Despite continuing volatility in the global financial markets, Morocco's relative isolation has thus far minimized the effects of the turmoil on the country's banks. The Kingdom's sound financial fundamentals may, however, still face the effects of a global contraction. Although these factors will certainly provide challenges in 2009, the central bank, Bank Al Maghreb, has already begun to take proactive measures, while the underlying strength of the banking system should prevent significant decline.

In a recent report, Standard & Poor's credits highly restrictive regulations for reducing the North African nation's exposure to international investment products. However, the analysis cautions that the weakening economy may become a risk to the banking sector as remittances, tourism inflows, trade volumes and foreign direct investment (FDI) decline. A drop in these sources of revenue, coupled with a correction in the real estate sector, may affect the strength of Morocco's banks.

Still, the government is prepared to act pre-emptively to soften the results of the recession. One such effort was an interest rate cut in March. Bank Al Maghreb lowered its key interest rate from 3.5 percent to 3.25 percent, as inflation continues to decline. The interest rate cut follows the December reduction of the mandatory reserve ratio, as the government works to make more capital available to banks in a bid to stimulate lending.

Although lending was up 23 percent in December from the previous year, it declined from the 26 percent growth posted in the third quarter. Starting January 1, the central bank reduced the ratio three points to 12 percent, which will inject around $1.3 billion into the money market.

The cuts will help provide extra liquidity, but overall Morocco's banks are in a good shape despite potential external shocks. In 2008, they provided $63.6 billion in credit, up nearly 23 percent on 2007, and received $70.1 billion in deposits, up 13 percent from the previous year.

The big players
The sector continues to be dominated by Attijariwafa BankAttijariwafa Bank, Crédit Populaire du Maroc and Banque Marocaine du Commerce Extérieur, which posted healthy increases in net profit in 2008 of 27 percent, 16 percent and 46 percent respectively.

In recent years the banking sector has made considerable strides, with an October 2008 report from the International Monetary Fund noting that a number of reforms have been implemented and that the sector is "stable, adequately capitalized, profitable and resilient to shocks."

The broad changes include the restructuring and privatization of previously specialized public banks, strengthening the power of the securities regulator Conseil Deontologique des Valeurs Mobilieres (CDVM), the modernization of the payment system, and the adoption of anti-money laundering and counter-terrorism financing laws. While there are still a number of areas that need reform, including the reduction of non-performing loans and the increase of accessibility, Morocco's banks are steadily improving.

The sector's strength will be increasingly important as the global slowdown affects the Kingdom's other sectors. Morocco's primary trading partner, the Eurozone, has contracted, and thus so too have some of Morocco's significant revenues.

Manufacturing has always been a strong contributor to the economy, but exports fell 32 percent in the first two months of the year, including exports of electric cables, textiles, electronic components and phosphates.

In the same period, remittances from Moroccans abroad have declined 15 percent. Remittances have become a crucial source of foreign currency for both the country's financial institutions and families.
Similarly, tourism contributes around 6 percent annually to GDP, but receipts were down 3.5 percent in 2008 compared to 2007, decreasing from $7.2 billion to $7 billion.

This year may also prove a challenging time to secure FDI. Although Morocco is traditionally a major recipient, Europe's recession and the Gulf's declining oil prices will likely limit contributions. A reduction in FDI may also affect the real estate sector's significant investment levels.

Construction and mortgage loans have been an engine of growth for banks in the past five years, but signs of a correction are showing, particularly in the luxury segment. According to Standard & Poor's, if the correction extends to the middle-market segment, banks will feel the effects. Although unlikely to pose a serious problem for solvency, real estate will no longer be a reliable source of growth in the coming year.

Still, Morocco's banks should be able to rely on a relatively strong economy in 2009, with economic growth expected to range between 5.8 per cent and 6.7 percent, roughly the same as in 2008. This steady growth rate should shore up banks' confidence and maintain a rise in lending, thus ensuring a continuation in Morocco's economic momentum, even during these difficult times.

© Executive 2009

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