Morocco's 19 banks are relatively advanced compared with those of their north African neighbours. Its financial institutions report under International Financial Reporting Standards, comply with Basel III, and banking assets represent about 125% of gross domestic product.
In addition, the sector is posting growth of about 7% a year in a low-inflation and low-interest-rate environment, while the percentage of non-performing loans has dropped sharply from dangerous highs of 20% in the early 2000s to less than 7% today.
Good governance
Morocco’s banks have long had access to solid banking experience, says Mohamed El Kettani, chairman and chief executive of Attijariwafa Bank, the largest bank in the country. “The banking sector benefits from a long tradition of good governance and healthy performance thanks to a very forward-looking, independent central bank,” he adds.
The country's banking sector is already concentrated, with the top five banks representing 80% of the market by assets. In addition, many of the country's institutions are well aged, having been founded at the beginning of the 20th century and having gone through multiple cycles.
“Banking penetration is a particular pride for the banking sector,” says Mr Kettani. “Part of that growth is due to a middle class forming fast in the cities but the other part is that we have been able to combine investment in distribution, a particular focus on costs, and a careful client segmentation to extend banking services to clients who didn’t have access before and couldn’t afford our services.”
Today about 60% of Moroccans have bank accounts, nearly double the level of the early 2000s. The number of bank branches nationwide has tripled in this time.
In Attijariwafa’s case, the bank set up a subsidiary called Wafacash to serve as a remittance specialist. The operation now has more than 1200 branches and has cut the bank's fees in half.
“That said, I wouldn’t describe it as a victory for the banks until all clients, thanks to their access to financial services but also to economic growth, are able to lift themselves out of poverty and have access to [becoming] middle class,” says Mr Kettani.
Royal house rules
Mr Kettani praises the economic management of the authorities in Morocco as one of the factors behind the success of the banks. In Morocco, the monarchy is still the ultimate power in policy-making, but its officials have been working increasingly well with the Islamist Parti de la justice et du Développement (PJD) that has controlled parliament since the Arab Spring.
Attijariwafa is part owned by King Mohammed VI’s powerful investment company Société Nationale d’Investissement. However, the latter has recently hired Goldman Sachs and Rothschild to advise on the sale of its up to 19% stake in Attijariwafa, a deal estimated to be worth $1bn.
The PJD parliamentary government may control less than 8% of the state budget (the rest is controlled by the royal house), according to an estimate by Carnegie Endowment for International Peace analyst Mohammed Masbah, but serious conflict between the government and the monarchy has thus far been avoided.
One of the government's flagship economic policies was the reclamation of billions of dirhams that had been smuggled out of Morocco over the past 10 years. By working with big businesses, the authorities exceeded their own predictions and recovered $2.7bn for the state coffers.
Stable environment
Politically, Morocco has remained relatively stable in business terms over the past three years. However, moderate fiscal austerity policies, particularly surrounding the removal of fuel subsidies, did prompt popular opposition and a number of strikes. Given that almost 40% of Moroccans aged between 15 and 24 living in cities were unemployed as of November 2014, it is remarkable the country has not experienced more unrest.
“The efforts that Morocco made to bring back the budget deficit to its previous levels has had a very positive impact on the financial sector,” says Mr Kettani. “It has brought domestic interest rates down, helping to improve liquidity. And the timing was fantastic because some of the most difficult measures socially [fuel subsidies] took place while oil prices were rapidly declining, lowering the burden on the middle class and the impact on inflation.”
The kind of austerity policies pursued by the authorities were viewed favourably across the financial sector, according to Walter Siouffi, chief executive at Citibank Morocco. “Of course when fiscal deficits come down it is good for markets, but on the whole the kind of austerity we've seen in Morocco has been nothing major. And the amnesty last year covering undeclared accounts held abroad by Moroccan residents saw large inflows in foreign currency held overseas, a plus for reserves.”
Regional expansion
For Mr Siouffi, a particularly noteworthy development is the expansion of Moroccan banks into neighbouring countries in the north and west of Africa. “Across the top three banks, which all have growing networks of subsidiaries and branches in Africa, expansion into the wider region is solidly prevalent. I expect this trend to continue as the Moroccan banking sector sees slower growth domestically compared with high-growth markets across the continent,” he says.
A major breakthrough came for Moroccan banks in the region when Banque Populaire acquired a 50% stake in the Côte d'Ivoire Banque Atlantique in June 2012.
However, the trend of the Moroccan finance industry spreading out into the rest of Africa in fact began with a government-driven campaign in the 1980s and 1990s, when other African governments solicited technical help from Morocco on bank management. The second wave dates back to the early 2000s and has been driven more by the market.
“At Attijariwafa we realised then that we were already a major actor with 25% to 45% of market share [in Morocco] depending on the product in a progressively maturing sector,” says Mr Kettani.
“We had excess capital, distinctive skills in banking, and large clients such as Royal Air Maroc and Maroc Telecom that were becoming major regional actors. The decision we faced was either to accept leaving our best corporate clients to others and see our growth decline while returning capital to shareholders, or to formulate and execute a value-creating international strategy.”
Attijariwafa is now present in 13 other African countries and operations in those countries make up 27% of the bank's revenue.
Islamic participation
The second industry development on the collective mind of Morocco's banking community is Islamic finance, known locally as ‘participative finance’. Reforms to Islamic finance have been gradual and in November 2014 a new Islamic finance law was passed introducing new bank licences and clarifying regulation. The central bank and a constitutional body called the Ulema Council will jointly regulate Islamic banking. The law has been welcomed by the majority of major banks, the various leaderships of which are in any case close to the country's tight circle of policy-makers.
Attijariwafa plans to continue practising Islamic finance through a specialised operation called Dar Assafaa, which the bank intends to transform into a ‘participative bank’.
Financial institutions are, however, cautious about what the effects of the Islamic finance law will be, recognising that the proportion of banking assets that Islamic banking institutions account for varies wildly in countries where Islamic finance is available. In Saudi Arabia, Islamic finance accounts for 35% of assets, but in Algeria the figure is about 1%.
“Frankly, it is too soon to tell what effect the Islamic finance law will have on the financial sector,” says Mr Siouffi. “Most banks are creating Islamic banking affiliates to meet demand but it's still difficult to assess the size of that demand.”
The most important thing for Morocco's banks at this stage, says Mr Siouffi, is the abolition of exchange controls, something the banks are told is a 'medium-term objective' for the authorities. If done, the banks believe it would support the Casablanca Finance City project, an initiative set up in 2010 to turn Morocco’s largest city into an Africa financial hub and a gateway to the rest of the region’s markets.
Mr Siouffi says: “This could help build the pool of foreign currency liquidity to support Morocco in serving as an important recycling hub, given the sophistication of its banking sector, channelling investment funds into neighbouring francophone countries on the continent.”
