Moody’s Says Morocco Economy Diversifying

Moody’s Investors Service says its outlook for the Moroccan banking system is positive, supported in part by the country’s ongoing economic diversification and stable and predictable political and economic policy environment.

“One of the key drivers behind our positive outlook for Morocco’s banking system is the solid operating environment, with real GDP growth expected to remain elevated at 3.5% next year before rising to 4.5% in 2019,” said Olivier Panis, a Moody’s vice president - senior  credit officer and the report’s author, CPIFinancial reported.

“The country’s sound macroeconomic policies, trade diversification and industrial transformation will support exports and investment and boost banks’ credit growth.”

Lending will accelerate next year as public and private investment increases financing needs, while Moody’s expects the ongoing gradual transition to currency flexibility will be orderly and support Moroccan exports and domestic economy more broadly in the long-term.

Although credit risk formation will ease slightly, stock of problem loans will remain elevated in the next 12 to 18 months mainly due to loan concentrations and high exposure to riskier portfolios linked to small-and-medium enterprises and sub-Saharan Africa. Nonperforming loans account for 7.4% of gross loans in June 2017.

Capital buffers will continue to exceed regulatory requirements, but will reduce slightly as loan growth accelerates.

Banks’ capital—with a sector-wide reported Tier one ratio of 11.5%--has only limited capacity to absorb additional credit losses.

Banks’ profits will be supported by higher domestic lending growth, rising fees and commissions, and higher-yielding sub-Saharan Africa portfolios.

This will be partly offset by pressure on net interest margins and loan loss provisioning amounting to around 30% of pre-provision income. As a result, returns on assets will remain broadly stable.