(The following statement was released by the ratings agency)
Jan 14 Fitch Ratings has affirmed Morocco-based Attijariwafa Bank's (AWB) Long-term foreign currency Issuer Default Rating (IDR) at 'BB+', Short-term foreign currency IDR at 'B', Viability Rating (VR) at 'bb-' and Support Rating at '3'. The Outlook on the bank's Long-term IDR is Stable. A full list of rating actions is at the end of this comment.
RATING DRIVERS AND SENSITIVITIES: IDRs, NATIONAL RATINGS, SUPPORT RATING AND SUPPORT RATING FLOOR
AWB's IDRs, National Ratings, Support Rating and Support Rating Floor (SRF) reflect Fitch's opinion that the Moroccan authorities would have a high propensity to support AWB if needed, given the bank's strong franchise in the country. AWB is a leading domestically-owned corporate and retail bank in Morocco, with strong market shares in retail domestic banking. Nevertheless, Fitch considers the probability of support to be moderate given Morocco's financial strength ('BBB-'/Stable).
AWB's Long-term IDRs have a Stable Outlook, reflecting the Moroccan sovereign's Outlook. The IDRs and SRF would move in tandem with Morocco's sovereign ratings. The Support Rating is sensitive to any change in Fitch's view of the authorities' willingness or ability to support the bank. AWB's National Ratings would be revised downward if the sovereign was severely downgraded.
RATING DRIVERS AND SENSITIVITIES: VIABILITY RATING
AWB's VR reflects its moderate asset quality, high related-party lending, exposure to fragile economic environments (at end-H112, 6% of AWB's assets were held in Tunisia, and 12% in various sub-Saharan African countries) and decreasing liquidity. It also takes into account its strong domestic market presence, satisfactory and stable profitability, and modest capitalisation.
A deterioration of AWB's liquidity position or insufficient capitalisation as a result of significant asset quality deterioration could trigger a downgrade of AWB's VR. Potential corporate governance issues limit AWB's VR.
AWB's liquidity has been weakening since 2007 as loans have grown at a faster pace than deposits in Morocco (as in the overall Moroccan banking sector). Fitch considers that AWB's cushion of available liquid assets (securities available for repurchase agreements with the Moroccan central bank) is moderate at the Moroccan entity. Liquidity at AWB's foreign subsidiaries is adequate, but non fungible.
AWB's asset quality is moderate. Impaired loans accounted for 4.9% of gross loans at end-H112. Increasing impaired loans in H112 reflected some deterioration in Morocco and Tunisia and political instability in some sub-Saharan African countries. Fitch expects NPLs to rise moderately in 2013, due to economic uncertainties in Tunisia and some of the sub-Saharan African countries.
High obligor concentration in AWB's loan book represents a material credit risk although it reflects, to some extent, the concentration of the Moroccan economy and AWB's significant market shares. The high related-party exposure in the loan book exceeded 50% of AWB's Fitch Core Capital at end-H112 (or 34% of total equity). In Fitch's view, although this related- party exposure may reflect the concentration in the Moroccan economy, Fitch considers it as a rating weakness.
In Fitch's opinion, AWB's capitalisation is modest and it is undermined by its high concentrations in the loan book and exposure to volatile economic environments. AWB's capital ratios (Fitch core capital of 7.5% and Tier 1 capital ratio of 8.6% at end-H112) will continue to be supported by its retained earnings and cash injections in 2013. Nevertheless the regulatory capital ratios will just meet the new minimum regulatory requirements in 2013 in Morocco: Tier 1 capital ratio of 9% and Total capital ratio of 12%.
AWB's resilient profitability is mainly due to Moroccan political stability and the relatively good performance of the Moroccan economy. Fitch believes that AWB could achieve stable revenue growth in 2013 although this could be constrained by higher funding costs, given current liquidity issues in the Moroccan banking sector.
The rating actions are as follows:
Long-term foreign currency IDR: affirmed at 'BB+'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'B'
Long-term local currency IDR: affirmed at 'BBB-'; Outlook Stable
Short-term local currency IDR: affirmed at 'F3'
National Long-term Rating: affirmed at 'AA-(mar)'; Outlook Stable
National Short-term Rating: affirmed at 'F1+ (mar)'
Support Rating: affirmed at '3'
Support Rating Floor: affirmed at 'BB+'
Viability Rating: affirmed at 'bb-'