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Rating Action:

Moody's assigns first-time ratings to Morocco's Attijariwafa Bank and Groupe Banque Centrale Populaire

19 Jul 2017

Limassol, July 19, 2017 -- Moody's Investors Service (Moody's) has today assigned first-time long- and short-term Ba1/Not Prime global local-currency deposit ratings to Attijariwafa Bank (Attijariwafa) and Groupe Banque Centrale Populaire (BCP). Moody's has also assigned both banks Ba2/Not Prime long- and short term foreign-currency deposit ratings, long- and short-term Counterparty Risk (CR) Assessments of Ba1(cr)/Not Prime(cr) respectively and ba3 baseline credit assessments (BCAs) and Adjusted BCAs. On the Moroccan national scale, Moody's has assigned local currency deposit ratings of Aa1.ma/MA-1 and foreign currency deposit ratings of Aa3.ma/MA-1 to both banks. All long-term local-currency global scale deposit ratings carry a positive outlook.

At the same time, Moody's has assigned a B3(hyb) rating to Attijariwafa's MAD500 million Additional Tier1 (AT1) bond issued in December 2016, mapping to a Ba3.ma (hyb) on the Moroccan national scale.

The primary drivers and key similarities of Attijariwafa's and BCP's standalone credit profiles are (1) solid profitability supported by dominant and diversified domestic franchises, including their gradual pan-African expansion and (2) stable and diversified deposit-funded liability profiles, which will continue to underpin high levels of liquid assets. These strengths are balanced by (3) high levels of non-performing loans reflecting a combination of challenges at home and abroad, with the slowing Moroccan economy in recent years and growing exposure to weaker sub-Saharan Africa operating environments; and (4) relatively modest loss absorption buffers in light of sustained loan growth, high level of problem loans and high borrowers' concentration.

Attijariwafa's and BCP's Ba1 global local-currency long-term deposit ratings are fully aligned with the Ba1 (positive) rating of the Moroccan government. Both banks ratings incorporate a two notch uplift from their ba3 BCAs, which reflects our assessment of a very high probability of government support in case of need from the two largest banks in the kingdom.

RATINGS RATIONALE

An overarching credit factor behind the ratings assigned today is the operating environment of the banks, primarily driven by the Moroccan operating conditions where the banks conduct the bulk of their operations, but also by other African markets where both banks are increasingly present. Moody's "Moderate --" Morocco Macro Profile assessment reflects the country's relatively strong and sustained growth over the past several years; supported by the development of higher-value-added exporting sectors, the coherent and sound economic policies and bank regulations and a high degree of political stability. At the same time, Moroccan banks' operating conditions are also impacted by Morocco's significant structural rigidities in terms of purchasing power, unemployment and competitiveness. They are also increasingly exposed to higher risk in North and sub-Saharan Africa regions, to which Attijariwafa (22% of assets) is more exposed than BCP (12%), although both weighted macro profiles assigned to the two banks are at Weak+.

The complete Morocco banking macro profile can be seen on www.moodys.com.

The other key drivers and detailed rationale are presented on a bank by bank basis below.

ATTIJARIWAFA BANK

Attijariwafa's Ba1/Not Prime global local-currency deposit ratings capture the bank's standalone credit strength reflected in a ba3 BCA and a two-notch uplift from the bank's BCA, which reflects our assessment of a very high probability of government support in case of need considering the systemic importance of the largest bank by asset in Morocco, representing around 25% of deposits and loans.

BASELINE CREDIT ASSESSMENT

The key drivers underpinning Attijariwafa's BCA are (1) the bank's solid profitability, which will continue to be supported by low operating cost, moderate cost of risk and a strong franchise in Morocco and in North, West and Central Africa; (2) its sound liquidity and stable funding base; (3) the challenges of the bank's fast expansion in relatively weaker operating environments outside of Morocco, which will likely cause some degree of asset quality volatility; and (4) relatively modest risk absorption buffers given the aforementioned challenges.

Whilst the diversity of businesses and geographies brings stability to Attijariwafa's revenue sources, Moody's also expects the bank's pre-provision income at 3.1% of risk-weighted assets as of December 2016 to remain supported primarily by (1) accelerated credit growth observed in Morocco since 2016 (Morocco banking system credit increased by 3.9% in 2016 versus 2.5% in 2015); (2) stable net interest margins (2.8% since 2014); (3) continued focus on fees and commission income; (4) stable operating costs at around 46% and (5) increased contributions from the international activities, notably with the acquisition of Barclays Egypt in 2017. Although Attijariwafa's cost of provisions reduced in 2016 to 17% of pre-provision income, we expect the bank's net profits (1.3% of tangible assets in 2016) to remain constrained by increased provisioning requirements, particularly in Morocco with the expected implementation of IFRS 9 standards.

Attijariwafa's BCA is also underpinned by a broad and diversified deposit base, representing 75% of the bank's non-equity liabilities, fuelled in recent years by a rapid extension of the bank's branch network and retail activities in Morocco and abroad. Although Moody's expects a sustained level of credit growth from the bank in the next 12 to 18 months, the bank's deposit base and broad access to capital market will be supportive of stable levels of liquid assets at around 30% of total assets.

Finally, Attijariwafa's BCA balances these strengths against elevated, albeit stabilizing, asset risks. The bank's NPL ratio of 7% as of December 2016 (7.1% in 2015) was negatively affected in recent years by (1) some large defaults emerging from some distressed Moroccan economic sectors and in a relatively concentrated corporate loan portfolio for the bank; and (2) the fast growth in higher-risk other African countries. Moody's expect that the ongoing stabilization in the bank's asset risks will be underpinned by (1) a solid domestic economic growth; (2) a sophisticated and centralized risk management framework; and (3) sustained efforts in problem loan recoveries. In this context, Moody's nevertheless views capital buffers as modest by global standards. Moody's calculates a ratio of tangible common equity to adjusted consolidated risk-weighted assets of 9.2% as of December 2016 which is modest in light of (1) borrower concentrations, (2) modest loan-loss coverage ratio of 72.3% and (3) Moody's expectation of rapid loan growth fuelled by stronger domestic economic growth and continued expansion in higher-risk Africa markets.

Attijariwafa has a solid domestic franchise as the largest bank in Morocco with total assets of MAD429 billion ($44 billion) as of December 2016 with a diversified and established franchise (Banque Commerciale du Maroc and Wafabank which merged in 2004 to form Attijariwafa were respectively founded in 1911 and 1904) that benefits the bank's profitability profile. The banking group also developed a leading franchise through specialized subsidiaries in insurance, leasing, consumer finance or factoring among others and developed gradually its pan-African foot print since 2005 with now a presence in 15 countries in North, West and Central Africa that represented 22% of the group's balance-sheet in December 2016 but 29% of the group's net profits.

RATING OF ATTIJARIWAFA'S ADDITIONAL TIER 1 BOND

The B3(hyb) rating assigned to Attijariwafa's AT1 bond is based on the bank's standalone creditworthiness and is placed three notches below the bank's ba3 adjusted BCA. The three-notch downward adjustment takes into consideration Moody's assessment of the risks of mandatory and/or discretionary coupon suspension (ultimately at the discretion of the Moroccan Banking regulator, Bank Al-Maghrib, and in line with other regulatory regimes implementing the core principles of banking resolution laid out by the Basel committee on Banking Supervision) on a non-cumulative basis, and the contractual principal write-down feature in combination with the AT1 securities' deeply subordinated claim in liquidation.

The AT1 notes are contractual non-viability securities, that are perpetual with a first-call date in 2021. In liquidation, they are senior only to common shares. Coupons are skipped on a non-cumulative basis at the issuer's option, only after approval from Bank Al-Maghrib, and on a mandatory basis subject to availability of distributable items an regulatory discretion.

NOTCHING CONSIDERATIONS

Attijariwafa's Ba1 local currency deposit rating reflects our assessment of a very high probability of government support given Attijariwafa's systemic importance as the largest bank in Morocco in terms of assets accounting for around 25% of deposits and loans, and the 47.9% ownership from Société Nationale d'investissement (SNI), a very large and diversified holding company mainly owned by the Moroccan royal family. Consequently, Attijariwafa's global local-currency deposit rating is two notches higher than its ba3 BCA.

Attijariwafa's global foreign-currency deposit ratings of Ba2/Not Prime are constrained by the country ceiling for such deposits, which captures foreign currency transfer and convertibility risks.

Attijariwafa's CR Assessment of Ba1(cr)/Not Prime(cr), prior to government support is positioned two notches above the Adjusted BCA of ba3 reflecting Moody's view that its probability of default is lower than that of deposits. Moody's believes senior obligations represented by the CR Assessment will be more likely preserved in order to limit contagion, minimize losses and avoid disruption of critical functions. In most cases, Moody's then adds the same likelihood of government support uplift as currently applied to deposit ratings. In the case of Attijariwafa, its CR Assessment of Ba1(cr) is aligned with its deposit rating which is already in line with the Moroccan government bond rating of Ba1.

Finally, Attijariwafa's national-scale local currency deposit ratings of Aa1.ma/MA-1 indicate that it is one of the strongest credits within Morocco reflecting our expectation that the bank's solvency, funding and liquidity profiles will remain stable in the next 12 to 18 months, and also the very high probability of government support, that aligns the bank's ratings to that of the sovereign on the global rating scale. The bank's national scale foreign-currency deposit ratings of Aa3.ma/MA-1 are constrained by the relevant country ceiling. Moody's also assigned a Ba3.ma (hyb) national-scale junior subordinated debt rating to the MAD500 million perpetual non-cumulative notes with principal write-down issued in December 2016.

GROUPE BANQUE CENTRALE POPULAIRE (BCP)

BCP' Ba1/Not Prime global local-currency deposit ratings capture the bank's standalone credit strength in a ba3 BCA and a two notch uplift from the bank's BCA, which reflects our assessment of a very high probability of government support in case of need considering the systemic importance of the bank which represents around 27% of deposits in Morocco.

BASELINE CREDIT ASSESSMENT

The key drivers underpinning BCP's BCA are (1) the bank's solid operating income which will continue to be supported by bank's strong franchise and low cost of funding and (2) a stable and diversified funding base, together with high level of liquid assets. These strengths are moderated by relatively modest capital buffers in light of high asset concentrations and high level of problem loans, in particular in expanding sub-Saharan Africa portfolios.

BCP's BCA is supported by its solid operating income and strong and stable deposit funded profile, which benefits from its established domestic retail franchise, with the largest client and depositors base in Morocco, and international diversification of its activities, primarily in sub-Saharan Africa.

Moody's expects BCP's pre-provision income to remain solid at 2.7% of the bank's average risk-weighted assets as of December 2016. While lower lending margins in a competitive Moroccan banking market will weigh on the bank's operating income, we expect it will be mitigated by reducing funding costs supported by a low-cost and diversified retail deposit base. Besides, the pan-African diversification of the bank also supports the group's operating income with higher yielding portfolios (Africa represented 15% of BCP's consolidated operating income for only 11% of its consolidated lending as of December 2016). BCP's net profits (0.9% of total assets as of December 2016) will slightly improve over the next 12 to 18 months after the bank increased its provisioning efforts in recent years, both in Morocco and Africa.

In addition, with a combination of prudent loan growth strategy and very diversified customer deposit base, which represented around 80% of BCP's non-equity funding, Moody's expects the bank's loan-to-deposit ratio to remain one of the lowest in Morocco (81.8% in December 2016). As a result the level of liquid assets, at 33% of total assets as of December 2016, will also remain high.

BCP's BCA is also underpinned by increased levels of NPLs that weigh negatively on the bank's solvency position, despite improving risk management framework. BCP's asset quality is relatively weak with a NPL ratio of 7.7% of gross loans as of December 2016 (up from 5.8% as of 2013) fuelled mainly by a number of large domestic defaults in a context of a transitioning and slowing Moroccan economic growth in recent years, high borrower concentrations and fast growth in higher risk sub-Saharan Africa subsidiaries. Although NPL levels will remain high in the next 12 to 18 months, Moody's expects that the combination of stronger domestic economic conditions, improved asset recoveries and robust risk appetite and controls implemented across the group in order to diversify risks, will stabilize BCP's asset quality profile.

Finally, BCP's relatively weak solvency profile also reflects the bank's modest capital buffers. Moody's calculates the bank's tangible common equity at 9.3% of adjusted consolidated risk-weighted assets as of December 2016 and expects that the bank's capitalisation will remain modest in light of elevated levels of NPLs, high borrower concentrations, moderate -- albeit improving -- loan-loss reserves in Morocco, and sustained credit growth in sub-Saharan Africa weaker operating environments.

BCP was created in 1926 as a cooperative bank with a mission, specified by law in 1961, to collect savings and develop lending in every Moroccan region, and to support the development of small and medium corporates. The bank's cooperative architecture was completed in 2014 after the Government of Morocco sold its participation in BCP, the central organ of the group that is listed on the Moroccan stock exchange, to regional banks known as Banques Populaires Regionales (BPRs), which own 52% of BCP's capital. BCP is today the second largest bank in Morocco in terms of consolidated assets (MAD352 billion or $35 billion) and the largest collector of deposits with around 30% market share in Morocco. In 2012, the bank expanded its strong domestic franchise in West Africa with the acquisition of Groupe Banque Atlantique (ABI).

NOTCHING CONSIDERATIONS

BCP's Ba1 local currency deposit rating reflects our assessment of a very high probability of government support given BCP's systemic importance as the second-largest bank in Morocco in terms of assets accounting for 27% of domestic deposits, also reflected in the Organic Law 02-12 which identifies BCP as a strategic corporate in Morocco. Consequently, BCP's global local-currency deposit rating is two notches higher than its ba3 BCA.

BCP's global foreign-currency deposit ratings of Ba2/Not Prime are constrained by the country ceiling for such deposits, which captures foreign currency transfer and convertibility risks.

BCP's CR Assessment of Ba1(cr)/Not Prime(cr), prior to government support is positioned two notches above the Adjusted BCA of ba3 reflecting Moody's view that its probability of default is lower than that of deposits. Moody's believes senior obligations represented by the CR Assessment will be more likely preserved in order to limit contagion, minimize losses and avoid disruption of critical functions. In most cases, Moody's then adds the same likelihood of government support uplift as currently applied to deposit ratings. In the case of BCP, its CR Assessment of Ba1(cr) is aligned with its deposit rating which is already in line with the Moroccan government bond rating of Ba1.

Finally, BCP's national-scale local currency ratings of Aa1.ma/MA-1 indicate that it is one of the strongest credits within Morocco reflecting our expectation that the bank's solvency, funding and liquidity profiles will remain stable in the next 12 to 18 months, and also the very high probability of government support, that aligns the bank's ratings to that of the sovereign on the global rating scale. The bank's national scale foreign-currency deposit ratings of Aa3.ma/MA-1 are constrained by the relevant country ceiling.

POSITIVE OUTLOOK

The outlook on the banks' long-term local-currency deposit ratings is positive, in line with the outlook on the Government of Morocco (Ba1 positive). Considering our assessment of a very high probability of government support to BCP and Attijariwafa in case of need, resulting in two notches of uplift on top of the banks' BCA, an improvement in the sovereign rating could potentially introduce one extra notch of government support uplift.

WHAT COULD MOVE THE RATING -- UP/DOWN

Positive pressure could be exerted on both banks' ratings following an improvement in the government of Morocco's Ba1 rating that currently acts as a constraint, which would indicate a higher capacity to support the banking system.

Negative pressure on both banks' ratings is unlikely in the short term given the positive outlook. However, in the medium term, negative pressure could be exerted following a deterioration in the economic environments where BCP and Attijariwafa operate, leading to an acceleration in non-performing loan formation that will also erode the banks' profitability and capital.

The B3(hyb) on Attijariwafa's AT1 could be upgraded or lowered in line with changes in the bank's ba3 BCA, which might occur for any strengthening or weakening of the bank's credit fundamentals. Moody's would also reconsider the B3 (hyb) rating level if the probability of a coupon suspension increased.

LIST OF ASSIGNED RATINGS

Issuer: Attijariwafa Bank

Assignments:

....LT Bank Deposits (Local Currency), Assigned Ba1 Positive

....LT Bank Deposits (Foreign Currency), Assigned Ba2

....ST Bank Deposits (Local & Foreign Currency), Assigned NP

....Pref. Stock Non-cumulative (Local Currency), Assigned B3 (hyb)

....NSR LT Bank Deposits (Local Currency), Assigned Aa1.ma

....NSR LT Bank Deposits (Foreign Currency), Assigned Aa3.ma

....NSR ST Bank Deposits (Local & Foreign Currency), Assigned MA-1

....NSR Pref. Stock Non-cumulative (Local Currency), Assigned Ba3.ma (hyb)

....Baseline Credit Assessment, Assigned ba3

....Adjusted Baseline Credit Assessment, Assigned ba3

....LT Counterparty Risk Assessment, Assigned Ba1(cr)

....ST Counterparty Risk Assessment, Assigned NP(cr)

Outlook Actions:

....Outlook, Assigned Positive

Issuer: Groupe Banque Centrale Populaire

....LT Bank Deposits (Local Currency), Assigned Ba1 Positive

....LT Bank Deposits (Foreign Currency), Assigned Ba2

....ST Bank Deposits (Local & Foreign Currency), Assigned NP

....NSR LT Bank Deposits (Local Currency), Assigned Aa1.ma

....NSR LT Bank Deposits (Foreign Currency), Assigned Aa3.ma

....NSR ST Bank Deposits (Local & Foreign Currency), Assigned MA-1

....Baseline Credit Assessment, Assigned ba3

....Adjusted Baseline Credit Assessment, Assigned ba3

....LT Counterparty Risk Assessment, Assigned Ba1(cr)

....ST Counterparty Risk Assessment, Assigned NP(cr)

Outlook Actions:

....Outlook, Assigned Positive

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.

The Local Market analyst for these rating is Olivier Panis, +971.4.237.9533.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alexios Philippides
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 852 3758 1350
Client Service: 44 20 7772 5454

Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 852 3758 1350
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.