Q: How would you describe the performance of the Moroccan banking sector during the pandemic?
A: In 2020, the Moroccan banking sector started the year with solid fundamentals, thanks in particular to reinforced prudential regulations in convergence with Basel II and Basel III standards over the past 15 years. In addition to the actions of the government in supporting households and businesses in the context of the Covid-19 crisis, the central bank has adopted a set of measures at several levels to help support the financing of the economy and the banking sector.
These measures have covered monetary policy, as the bank reduced the key rate by 75 basis points (bps) to 1.5%, released the mandatory reserve account in full, extended the list of eligible collateral for its liquidity advances, and eased refinancing conditions of loans intended to very small, small and medium-sized enterprises.
At the prudential level, temporary reductions in capital requirements (up to 50bps by June 2022) and liquidity ratio requirements (by June 2020) have been granted. In addition, Bank Al-Maghrib has required credit institutions to suspend the distribution of dividends for the 2019 results until further notice and to submit such distribution to the approval of Bank Al-Maghrib for their 2020 results.
These measures, combined with a sound pre-crisis situation, have led to resilience in the banking sector, which had, at the end of 2020, an average solvency ratio of 15.7% and an average Tier 1 capital ratio of 11.4%, despite an increase in the claims ratio from 7.5% to 8.2% and a 43% drop in banking results. Also, banks have preventively set aside general provisions to protect themselves against the expected increase in credit risks.
In terms of liquidity, the situation remained comfortable thanks to Bank Al-Maghrib’s monetary policy measures. This resilience has been confirmed by the stress tests carried out by banks and by Bank Al-Maghrib during 2020 and in June 2021.
Q: Why did the bank decide to focus on state-guaranteed loans?
A: In Morocco, after the outbreak of the pandemic and the health restrictions decided by the government to address it, an economic monitoring committee (EMC) was set up in March 2020 by the public authorities to monitor the social and economic impacts, and take the necessary measures. We wanted to meet the immediate cash needs of the companies impacted.
In this context, the EMC agreed on the creation of a cash loan product, guaranteed by the state and managed by the Central Guarantee Fund (CGF), during its second meeting in March 2020. It should be noted that CGF is a public institution subject to certain provisions of the banking law and the supervision of Bank Al-Maghrib.
This first programme, which was called Crédit Oxygène and implemented during the lockdown, was followed in mid-June by a second one called Crédit Relance. This concerned cash flow loans guaranteed by the state and intended to meet the cash flow needs of companies as part of the revival of the activity.
Overall, the countries where Moroccan banking groups operate have been worse affected by the Covid-19 pandemic than Morocco
As a member of the EMC, the central bank took part in the discussions leading up to the decisions made during the meetings of the committee, alongside the public and private stakeholders concerned. It also participated in further exchanges with the Ministry of Economy, Finance and Administration Reform, the CGF and the banks, with a view to implementing the decisions and monitoring the results.
At the operational level, these programmes — dedicated to very small, small and medium sized-enterprises, as well as intermediate-sized enterprises through Oxygène Crédit and to all enterprises through Crédit Relance — are governed by agreements between the CGF and the banks, which set out the purpose of the guarantee, its percentage, conditions of activation and reporting procedures.
The CGF mandates the banks to decide on the guarantee, according to defined threshold amounts, and 83% of the files were assigned to banks. If the beneficiary of the guaranteed credit is defaulting, a request is sent by the bank to the CGF to activate the guarantee. This gives grounds for indemnification and the initiation of the recovery procedure against the defaulting company.
Q: What trends do you see in the cost of credit in 2021?
A: In the first quarter of 2021, the banks’ lending rates were virtually stable overall, at an average of 4.45%. On a year-on-year basis, they fell by an average of 44bps — a decline that affected all categories of loans and institutional agents.
This decrease reflects the reduction in the policy rate by 75bps to 1.5% and the implementation of the guaranteed loan programmes developed in the context of Covid-19, with rates at low levels. These programmes ended in the first half of 2021.
Q: What will support credit growth this year and next?
A: In the first months of 2021, a recovery in economic activity has been observed and is expected to continue, supported by fiscal stimulus measures and the accommodative monetary policy stance, as well as by the significant progress in the vaccination campaign and the easing of health restrictions.
According to Bank Al-Maghrib’s projections, growth should reach 5.3% in 2021, driven by a 3.6% increase in the value added in non-agricultural activities and a 17.6% rebound in the agricultural sector.
In this context, bank loans to the non-financial sector are expected to increase by 3.5% in 2021 and 3.8% in 2022. This growth is supported, in particular, by housing credit to households and cash credit to businesses. Equipment loans, on the other hand, remain sluggish. The supply of consumer credit remains impacted by the banks’ sensitivity to credit risk.
Q: Will sub-Saharan Africa continue to be a growth driver?
A: The three largest Moroccan banking groups are present in 24 countries in sub-Saharan Africa: 10 countries in west Africa, six in central Africa, six in east Africa and two countries in southern Africa.
Overall, the countries where Moroccan banking groups operate have been worse affected by the Covid-19 pandemic than Morocco, despite limited access to vaccines. A rebound in growth is expected in 2021 in most of the countries where the groups operate.
In terms of banking activity, the subsidiaries in Africa, outside Morocco, witnessed an acceleration in the collection of deposits, a deceleration in lending, a slight increase in non-performing loans (NPLs) and a more limited decline in earnings. As a result, the contribution of African subsidiaries to the profitability of Moroccan banks increased.
Sub-Saharan Africa should remain a growth driver for the Moroccan banking market, thanks to a pandemic that remains under control and greater access to vaccines.
Q: How concerning is the rise in NPLs since the start of the pandemic?
A: The Covid-19 health crisis has inevitably led to an increase in credit risk for both individuals and businesses. The level of NPLs stood at 8.7% at the end of May 2021.
Against this background, Bank Al-Maghrib has required credit institutions to ensure prudent and anticipatory management of credit risk and the related provisioning. The rate of provisioning has remained stable around 69%. In addition, banks were urged to constitute provisions for general risks, in anticipation of future risks. These provisions amount to around 3.2% of performing loans to private sector companies.
The future level of this risk will be linked to the pace of economic activity recovery and the health situation change.
To encourage the processing of NPLs held by credit institutions, Bank Al-Maghrib promotes the implementation of remediation solutions, notably through the creation of a secondary market for NPLs.
Q: The International Monetary Fund’s December Article IV consultation revealed that 25% of loans that benefited from the government’s loan moratorium are in arrears, but not yet classified as NPLs. How has this situation changed since then?
A: In application of the support measures decided by the EMC, banks, consumer credit companies and leasing companies have set up a mechanism to postpone the maturity of amortisable loans and leasing by three to four months. This benefits both private and public sector companies, as well as Moroccans at home and abroad, experiencing difficulties arising from the Covid-19 crisis.
This measure has subsequently been extended for certain sectors and on a case-by-case basis by credit institutions.
At the end of May 2021, the credits subject to a moratorium and remaining unpaid, which do not show the criteria of default, represented 1.5% of total credit. For their part, the claims meeting Bank Al-Maghrib’s downgrading criteria have been classified as NPLs. At the same date, these files represent 0.8% of total loans.
