Fitch Ratings-London-February 28: Fitch Ratings has affirmed Morocco-based Societe Generale Marocaine de Banques' (SGMB) National and Support Ratings and upgraded Eqdom's Long-Term National Rating. The upgrade follows SGMB's increase of its stake in Eqdom and a strategy of closer integration between the two companies. A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS
NATIONAL AND SUPPORT RATINGS
SGMB's ratings are based on Fitch's assessment that there is a high probability of support from its 57.5% shareholder, Societe Generale S.A. (SG; A/Stable), if required. This reflects SG's strong ability (as indicated by the bank's rating) and willingness to provide support to SGMB, which is a strategically important subsidiary for SG. SGMB's Support Rating is constrained by Morocco's Country Ceiling of 'BBB'.
SGMB is SG's largest African subsidiary and is used as a group hub for the development and roll-out of several pan-African projects. SGMB has a reasonable franchise in Morocco. It is the country's fourth-largest bank with loan and deposit market shares of 7%-8%. That stated, SGMB is small relative to SG, representing approximately 1.5% of consolidated assets, making it easy to support.
SGMB is closely integrated with SG through significant board representation, appointment of key senior executives, and oversight of SGMB's credit, country, market, operational and liquidity risks. In addition, the subsidiary benefits from funding lines from SG and from SG's procedures, systems, tools and branding.
Fitch understands from management that SGMB has never required any extraordinary support from SG. However, ordinary support in its day-to-day activities is well entrenched, for example in the form of counter-guarantees that allow SGMB to extend larger loans to Moroccan counterparts while remaining in compliance with regulatory large exposure limits, and through the provision of short-term liquidity lines.
Eqdom's ratings are based on a high probability of support from SGMB and ultimately SG in case of need. Our assessment is that the role played by Eqdom in SGMB has increased. This has a high influence on Eqdom's National Long-Term Rating, which we now notch down once from SGMB's National Long-Term Rating of 'AAA(mar)'. Previously, we used SG's rating as an anchor rating for Eqdom and applied a wider notching.
SG's interests in Eqdom changed in June 2018, following which SGMB directly controls 53.7% of the company. The SG group controls a further 3.1% through another entity. Integration between Eqdom and SGMB has also increased, and Eqdom is now the sole focal point for development, structuring and pricing of all consumer finance lending in Morocco. Products are being distributed through SGMB branches. Management expects significant expansion of Eqdom's balance sheet, supported by additional funding from SGMB as required.
As a consumer finance company, Eqdom is wholesale-funded. Its non-equity funding is sourced from domestic medium-term debt issues and bank loans, including from SGMB. Refinancing needs are manageable, and liquidity risk is mitigated by the potential support from SGMB. Eqdom is one of two leading consumer finance companies in Morocco, with an overall market share of approximately 20%.
Management integration has been strengthened. Eqdom's CEO was previously a senior executive at SGMB, and SGMB's CEO chairs Eqdom's board. SG appointees dominate Eqdom's board. Reporting lines between Eqdom, SGMB and SG follow the group's matrix framework.
A downgrade of SGMB's Support Rating could result from a reduction in SG's stake in SGMB, reduced strategic importance of Morocco to the group, or lower integration with SG. SGMB's Support Rating would also be downgraded if SG's Long-Term IDR were downgraded by at least four notches, which is highly unlikely. SGMB's Support Rating would also be downgraded if Morocco's Country Ceiling were revised downwards by at least two notches.
A downgrade of the Support Rating could result from a reduction in the SG group's overall stake in Eqdom, also considered unlikely. Signs of reduced strategic importance to or lower integration with SGMB and SG would also trigger a Support Rating downgrade. Eqdom's Support Rating would also be downgraded if SG's Long-Term IDR were downgraded or if Morocco's Country Ceiling were revised downwards by at least one notch. As indicated above, our assessment is that this is unlikely.
A downgrade of SGMB's National Ratings could result from a reduction in SG's stake in SGMB, reduced strategic importance to or lower integration with SG, or a three-notch downgrade of SG's Long-Term IDR, which Fitch does not expect.
A downgrade of Eqdom's National Ratings could result from a reduction in SG's and SGMB's combined stake in Eqdom. A downgrade of SGMB's support-driven Long-Term National Rating would also likely result in a downgrade of Eqdom's National Ratings.
An upgrade of Eqdom's National Ratings would result in equalisation of ratings with SGMB. This would likely occur if we considered that Eqdom had become a core subsidiary. Full ownership and greater integration could trigger this, for example.
The rating actions are as follows:
Societe Generale Marocaine de Banques
National Long-Term Rating: affirmed at 'AAA(mar)'; Outlook Stable
National Short-Term Rating: affirmed at 'F1+(mar)'
Support Rating: affirmed at '2'
National Long-Term Rating: upgraded to 'AA+(mar)' from 'AA(mar)'; Outlook Stable
National Short-Term Rating: affirmed at 'F1+(mar)'
Support Rating: affirmed at '2'
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