MOODY'S ASSIGNS DEPOSIT AND FINANCIAL STRENGTH RATINGS TO FOUR MOROCCAN BANKS
Limassol, 04-10-98 -- Moody's Investors Service has assigned long- and short-term ratings for deposits and bank financial strength ratings (BFSRs) to four Moroccan banks. The four banks are Banque Commerciale Du Maroc, Banque Marocaine Du Commerce Exterieur, Cr‚dit Du Maroc and Wafabank. This is the first time that Moroccan banks have been rated by Moody's. All four banks are based in Casablanca, Morocco.
The ratings are as follows:
Banque Commerciale Du Maroc
Long-term deposits: Ba2
Short-term deposits: Not-Prime
Bank financial strength: D+
Banque Marocaine Du Commerce Exterieur
Long-term deposits: Ba2
Short-term deposits: Not-Prime
Bank financial strength: D
Cr‚dit Du Maroc
Long-term deposits: Ba2
Short-term deposits: Not-Prime
Bank financial strength: D
Long-term deposits: Ba2
Short-term deposits: Not-Prime
Bank financial strength: D+
Moody's deposit ratings are opinions of an institution's overall creditworthiness and take into account factors related to external support and those which are specific to the bank itself. As a result, deposit ratings are constrained by the domicile country's ceiling for bank deposits.
In contrast, BFSRs reflect a bank's intrinsic strength on a stand-alone basis and the likelihood that it may require support from a third party at some point in the future. As such, BFSRs exclude factors related to external support although they do take into account the bank's domestic operating environment. BFSRs are not constrained by the country ceiling and in order to distinguish them from deposit ratings they use different signifiers: a letter scale ranging from "A" (exceptional) to "E" (very weak). A signifier "+" may be appended to ratings below the "A" category.
The long-term foreign currency deposit ratings of all four Moroccan banks have been set at the ceiling for bank deposits, reflecting in part Moody's confidence that the Moroccan authorities would activate the support mechanism provided in the banking law in a crisis situation. This law allows the financial authorities to call on any shareholder having more than 5% of the bank's shares to individually rescue the bank. In the event shareholders are not capable or willing to provide such support, the Moroccan authorities may call on other local banks for assistance and support. In addition, it is difficult to imagine that the Moroccan authorities would allow any of the four rated banks to fail during this critical phase of the country's economic development.
The BFSRs assigned to all four banks reflect the dynamic operating environment in Morocco characterised by progression in financial liberalisation within a maturing financial sector. Managing risk within Moroccan banks has been, by and large, focused on credit risk. With further liberalisation and as the market becomes more sophisticated, managing operational risk and market risk will become increasingly important and banks will have to quickly adapt to the change. A variety of challenges will be facing banks in Morocco in the near future. Competition, which has been limited so far, will very likely pick up, adversely affecting banks which are lagging behind in efficiency and automation. Furthermore, margins are expected to shrink as interest rates start to decline, putting pressure on the banks' profitability. The agreement with the European Union calls for a gradual lifting of tariffs on trade by 2010. Enterprises which did not restructure to become more competitive will face financial difficulties which may be reflected in the asset quality of those banks which have exposures to such companies.
Banque Commerciale Du Maroc's (BCM) deposit ratings reflect Moody's confidence that support from its two largest shareholders, Banco Central Hispano Americano and Omnium Nord Africain (ONA), will be forthcoming in the event of a crisis. ONA is Morocco's largest holding company in which the royal family holds an important interest and BCM is ONA's most profitable entity.
BCM's bank financial strength rating (BFSR) reflects its relative strong position in the Moroccan banking sector as being among the three largest banks in the Kingdom. The BFSR also reflects an adequate capitalisation, strong franchise and good liquidity coupled with a credible strategy charted by a stable and effective management. BCM has been consistently gaining market share in recent years and is expected to continue to do so in the coming years, albeit at a slower pace, improving its 18.3% market share of the banking sector's total assets at year end 1996.
BCM has streamlined its operation attaining the best efficiency levels of any bank in Morocco. In common with its peers, BCM's information technology is in its early stages, with elementary ALM tools and management information systems. However, technology issues are being addressed and developments are on the way which may further improve the bank's efficiency.
The BFSR also reflects the high level of related party lending which exceeds the maximum limit set by Bank Al-Maghreb. Moody's believes that the trend in related party lending is on the decline, however, a reversal of this trend may result in negative pressure on the ratings. BCM's good asset quality stems from its conservative lending policy, aggressive provisioning policy and its ability to identify and attract good credit. Non-performing loans, the lowest among BCM's peers, have been steadily declining over the past few years and are well covered by provisions. BCM is the most profitable bank in Morocco primarily due to its low operating cost. However, BCM has a high cost of funds compared to some of its peers due to the high level of term deposits from its large corporate clients. Although BCM is developing fee generating activities, its dependence on interest income remains higher than many of its peers.
BCM has been expanding its business lines through separate financial subsidiaries. These financial subsidiaries are in most cases joint ventures with foreign partners, specialists in their respective areas, who have brought in capital and know how. However, most of these subsidiaries have been in existence for nearly three years and their contribution to profit has been minimal so far.
At year end 1996, BCM's assets in Morocco amounted to DH 32.4 bn ($ 3.68 bn) on an unconsolidated basis.
The deposit ratings of Banque Marocaine Du Commerce Exterieur (BMCE) reflect the commitment to the bank of Mr. Othman Benjelloun and his ability to provide support if the bank was to encounter financial difficulties. Mr. Benjelloun, who's the main shareholder in Royale Marocaine d'Assurance (BMCE's largest shareholder) and BMCE's president, is one of Morocco's leading businessmen with various interests in Morocco including the second largest holding in Omnium Nord Africain (ONA), Morocco's largest holding company.
BMCE's bank financial strength rating (BFSR) reflects the bank's leading position in Morocco's banking sector which translates into a high brand awareness and strong franchise. BMCE's two largest foreign shareholders, namely Commerzbank and Nomura, have positively contributed to BMCE's image gaining it recognition and credibility both domestically and among the international banking community. The BFSR reflects also the bank's large market share in trade financing, good relations with the central government and large Moroccan companies, its improving financial performance and its adequate capitalisation following Morocco's first GDR issue. However, although the relative level of related party lending is on a declining trend, it remains a concern despite the solid financial health of the main shareholder.
Since its privatisation in 1995, BMCE has embarked on a reengineering program to modernise its operation, restructure the bank's management and effect the cultural transition from a public sector bank to a privately owned bank. Currently, the bank lags behind some of its peers in efficiency and information technology. However, these issues are being addressed and improvement in these areas is expected.
BMCE has an important participation in the capital of various banks in Morocco such as Cr‚dit du Maroc (26.5%), Soci‚t‚ Marocaine de D‚pot et de Cr‚dit (14.25%) and Cr‚dit Immobilier et Hotelier (2.81%). These participations have mostly occurred when BMCE was a public sector bank either for strategic reasons or as a mean to support the banks. Although they represent a substantial unrealised capital gain, these participations are viewed by Moody's as being a contingent liability to BMCE who would be called upon to rescue these banks if they encounter financial difficulties.
The lag in efficiency coupled with a high level of provisioning in recent years has resulted in a low level of profitability relative to its peers. However, Moody's believes that the bank will benefit from its restructuring program and will likely exhibit better profitability in the coming years.
At year end 1996, BMCE's assets in Morocco amounted to DH 31.7 bn ($ 3.60 bn) on an unconsolidated basis
The deposit ratings for Cr‚dit Du Maroc (CDM) reflect mainly the support mechanism that Bank Al-Maghrib can activate if the bank is in financial difficulty. Moody's believes that support from the two main shareholders, Cr‚dit Lyonnais and Banque Marocaine du Commerce Exterieur (BMCE), may not be automatic due to i) the constraints imposed on Cr‚dit Lyonnais by the European Commission and ii) BMCE's limited commitment to CDM. Cr‚dit Lyonnais is being asked to make a decision on the future of its foreign subsidiaries and participations in the course of 1998, but it is not clear what the outcome for CDM would be.
CDM's bank financial strength rating reflects the bank's good overall profitability, strong capitalisation and adequate asset quality. However, Moody's is concerned that shareholder uncertainties are limiting the bank's ability to chart a credible and meaningful strategy. This leaves CDM at a competitive disadvantage relative to the larger banks in Morocco who have aggressive expansion plans.
CDM has one of the lowest efficiency ratios compared to many of its peers. It has a large branch network compared to the size of its assets and deposits and is relatively over-staffed. Despite these inefficiencies, CDM has one of the highest profitability levels among other the rated banks. This stems primarily from the low cost of funds due to the high proportion of demand deposit in the deposit mix. The bank has also chosen a cautious policy on credit expansion, preferring instead the high returns currently on government securities. While this is a good policy for generating profits today, other banks are building relationships with credit worthy customers and developing business for the long-term. The earnings mix is however a concern. CDM has one of the lowest levels of non-interest income primarily due to the low off-balance sheet activities and the scarcity of fee generating businesses.
At year end 1996, CDM's assets in Morocco amounted to DH 12.4 bn ($ 1.41 bn) on an unconsolidated basis
Wafabank's deposit ratings reflect the bank's increasing importance in the Moroccan banking sector and its core domestic shareholders' ability and willingness to extend support in the event of a financial crisis.
Wafabank's bank financial strength rating (BFSR) reflects the bank's improving asset quality with NPLs well covered by provisions, good quality of earnings and improving market share. Wafabank's BFSR also reflects a strong and defensible franchise with a clear corporate identity further enhanced by the association with its strategic foreign partners namely Banco Bilbao Vizcaya (BBV) and Cr‚dit Agricole Indosuez (CAI). In 1997, Wafabank merged with Uniban, the Moroccan subsidiary of BBV. This merger resulted in the improvement of Wafabank's market share and the addition of 20 new branches to its domestic network. Despite the large level of non-performing loans inherited from Uniban, the net effect on asset quality has been neutral due to the large provisions that Uniban took prior to the merger. The integration of the operations has been going smoothly, however, the challenge is to integrate and harmonise the two cultures while maintaining a good financial performance and a clear focus on strategy.
Wafabank's BFSR also reflects a management that is dynamic and forward looking with a clear sense of strategic direction. Wafabank was one of the first banks to offer various financial products and services through independent financial subsidiaries. This model is now being adopted by several other banks in the Kingdom after the proven success of Wafabank.
Wafabank is adequately capitalised with a conservative dividend policy designed at ploughing two thirds of its profits back into the bank to support its growth strategy. However, Wafabank has one of the lowest levels of free capital as percentage of total capital relative to its peers. This low level of free capital is primarily due to the large capital investment in the financial subsidiaries. However, Moody's believes that these financial subsidiaries are well capitalised and would not require significant new capital over the next two years, which will allow the bank to improve its free capital from profits.
At year end 1996, Wafabank's assets in Morocco amounted to DH 20.8 bn ($ 2.36 bn) on an unconsolidated basis.
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