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Morocco's Banks Are Stronger But Face New Risks From Loan And Business Growth, S&P Says

LONDON, February 18, 2008--Morocco's banking sector has strengthened over the past five years, but new risks related to rapid loan growth and geographic expansion are appearing, said Standard & Poor's Ratings Services in a report published today, "Bank Industry Risk Analysis: Morocco's System Is Improving But New Risks Are Emerging."

"The Moroccan banking system is becoming increasingly vulnerable to rapid and untested credit growth that is fueling asset prices, geographic expansion by leading players, and the cyclicality embedded in the Moroccan economy," said Standard & Poor's credit analyst Mohamed Damak. "On the positive side, profitability has improved over the past two years at the country's leading banks, and they enjoy a strong funding profile," said Mr. Damak.

For those reasons, Standard & Poor's places the Moroccan banking system in Group 8 of its global Banking Industry Country Risk Assessments (BICRA), which comprise 10 groups from the strongest or lowest-risk banking systems (Group 1) to the weakest or highest-risk (Group 10). The Kingdom of Morocco carries a sovereign foreign currency rating of BB+/Positive/B, and a local currency rating of BBB/Positive/A-3.

The Moroccan banking system is one of the largest and most concentrated in North Africa, with total assets of Moroccan dirham (MAD) 612 billion at Sept. 30, 2007 ($78.4 billion at MAD7.8 to $1). The three leading banks, Attijariwafa Bank (BB+/Stable/B), Groupe Banques Populaires (central body Banque Centrale Populaire ; BB+/Stable/B), and Banque Marocaine du Commerce Extérieur ( BMCE ; unsolicited rating BBpi) control about three-quarters of the system's total assets. Despite this structure, price competition is heating up but volumes are set to support the system's profitability despite stock market and real estate inflation.

"We believe a major correction of asset prices would hurt the banking system's creditworthiness. But we don't foresee such a scenario," said Mr. Damak.

Another source of risk stems from the leading banks' aggressive geographic expansion into other north and western African countries. This trend could create uncontrolled risks and weigh on the system's creditworthiness--especially taking into account its only-adequate capitalization.

Public sector banks used to limit their activities to specific sectors--agriculture for Crédit Agricole du Maroc ( CAM ; not rated), real estate and tourism for Crédit Immobilier et Hôtelier ( CIH ; not rated), and local authorities for Fonds d'Equipement Communal (FEC; not rated). CAM and CIH have faced severe difficulties in the past as a result of excessive sector concentration and poor credit underwriting. They still account for about 15% of the banking system's total assets. CIH has been partly privatized while CAM is being cleaned up.

The remaining assets of the banking system are predominantly controlled by the local arms of three major French banks, which enjoy relatively healthy indicators across the board and benefit from the transfer of know-how from their parents. We deem the quality of regulation in Morocco as adequate, and view positively the hands-on approach of the central bank, Bank Al-Maghrib , which should help the early detection of problems.

-Ends-

Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 8,500 employees, including wholly owned affiliates, located in 21 countries, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com.

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Analyst contacts:
Mohamed Damak, Paris
Emmanuel Volland, Paris

© Press Release 2008