, while total lending in the economy (including non-bank lenders) was worth Dh896.1bn (€97.5bn), up from Dh859.1bn (€93.5bn). Of total bank lending in 2014, Dh620.8bn (€67.5bn) went to the private sector, Dh48.4bn (€5.3bn) to the public sector and Dh94.2bn (€10.2bn) to other financial institutions. Divided by segment, corporates accounted for 41% of banks’ lending portfolios in 2013, followed by households (30%), very small, small and medium-sized enterprises (14%), government (5%) and the financial sector (10%). Consumer credit granted by banks was worth Dh44.1bn (€4.8bn) at the end of 2014, up from Dh40.4bn (€4.4bn) a year earlier, while real estate lending stood at Dh236.8bn (€25.8bn) at end-2014, up from Dh230.5bn (€25.1bn) a year earlier. Divided by duration, short-term loans accounted for Dh280.1bn (€30.5bn) of total 2014 lending, medium-term ones for Dh187.2bn (€20.4bn) and long-term ones for Dh243.4bn (€26.5bn).

Recent monetary policy is set to help boost lending in 2015. At its quarterly board meeting in September 2014, BAM reduced its benchmark interest rate for the first time in two and a half years, from 3% to 2.75%, and then followed this up in December with another cut, to 2.5%. In March 2015, the bank chose to keep the rate at 2.5%, but observers say the current low inflation rate suggests another cut may be on the cards later in 2015.

Non-Performing Loans

The increase in overall loan volumes has resulted in a slight uptick in NPLs. These were worth Dh52.5bn (€5.7bn) at the end of 2014, or 6.9% of total sector loans, up from Dh43.7bn (€4.75bn), or 5.9% of total loans, a year earlier. The rise was due in part to the economic slowdown in the kingdom in 2014 – led by slight contractions in the agricultural and mining sectors and a significant slowdown in construction activity – which saw the lowest level of GDP growth in a decade, albeit at a rate still far higher than advanced economies (see Economy chapter). However, the IMF noted in its February 2015 Article IV consultation for Morocco that NPLs remain adequately provisioned. Perhaps most importantly, the context remains favourable: over the long term, NPL levels have fallen dramatically, from 19.4% of loans in 2004.

Market Players

The sector has a reasonably competitive landscape, with a number of large, homegrown institutions with international footprints, as well as several subsidiaries of foreign banks. As of June 2014, there were 19 banks operating in Morocco as well as six offshore institutions. In addition, there were 34 non-bank financial institutions, including 16 consumer credit specialists, 13 microcredit lenders and six leasing companies.

The sector is dominated by locally owned banks, which accounted for 82.3% of industry assets as of June 2014. Market share in Morocco is concentrated quite heavily: the largest three banks accounted for 66.1% of sector assets as of June 2014 – a figure that had risen slightly on previous years – and for 65.3% of the sector’s deposits.

The largest bank in the kingdom is Attijarawafa Bank. Part of Attijarawafa finance group, it is the third-largest bank in Africa and the second-largest company listed on the Casablanca Stock Exchange. Its major shareholder, with a 47.9% stake, is Société National des Investissements (SNI), which is majority-owned by the royal family – though in February 2014 press reports indicated that the firm had engaged Goldman Sachs and Rothschilds to advise on the sale of a stake of at least 19% in the bank, thereby reducing its ownership share to below 30% as part of SNI’s plans to shift its focus away from finance towards sectors like energy and telecoms. In 2014 the bank registered assets of Dh401.8bn (€43.7bn), equivalent to 35% of sector assets and up from Dh385.6bn (€42bn) in 2013. Net income stood at Dh4.4bn (€478.7m), up 5.2% on 2013 figures, giving an RoA of 1.1% (down from 1.2% a year earlier) and an RoE of 12% (down from 12.6%). Customer lending stood at Dh255.1bn (€27.8bn), compared to deposits of Dh257.9bn (€28.1bn).

The second-largest bank in the country is Groupe Banque Populaire, with 2014 assets of Dh309.6bn (€33.7bn), up 6.7% for the year. The bank is made up of 10 regional cooperative banks, known as around 52% in the institution that acts as their parent. The bank registered net income of Dh2.2bn (€239.4m) in 2014, up 12.5% on the previous year; deposits stood at Dh205bn (€22.3bn), up 9.5%.

The third-largest bank operating in Morocco is BMCE Bank, with 2014 assets of Dh247.3bn (€26.9bn), or around 22% of sector assets. Part of the FinanceCom group, which owns 6%, its largest shareholder is another group member, insurance firm RMA Watanya, with a stake of 30%, and its second-largest shareholder is French bank Banque Fédérative du Crédit Mutuel, with a stake of 26.2%. BMCE Bank recorded net income of Dh1.94bn (€211m) in 2014, up 58% from Dh1.23bn (€133.8m) the previous year (profits from its Moroccan operations, which accounted for half of the total, rose by 97%) and up from Dh850m (€92.5m) in 2011. The bank’s loan book was worth Dh103.1bn (€11.2bn) at the end of 2014, up 4.8%, while deposits stood at Dh115.4bn (€12.6bn), up 6%.

Other major commercial banks operating in Morocco are the local unit of France’s Société Génerale, whose Moroccan subsidiary registered assets of Dh74.5bn (€8.11bn) in 2013; BMCI Banque, the chief shareholder in which is French bank BNP Paribas and which registered 2014 assets of Dh66.2bn (€7.2bn); Crédit du Maroc, which is part of the French Crédit Agricole group and had assets of Dh49.1bn (€5.34bn) in 2014 ; and Credit Immobilier et Hotelier (known as CIH Bank), whose main shareholder is state investment fund Caisse de Dépôt de Gestion (CDG) and which registered assets of Dh43.1bn (€4.69bn) in 2014. Other onshore banks in the country include the postal bank Al Barid Bank, which was launched in 2010 and has more than 1800 branches; the local unit of US-based Citibank, which is focused primarily on corporate business; the Moroccan subsidiary of Jordan-based Arab Bank; and several investment banks, including CDG Capital, which manages state pension funds, and the investment arms of the country’s major commercial banks.

African Expansion

African subsidiaries account for about 17% of sector activity, according to the IMF. BMCE Bank has led the charge into the continent, with units in 20 African countries (including Morocco), while Attijarawafa, the kingdom’s largest domestic bank, has 12. Mamoun Tahri-Joutei, the head of economic intelligence at BMCE, said Moroccan banks’ African investments will be a key source of growth in the coming years. “The average banking inclusion rate in Africa is around 10-15%, so there is lots of potential for growth.” Banks in Morocco look set to continue expanding throughout Africa, with BMCE, for example, intending to enter new countries on the continent at a rate of about two a year.

Non-Bank Lenders

Morocco also has a sizable collection of non-bank financial institutions, including 16 consumer lenders, six leasing firms and two specialised mortgage lenders. Major players include several affiliates of major banking groups. According to the segment’s representative body, the Professional Association of Financial Companies ( Association Professionnelle des Sociétés de Financement, APSF), the largest leasing firm by value of outstanding contracts in 2013 (though it gives data for only five of the six firms) was Maroc Leasing with Dh11.1bn (€1.21bn), followed by Wafabail (part of Attijarawafa group) with Dh10.5bn (€1.14bn). The largest of the consumer credit firms for which it gives data was Wafasalaf (also part of Attijariwafa) with Dh21.4bn (€2.33bn), followed by Eqdom (whose major shareholder is Société Génerale) with Dh9.81bn (€1.07bn) and Vivalis (an affiliate of Banque Populaire group) with Dh4.64bn (€504.83m).

Loans issued by non-bank lenders and financing firms were worth Dh99.3bn (€10.8bn) at the end of 2014, up from Dh97.6bn (€10.6bn) a year earlier, according to BAM data. Of this, Dh50.5bn (€5.5bn) went to households and Dh45.7bn (€5bn) to companies. As of June 2014, the segment’s NPL ratio stood at 10.2% (12.6% for consumer credit companies and 8.7% for leasing firms), up from 9.8% a year earlier and, as in the traditional sector, likely a result of the slowdown in Morocco’s growth rate. The segment’s NPLs were 76% provisioned.

The APSF’s most recent data show that, of all consumer credit issued by its members in 2013, nearly two-thirds (63.8%) were personal loans, while most of the remainder (34.3%) were car loans. At the end of 2014, according to provisional APSF figures, leasing assets stood at Dh41.8bn (€4.5bn), up 1.3% on a year earlier, and the value of contracts written in 2014 was Dh12.9bn (€1.4bn), a 0.4% rise on 2013.

Returns relative to assets and equity in the non-bank segment in Morocco are higher than in the traditional banking industry. Net income for non-bank lenders and financing firms stood at Dh810m (€88.1m) in the first half of 2014, up 5.5% on the same period in 2013. This included Dh416m (€45.3m) of net income registered by consumer credit firms (up 18.8%) and Dh170m (€18.5m) by leasing companies (up 4.6%). This yielded an RoA of 1.7% (2.1% for consumer lenders and 0.8% for leasing firms) and an RoE of 16.9% (17% in the consumer credit segment and 12.5% in leasing).

Microcredit

Morocco has the largest microcredit sector in the MENA region by loan value, with 13 microcredit associations. These include four with a national reach: Al Amana, which claims to be the kingdom’s leading microlender; Attawfiq, which is backed by the Banques Populaire group; Fondation ARDI, which is backed by Crédit Agricole group; and the Fondation pour le Développement Local et le Partenariat Micro-Crédit. The remaining associations mostly have a regional or local focus. By law, Moroccan microcredit organisations are required to be non-profit-making institutions.

According to BAM figures, the value of lending by microcredit associations stood at Dh5.73bn (€623m) at the end of September 2014, up 15.5% year-on-year. The bulk of this credit (84.3%) went to micro-enterprises – usually defined as companies with fewer than 10 employees. Total segment assets were worth Dh6.74bn (€733m), having risen 12.8% over the course of the previous year. The largest source of financing for microcredit loans came from local borrowing, which accounted for Dh3.1bn (€332m) of associations’ liabilities, including Dh2.44bn (€265m) from domestic banks.

Crisis & Response

The segment, which dates back to the mid-1990s in Morocco, saw a sharp downturn in activity following the 2008 financial crisis and faced criticism for having grown too quickly during the preceding period; NPL rates ballooned from 2.4% in 2007 to 9% in mid-2009, according to BAM data. “The crisis that the microcredit sector faced a few years ago highlighted problems with risk management, internal controls and information systems in microcredit associations. However, the authorities took various measures to address these and growth has now returned to the segment,” Hiba Zahoui, deputy director of the banking supervision directorate at BAM, told OBG.

These measures included working with other local and international institutions to improve management and build capacity at Morocco’s associations, as well as regulatory reforms such as harmonising rules on loan classification. Lending rates have now recovered to roughly where they stood at their previous peak, and by mid-2014 the NPL rate had fallen back to 5.3% (the latest available data). The new banking law further reforms the segment by giving BAM full responsibility for regulating microcredit, a duty it previously shared with the Ministry of Finance.

Financial Inclusion 

According to latest available data from the World Bank Global Financial Development database, the proportion of the Moroccan population over age 15 that has an account at a formal financial institution stood at 39.1% in 2011. However, this figure is likely to have risen significantly since then, given the rapid growth in other banking penetration indicators; BAM put the penetration rate – the number of accounts divided by population – at 62% as of June 2014, up from 58% a year earlier and from 43% at the end of 2008. The bank’s 2013-15 strategy calls for an increase in this rate to two-thirds by the end of the period.

The National Foundation for Financial Education – which was founded in 2013 by BAM and other organisations to promote financial education as part of financial inclusion efforts and undertake campaigns to inform educate Moroccans about financial risks – has also put targets in place for financial inclusion that vary by socio-economic group. The foundation carried out a study on the issue of increasing financial inclusion (based on an earlier survey of household perceptions of financial services), whose results were made public in November 2014. “The study demonstrated that inability to open bank accounts is not the main challenge,” said Zahoui. “Rather, the problem hinges more on issues such as account use and access to credit.”

One development that has helped boost penetration was the opening in 2010 of a postal bank, Al Barid Bank, which now has 1800 branches and a more extensive presence in remote and rural areas than other banks. Another factor helping boost inclusion is the expansion of the kingdom’s wider branch network: the total number of bank branches stood at 5811 in June 2014, up 4.6% on a year earlier and yielding a ratio of one branch for every 5700 inhabitants, up from one for every 7800 at the end of 2008. Expressed in more internationally comparable figures, Morocco had 24.4 bank branches per 10,000 inhabitants in 2013, well above regional peers such as Algeria (5.1) and Egypt (4.9).

Cards & Payment

The number of bank cards issued in the kingdom stood at 11.1m at the end of the first quarter of 2015, according to the Centre Monétique Interbancaire, which operates the main bank card network, while the number of ATMs reached 6299. In that quarter, there were Dh56.6bn (€6.2bn) of transactions using locally issued bank cards, 93.6% of which were ATM withdrawals.

Payment by plastic card is not very well developed in the kingdom. Industry figures show that just 2% of transactions are made by electronic payment, and that out of 35,000 commercial outlets with electronic terminals, only about 16,000 are active and just 2000-3000 are used regularly. However, regulatory changes are set to boost card activity through the introduction of new services: the new banking law now in force allows for the establishment of payment institutions that can issue pre-paid cards and other forms of payment. “The change is about boosting financial inclusion, as people not formally involved in the banking system will be able to use such means of payment. This should help eventually bring them into the system,” said Zahoui.

Stability & Regulation

The IMF’s latest Article IV consultation for Morocco, which was published in February 2015, describes the kingdom’s financial system as sound, noting that the country’s overall capital adequacy ratio remains well in excess of Basel III requirements. In June 2013 the minimum ratio of tier-1 capital to risk-weighted assets was raised to 9% and the capital adequacy ratios to 12% – both above Basel III criteria. As of June 2014, the sector’s average tier-1 adequacy ratio stood at 11.4%, while the average capital adequacy ratio was 13.5%.

The authorities began implementing Basel III requirements in 2014, and are working to gradually introduce the entirety of the framework by 2018 – though, as noted earlier, in some key areas such as capital adequacy ratios, Moroccan banks already more than meet these. Among the parts of the framework that have already been introduced are new short-term liquidity requirements for banks, under which they must hold enough high-quality liquid assets (such as treasury bonds) to deal with a liquidity crisis lasting up to 30 days. Following an observation period running from January 2014 to June 2015, BAM intends to impose a 60% short-term liquidity ratio, with plans to raise this by 10 percentage points a year in subsequent years.

Banking Law

A new banking law came into force in March 2015, having been approved by parliament the previous November. While its provisions for establishing sharia-compliant banks have attracted the most attention (see analysis), the new law affects a range of other areas. Among other measures, the new legislation expands the powers of the System Risk Surveillance Committee, which monitors the sector for signs of systemic instability; permits BAM’s governor to take emergency measures immediately to deal with any emerging systemic banking difficulties, instead of first having to receive an opinion from the disciplinary committee, as was previously the case; obliges banks to appoint an independent administrator to their boards of directors; and allows for the creation of new payment institutions. “The new law incorporates all the lessons we have learned about financial stability from the international financial crisis, and covers not just banks but the whole of the financial system,” said Zahoui, adding that it would take about a year to implement.

Improving Liquidity

In the early years of the decade, the banking system began to suffer from a shortage of liquidity – partly a consequence of regulatory changes, according to Tahri-Joutei. “Ahead of the implementation of Basel III, banks decided to reinforce tier-1 capital, reducing liquidity in the market,” he told OBG. “Banks are also operating in an environment in which the investment rate relative to GDP is very high, at around 35%, while the savings rate is much lower, leaving them to fill the gap.”

Other factors have also been at play. “The lack of liquidity was due in large part to the current account deficit,” said Zahoui, adding that BAM had provided all the liquidity needed to make up for the shortfall via short- and medium-term advances to banks, alongside other monetary policy measures. Such advances more than doubled in volume in 2012, and rose by another 12% in 2013 to reach around 7% of total bank liabilities. The IMF also attributed the liquidity squeeze to a decline in foreign assets in 2012. Decisions by some banks to increase their investments in government treasuries also reduced funds available for lending to the economy.

However, the situation has improved substantially in recent years, thanks to the improving current account deficit, an increase in customer deposits – in part due to repatriation of undeclared funds held abroad by Moroccans under a government amnesty – and cheaper refinancing due to lower interest rates. “The system’s need for liquidity more than halved between 2013 and 2014,” Tahri-Joutei said. He added that the situation should improve further in 2015. “There is more and more liquidity in the market thanks to the falling current account deficit” (see Trade & Investment chapter). Over the course of 2014, banks’ reliance on refinancing from BAM fell by 42%, with seven-day advances (the shortest-term option available) falling by Dh29bn (€3.16bn) to about Dh23bn (€2.5bn), after rising 5% in 2013.

Outlook

Against a backdrop of improving macroeconomic conditions, industry players are optimistic about the sector’s performance in 2015. Recent interest rate cuts should help boost lending during the year, while NPL ratios are set to fall as growth improves. Also, the new banking law and ongoing implementation of Basel III should further enhance sector stability. In the longer term, if financial inclusion rates continue to rise in line with recent trends and industry targets, banks’ local customer base should see substantial growth in the coming years.