Although GDP growth slowed in 2012 on the back of reduced demand from Europe and lower-than-average agricultural output, Moroccan banks continued their solid growth trend, paving the way for further expansion in 2013. The introduction of the country's first Islamic bank, slated for this year, should also provide opportunities for foreign banks.
Combined banking profit grew from Dh9.72bn (€871.19m) in 2010 to Dh10.1bn (€905.26m) at the end of 2011, a record high. According to the most recent figures from Bank Al Maghrib, the central bank, total profits had reached Dh6bn (€537.78m) as of June 2012. This represents a 3.8% increase from Dh5.7bn (€510.89m) over the same period in 2011, indicating the sector would see a strong finish to the year.
And yet, bank profits were somewhat lower than expected in 2012 due to a series of one-off items. In addition to banks' efforts to protect against existing risk, the government imposed several conditions meant to provide stability to the sector and the economy overall. For example, in 2012 the state required banks to contribute to a solidarity fund meant to reduce poverty. Furthermore, a sector-wide Dh2.1bn (€188.22m) increase in salaries for bank employees was enacted as part of a number of social initiatives undertaken since 2011.
In the case of Attijariwafa Bank, Morocco's largest lender by market share, the bank saw 1% growth in net profit in 2012 to reach Dh4.5bn ($403.33m), after contributing roughly Dh220m (€19.72m) to such collective measures. The bank, which has expanded its operations in several countries in the region, also reported it diverted an estimated Dh118m (€10.58m) of annual profits to protect against instability in Tunisia and Côte d'Ivoire.
Beyond the impact of these one-off measures, overall sector indicators attest to the health of the banking sector in 2012. Total bank assets climbed from Dh886bn (€79.41bn) at the end of 2010 to Dh1.03trn (€92.32bn) by June 2012; the top three banks continue to hold roughly 65.6% of total assets. The volume of deposits also increased from Dh648bn (€58.08bn) in 2010 to Dh676bn (€60.59bn) in June 2012. Finally, the sector-wide rate of non-performing loans has hovered at 5% since 2010, with a coverage rate of roughly 67%, which provides a solid basis for growth.
The banking sector is slated to expand further in 2013 as the government works to formally introduce Islamic financial products. Conventional banks were first authorised to offer sharia-compliant products in 2010. However, this first opening met with limited success, as these services were offered through Islamic "windows" at existing banks; within the conventional regulatory framework, these products were subject to higher fees and were therefore less competitive.
Given that Islamic banking requires different contract structures and fund management from those of conventional products, the consensus was that a separate regulatory framework was needed to allow the industry to develop. Legislators submitted a draft bill in 2012 that will guide the formal introduction of Islamic banking products onto the market. The legislation is still before parliament, although it was originally slated to be approved by the end of 2012.
Progress on the bill has been slow as legislators conduct a sector analysis to determine the most effective strategy to introduce alternative products and maintain market competition. The draft bill will allow for a gradual introduction of Islamic banks to avoid flooding the market, which already consists of 19 conventional lenders.
The formal launch of an Islamic financial services segment should help the cash-strapped Moroccan economy tap into the world's growing pool of Islamic finance. The government has indicated that several foreign lenders have shown interest in entering this high-potential market. While Morocco plans to proceed slowly with the introduction of a single Islamic lender before the end of 2013, foreign partners stand to play an important role in this effort. According to statements made by Moroccan authorities in 2012, the first Islamic lender will likely be structured to allow local banks to hold at least a 51% stake in the capital, while up to 49% of capital may be available to foreign institutions.
The strong banking performance in 2012 and plans to develop a new market segment in 2013 should help to support Morocco's goal of establishing Casablanca as a regional financial centre. While other regional markets in Tunisia and Egypt struggle to regain political and economic stability, Casablanca has maintained a relatively stable financial and investment environment. Efforts to open the market to Islamic finance, combined with other measures meant to attract foreign direct investment, such as the establishment of Casablanca Financial City, bode well for the development of Morocco's financial services sector.
© Oxford Business Group 2013
