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A warning from Fitch Ratings to Moroccan banks

The low quality of assets and the lack of equity continue to weigh heavily on the autonomous viability of Moroccan banks. This is the conclusion of the latest report of the rating agency Fitch Ratings on the Moroccan banking sector.

Indeed, the agency is worried about the average ratio of impaired loans presented by the seven largest banks in Morocco over the last five years and which remained just below 10% to 9.8% at the end of the first year of 2018. Such a ratio is much higher than that of developed markets.

Above all, the situation could be worse since the robustness of the expected credit loss models for calculating IFRS 9 loans has yet to be tested over time. The agency also notes that its “Fitch Core Capital Ratio”, an indicator it uses to assess capital strength, is particularly low for systemically important banks like Attijariwafa Bank and BMCE Bank.

Similarly, to illustrate its concern about risk, Fitch Ratings reported that at the end of the first half of 2018, the 20 largest loans accounted for an average of 20% of total loans from all rated banks.

The entry into force of IFRS9 in January 2018, the source continues, has clarified the forecast of bad debts, encouraging banks to increase provisions and improve credit risk coverage. The bad debt coverage ratio stood at 83% for the seven largest banks at the end of June 2018, compared to 73% at the end of December 2017. Also, IFRS 9 had no impact on capital adequacy ratios. The central bank allows banks to spread the deductions for expected credit losses over five years.

Thus, the average ratio of Tier 1 capital among the seven largest banks in Morocco is 10.6% at the end of the first half, being above the regulatory minimum of 9%.

Contrary to the poor quality of their assets and their capital, the agency emphasizes however that the profitability, the financing and the liquidity of the Moroccan banks are solid. It notes that the major Moroccan banks recorded an average annualized operating yield of 2% on risk-weighted assets at the end of June 2018, supported by margins (an average of 3.6%) and cost / income ratios (53%) that the agency qualifies as reasonable.

Finally, for Fitch Ratings, the ratings of all Moroccan banks are motivated by the assumption that banks would receive support, if necessary, from the Moroccan state (BBB- / Stable) and / or from institutional shareholders.

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