Moroccan banking – a good news story

I have long been a fan of the Moroccan central bank’s annual report on the activities and results of its banking system. This is not the main Bank Al-Maghrib Annual Report, but a more granular report produced by its banking supervision department. It describes recent regulatory initiatives and the performance of banks and other credit-giving financial institutions.

Its official title is the “Annual Report on the Control, Activities and Results of Credit Institutions,” and it can be found on Bank Al-Maghrib’s website (www.bkam.ma) under “Publications and Research/Institutional Publications.) It is usually posted in French and Arabic around the middle of the year (so data refer to the end of the previous year) and since 2007 an English version has been posted a few months after that.

Six versions of the report have now been published (2004 – 2009) and together they show how Moroccan banks have become stronger and more mature, and, very importantly, are playing an larger role in the wider economy.

Non-performing loans fell to 5.5% of total loans at the end of 2009, compared to rates two or three times that a few years earlier (see the table below). It is important to note that this improved ratio is not the result of rapid credit growth: this is not a case of the denominator growing at a faster rate than the numerator. NPLs have been decreasing in absolute terms (see the table below). Capital ratios have remained robust although it is difficult to tell a story with the numbers since risk-weighted ratios were introduced only recently. (Note that BAM increased the minimum capital requirement to 10% from 8% from 2008).

Despite rapid credit growth, the ratio of operating income to net loans remains strong at around 3% (So, in simple terms, at current rates of earnings, banks could write off approximately 3% of their performing loans before they would have to declare a net loss – that’s a “quick and dirty” ratio, but it’s powerful.)

At this stage in a banking system’s development, we would expect to see profitability squeezed as banks become more competitive, and as formerly-inefficient state-owned banks start taking a more commercial approach to business development. In fact, Moroccan banks’ profitability has held up well, because banks have been deploying a greater proportion of their assets as loans rather than as lower-yielding government debt.

But the most interesting story relates to the banking system’s increasing engagement with the Moroccan economy. Over the last few years, banks have been lending out a greater proportion of their deposits, rather than giving them to the government (that’s evident from the loans/deposit ratio); credit as a proportion of total economic activity has increased (the loans/GDP ratio), and a larger number of Moroccans hold bank accounts (“Bancarisation”).

Let me add two notes of caution. Firstly, when we speak about the Moroccan banking system, we are, to a large extent, speaking about five, or even three of the 19 licensed banks. The big three (Banque Centrale Populaire, BMCE and AtijariWafa) have consistently accounted for about 60% of credit and nearly 70% of deposits in recent years. The top five account for about a little less than 80% of credit and a little more than 80% of deposits. (BAM does not say who the fourth and fifth banks are, but my friend William Fellows, FSVC’s Director the Maghreb and one of the best informed observers of Maghreb finance, suggests that they are likely to be BMCI (the BNP Paribas operation) and Société Genérale des Banques Maroccaines.)

Secondly, banking activity is heavily concentrated in urban areas. Forty per cent of deposits are collected in the Greater Casablanca region and 63% of loans are extended there. Only 13% of bank branches are in rural areas – Greater Casablanca has a one bank branch for every 3,436 inhabitants, but for more rural areas, the figure is more like one to 10,000-12,000. That said, it is well known that the big banks have been working hard (and successfully) to increase their penetration of rural areas in recent years.

Finally, let’s note some developments which don’t appear in the numbers but which I was privileged to witness first hand through my recent work with the Financial Services Volunteer Corps. BAM has upgraded and modernized its supervisory operations, for example by implementing Basel capital norms, requiring its banks to report in line with IFRS, upgrading its own internal bank rating system, and issuing circulars on governance and compliance. It has also upgraded its own internal processes, for example by drawing up five year strategic plans. A lot of work has been done to reorganize state-owned banks. As a result, BAM has now emerged as the leading central bank in northwest Africa. At the same time, Moroccan banks have been expanding across the Maghreb and down into sub-Saharan Africa.


 

2009

2008

2007

2006

2005

2004

2003









Basic Financial Data (MD bn)








Assets

827

763

657

540

461

417

384

Net Loans

533

500

402

304

250

223

207

Customers Deposits

602

573

516

437

373

327

300

Equity

64

55

46

40

36

32

27









Financial Strength








NPLs/Total Loans (%)

5.5

6.0

7.9

10.9

15.7

12.4

13.3

NPLs (MD mn)*

30,989

33,176

33,311

35,606

45,291

48,070

43,224

Tier 1 (%)

9.2

9.5

9.2

Total Capital Ratio (%)

11.8

11.2

10.6

Operating income % loans

3.1

2.9

3.9

3.9

4.3

4.2

4.0









Profitability








Net spread (%)

3.13

3.18

3.6

3.7

3.61

3.64

3.85

Return on assets (%)

1.1

1.1

1.5

1.3

0.5

0.8

-0.1

Cost/income ratio (%)

47.5

47.8

46.5

48.4

50.0

51.8

53.6









Economic Role








Loans % Deposits

88.5

87.3

77.9

69.6

67.0

68.2

69.0

Credit % GDP

77

75

69

57

Credit growth (%)*

10.3

22.9

27.5

16.0

13.1

5.8

8.0

Bancarisation**

47

43

39

34


* Figures taken from the Bank Al-Maghrib Quarterly Bulletin. Credit growth figures are based on figures for “Credit accordés aux entreprises et aux particuliers.”

* Number of bank accounts % population over 15 years old