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Sept 2 (The following statement was released by the rating agency)
Moroccan banks are likely to face high loan impairment charges for the remainder of the year, while revenue will come under pressure from falling demand for credit, Fitch Ratings says. Despite these pressures, we expect the sector to face a soft landing following several buoyant years, thanks to its moderate costs, diversified deposit base and insulation from the eurozone debt crisis.
Impaired loans increased materially at all major banks in 2012 and, given the weaker economic prospects, we expect asset quality ratios to deteriorate in 2013. Growing exposure to sub-Saharan Africa, particularly in the three largest banks, Attijariwafa Bank, Groupe Banque Centrale Populaire and BMCE Bank, is also likely to increase the pressure on asset quality ratios.
The sector's reliance on domestic lending for the bulk of its revenue is likely to weigh on profitability this year as demand for credit fell 3% in the first quarter and we believe total gross loans may end the year flat. Banks are therefore likely to pay more attention to managing operating expenses, although their ability to trim costs is limited, given the difficulty of implementing redundancies.
Moroccan banks' performance is strongly correlated with the domestic economy and the sector is in a good position to withstand any direct impact from the eurozone crisis. This is due to a tight regulatory framework that has prevented significant exposure to foreign financial markets and foreign government debt. Funding is almost exclusively domestic and the 20% of domestic deposits that are from Moroccans living abroad have so far shown only small outflows.
Client deposits represent 75% to 85% of non-equity funding for the sector and keep funding costs low. A strong proportion of retail funding for all the major banks reduces volatility risk. The use of short-term wholesale funding increased substantially since 2010, but the overall level remains moderate. The majority is due to repo funding with the Moroccan central bank, which demonstrates the central bank's active support for the sector and underlines our view that the government would act as a lender of last resort for all the major banks if necessary.
Fitch's "Peer Review: Moroccan Banks", published today, examines these factors in more detail and is available at www.fitchratings.com.