The profitability of Moroccan banks under the magnifying glass

Their overall net profit has reached pre-pandemic levels, boosted by lower loan impairment charges, Fitch Ratings points out. We expect the positive trend to continue, but it could be slowed as adverse global economic conditions ripple through the local economy and put pressure on asset quality.

The aggregate net profit of the seven banks (AttijariWafa Bank, Groupe Banque Populaire, Bank Of Africa, Crédit du Maroc, CIH Bank, Société Générale Maroc, BMCI) increased by 21% year-on-year in the 1st quarter of 2022, explains the agency. international rating Fitch Ratings in a recent note.

“The improvement was driven by a 21% year-on-year decrease in loan impairment charges, which continued to fall from the high levels of 2020-21, when banks made significant provisions early in the period. to compensate for the risks linked to the pandemic”, explains the same source.

According to Fitch Ratings, the decline in loan impairment charges “reflects a stabilization in asset quality”. And to continue that the sector’s non-performing loan ratio was 8.7% at the end of March 2022, broadly unchanged compared to the end of 2021.

However, according to Fitch Ratings, annualized loan impairment charges in Q1 2022 are still 44% higher than in 2019, reflecting risks related to the operating environment and prudent provisioning in an uncertain economic environment.

The international rating agency also notes that the ratio of these charges to operating profit before impairment for the seven banks fell to 32% in the 1st quarter of 2022 (2021: 40%). Which is low compared to many sub-Saharan African markets – but still well above 2019’s ratio of 24%, notes Fitch Ratings, noting that the normalization of loan impairment charges towards 2019 levels will depend on the pace and the extent of Morocco’s economic recovery. She expects these charges to “continue to decline but remain above historical averages in 2022 due to weaker economic growth.”

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BAM could raise its key rate in 2022

Fitch further notes that banks’ return on average equity improved to 8.6% in Q1 2022 (2021: 8.1%). She expects this yield to “improve further by the end of 2022, but remain below the 9.9% level of 2019…”. This may lead, according to Fitch analysts, some banks to expand their activities across Africa in search of higher profitability.

Another point raised by Fitch: banks’ aggregate net interest income increased by 0.6% in the 1st quarter of 2022, reflecting lower interest rates and limited loan growth. The average lending rate fell to 4.3%, the lowest in several years.

On the forecast side, the rating agency expects lending rates to rise in 2022-2023 due to increased credit risk and inflationary pressures. “The central bank of Morocco could raise its key rate in 2022, as real interest rates have been negative since October 2021.

A rate hike could be triggered by the increase in the ECB’s policy rate scheduled for July 2022, or by further hikes later in 2022, given that the Moroccan dirham is pegged to a basket of currencies weighted at 60% by against the euro and 40% against the US dollar,” predicts Fitch Ratings.

Moroccan banks will benefit as higher interest rates will affect lending rates, the same source said. He added that “around 30% of domestic loans mature within 12 months, with repricing likely to be at higher rates, while funding costs are not expected to rise significantly as banks are largely financed by low-cost deposits in current and savings accounts (84% of deposits sector loans at the end of 2021)”.

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Still, Fitch continued, weak loan growth and competition between banks could limit the benefits of higher interest rates. “We expect loan growth of 3% to 4% in 2022 (2021: 2.8%), mainly driven by short-term working capital facilities to meet corporate demand due to higher lending. ‘inflation and commodity prices’, predicts Fitch.

Finally, Fitch Ratings projects real GDP growth of just 1.1% in 2022 (2021: 7.4%), dropping to 3% in 2023, and weaker-than-expected growth in the eurozone, the world’s main trading partner. Morocco. It also believes that soaring energy and food prices could pose risks to the forecast.

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