Fitch Publishes Morocco's BMCE's 'BB+' IDR; Outlook Stable

Wed Aug 6, 2014 12:32pm EDT

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(The following statement was released by the rating agency) PARIS/LONDON, August 06 (Fitch) Fitch Ratings has published Morocco-based BMCE Bank's (BMCE) 'BB+' Long-term foreign currency Issuer Default Rating (IDR), and 'b+' Viability Rating (VR). It has also assigned a Support Rating (SR) of '3'. The Outlook is Stable. A full list of rating actions is available at the end of this commentary. KEY RATING DRIVERS: IDRs, NATIONAL RATINGS, SUPPORT RATING AND SUPPORT RATING FLOOR BMCE's IDRs, National Ratings, SR and Support Rating Floor (SRF) reflect Fitch's view of a moderate probability of support from the Moroccan authorities, if needed. BMCE's Long-term IDRs have a Stable Outlook, reflecting the Moroccan sovereign's Outlook. Fitch considers that the Moroccan authorities would have a high propensity to support BMCE if needed, given the bank's strong franchise in the country. However, Fitch views the probability of support as only moderate given Morocco's financial strength (BBB-/Stable). BMCE is Morocco's third-largest banking group in terms of assets. It has a 13.2% and 14.8% domestic market share in loans and deposits, respectively. BMCE is largely owned by FinanceCom, a local private company (38.8% stake at end-2013), and France's Banque Federative du Credit Mutuel (BFCM; A+/Stable), which holds a 26.2% stake. As FinanceCom is a private company, Fitch is unable to assess its ability or willingness to support BMCE. BFCM has a high ability to support BMCE. However, Fitch views it unlikely that BFCM would provide support to BMCE, if required, as the latter is a long term but non-strategic investment for BFCM. RATING SENSITIVITIES: IDRs, NATIONAL RATINGS, SUPPORT RATING AND SUPPORT RATING FLOOR The IDRs, SRF and SR would be sensitive to any change in Fitch's view of the Moroccan state's willingness or ability to support the bank. BMCE's National Ratings would be downgraded if the sovereign is downgraded by multiple notches. RATING DRIVERS: VIABILITY RATING BMCE's VR reflects its modest asset quality and capital ratios, given its risk appetite towards higher-risk and volatile economic environments as evidenced by its significant and growing exposures towards sub-Saharan African countries. It also factors in BMCE's solid franchise in Morocco, acceptable profitability and overall adequate funding and liquidity profile. Fitch views BMCE's increasing risk appetite as having a higher influence on its VR than other attributes. Fitch considers that BMCE's risk appetite is higher than Moroccan peer banks' as reflected by its growing and substantial activities in sub-Saharan African countries and higher lending growth. BMCE is present in west and east sub-Saharan Africa through its holding company Bank of Africa (BoA). At end-2013, exposure to volatile sub-Saharan African economies represented a substantial 24% of BMCE's assets. BMCE's profitability in 2013 was only acceptable as operating profit was affected by high loan impairment charges (97bp of gross loans) and a still high cost-to-income ratio (60.2% in 2013). Profitability was largely supported by resilient and profitable lending activity in Africa (41% of net group income- excluding minority interests - in 2013). Fitch views BMCE's asset quality as moderate. The impaired loans ratio was at a significant 7.2% at end-2013, driven by a deterioration of credit risk in Morocco, and the weak credit quality of loan portfolios in its sub-Saharan African subsidiaries. Net impaired loans represented a substantial 19.4% of equity at end-2013. Fitch expects impaired loans to keep rising in 2014, albeit only moderately, due to persistent economic uncertainties in those countries. BMCE's capitalisation is modest given the bank's exposure to volatile markets in sub-Saharan African countries. The Fitch core capital (FCC) ratio was only 9.9% at end-2013. Fitch considers BMCE's funding and liquidity profile as adequate. Retail deposits are BMCE's main funding source (72% of total funding - excluding equity - at end-2013). Liquidity is adequate with a loan-to-deposit ratio of 95% at end-2013 and unencumbered liquid assets covering short term debt maturing over one year. RATING SENSITIVITIES - VIABILITY RATING A higher risk appetite with a significant deterioration of asset quality and capital ratios could put pressure on BMCE's VR. Conversely, the VR would benefit from an improvement in risk management and capitalisation. The rating actions are as follows: Long-term foreign currency IDR: published at 'BB+'; Outlook Stable Short-term foreign currency IDR: assigned at 'B' Long-term local currency IDR: assigned at 'BBB-'; Outlook Stable Short-term local currency IDR: assigned at 'F3' National Long-term Rating: assigned at 'AA-(mar)'; Outlook Stable National Short-term Rating: assigned at 'F1+ (mar)' Support Rating: assigned at '3' Support Rating Floor: assigned at 'BB+' Viability Rating: published at 'b+' Contact: Primary Analyst Sonia Trabelsi Director +33 144 2991 42 Fitch France S.A.S 60 rue de Monceau 75008 Paris Secondary Analyst Solena Gloaguen Director +44 20 3530 1126 Committee Chairperson Eric Dupont Senior Director +33 1 44 29 91 31 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, Global Financial Institutions Rating Criteria, dated 31 January 2014 and 'National Scale Ratings Criteria', dated 30 October 2013 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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