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Rating Action:

Moody's concludes review on Credit du Maroc's deposit ratings

12 Jun 2015

Actions follow conclusion of methodology-related review

NOTE: On December 30, 2015, the press release was corrected as follows: In the third paragraph of the REGULATORY DISCLOSURES section, changed the unsolicited credit ratings disclosure to: “This rating was not initiated or not maintained at the request of the rated entity”; in the fourth paragraph of the REGULATORY DISCLOSURES section, changed the participating rated entity in unsolicited credit ratings disclosures to: “Moody’s considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody’s. On this basis, the rated entity or its agent(s) is considered to be a participating entity. The rated entity or its agent(s) generally provides Moody’s with information for the purposes of its ratings process”. Revised release follows.

Limassol, June 12, 2015 -- Moody's Investors Service has today downgraded to Ba1/Not Prime from Baa3/P-3 the local-currency deposit ratings of Crédit du Maroc (CdM), aligning the ratings with the Ba1 rating of the government of Morocco. Today's downgrades conclude the review initiated on 17 March 2015 (see press release at https://www.moodys.com/research/Moodys-reviews-global-bank-ratings--PR_321005) following the publication on 16 March of Moody's revised bank rating methodology. Concurrently Moody's has affirmed CdM's ba3 baseline credit assessment (BCA), affirmed its ba1 adjusted BCA and affirmed its Ba2/Not-Prime foreign-currency deposit ratings. The long-term local-currency deposit rating now has a stable outlook.

In light of the revised bank rating methodology, Moody's rating actions on CdM reflect the following considerations: (1) Moody's view of Morocco's "Moderate-" macro profile; (2) the recent deterioration of profitability and asset quality metrics, which we expect will stabilise in the medium term and are moderated by improving capital buffers and stable funding profile; (3) our assessment of a high likelihood of affiliate support in the event of need from its French parent bank -- Crédit Agricole S.A. (CASA, deposits A2 positive, ba1 BCA); (4) the change in Moody's view that the capacity of the government to provide support is limited to the government's own creditworthiness, as implied by its bond rating, rather than the previous expectation that banks could benefit from additional support through other policy tools.

Moody's has also assigned Counterparty Risk Assessment (CR Assessment) of Baa3(cr)/P-3(cr) to CdM, in line with its new bank rating methodology.

Please refer to this link for the revised methodology: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_320662

A full list of affected ratings can be found at the end of this press release

RATINGS RATIONALE

AFFIRMATION OF THE BCA

A MODERATE- MACRO PROFILE IN MOROCCO SUPPORTS THE BANK'S CREDIT PROFILE

Moody's affirmation of CdM's standalone ba3 BCA is firstly supported by Morocco's "Moderate-" macro profile. CdM operates in Morocco and benefits from: the country's relatively strong and sustained growth over the past several years; its industrial policy agenda that supports the development of higher-value-added exporting sectors; the coherent and sound economic policies and a high degree of political stability and the country's limited susceptibility to external risks. Nonetheless, operating conditions are also impacted by Morocco's significant structural rigidities in terms of purchasing power, unemployment and competitiveness. Our view of Moroccan banks' operating environment also incorporates (1) the historical volatility of credit growth in the country, and (2) banks' increasing exposure to higher risk Sub-Saharan Africa regions. These risks are somewhat mitigated by the gradual strengthening of bank supervision and macro-prudential regulation in Morocco.

WEAK ASSET QUALITY PRESSURING THE BANK'S PROFITABILITY AND LOSS-ABORPTION BUFFERS MITIGATED BY A STABLE FUNDING PROFILE

CdM's BCA affirmation was also driven by pressures on the bank's profitability metrics, with a net income to average assets ratio of 0.5% as of December 2014 versus 0.7% in 2011, mainly caused by a reduction in lending activity, in the context of a significant reorganisation of the bank's operations, combined with a higher cost of risk. Moody's expects ongoing pressure over the next 12 to 18 months from the banks' cost of risk and some additional operating charges related to the implementation of the commercial reorganisation of the bank. These pressures should be only partly mitigated by the expected stabilisation of the cost of risk and the continuous growth in the retail segment, which supports the stability of the bank's net interest margin at 3.3%. The bank's BCA is also constrained by weak asset quality metrics, with non-performing loans representing 12.3% of total loans as of December 2014, which have steadily deteriorated over recent years. Amplified by the reduction in the loan book by 4.9% in 2014 and by a conservative provisioning and impairment policy, the bank's weak asset quality metrics will nevertheless benefit from a rebound in the Moroccan economy, expected to grow by 4.5% in 2015, which will lead to a stabilisation of performance over the outlook horizon.

Although Moody's notes the steady increase in CdM's capital ratios, with Tier 1 and Capital Adequacy ratios standing respectively at 11.1% and 14.5% as of year-end 2014, the bank's capitalisation remains moderate in light of relatively modest provisioning coverage and high --albeit decreasing- credit concentrations, which render the bank vulnerable to event risk in case of large borrower defaults.

CdM's BCA is supported mainly by its stable funding profile, underpinned by a stable deposit base, representing 75% of assets as of December 2014, of which 82% were made of stable, diversified and low-cost current and saving accounts. Moody's expects that the growing activities of the bank in the retail segment will continue supporting the stability of the bank's funding base and limited recourse to market funding.

HIGH LIKELIHOOD OF AFFILIATE SUPPORT IN CASE OF NEED

Moody's affirmation of CdM's ba1 adjusted BCA, incorporating two notches of affiliate support uplift, is based on our assessment of a high likelihood of affiliate support in the event of need from CASA. This reflects CASA's long track record of operational support to CdM, its 78.7% controlling stake and continued reinvestment in the bank.

DOWNGRADE DRIVEN BY CHANGE IN METHODOLOGY

The downgrade of CdM's local-currency deposit ratings to Ba1/NP from Baa3/P-3, aligning it with the rating assigned to the government of Morocco, reflects Moody's revised approach in determining the capacity of a government to support banks under its updated bank rating methodology.

Previously, when imputing government support assumptions in bank ratings, deposit and senior unsecured debt ratings were, in certain cases, positioned above their relevant sovereign rating. This reflected an expectation that the extensive policy tools available to central banks to support domestic banks could result in a capacity for the sovereign to provide support to its country's banks that is higher than its own creditworthiness. However, insights gained from historical experiences showed that when a crisis is prolonged, these measures remain insufficient to restore confidence to the system and an outright recapitalisation of the banks is necessary.

Consequently, Moody's revised methodology solely relies on the government's domestic long-term local-currency rating (Ba1 in the case of Morocco) as the anchor for determining the capacity of the government to provide support.

RATIONALE FOR OUTLOOK

The stable outlook reflects Moody's view that CdM's business model and performance will remain stable in the next 12 to 18 months. Benefiting from a stable operating environment and higher growth economic growth prospects in Morocco, CdM's profitability and asset quality are expected to stabilise, following the bank's commercial reorganisation and the active clean-up and provisioning of its legacy loan portfolio.

ASSIGNMENT OF COUNTERPARTY RISK ASSESSMENTS

As part of today's actions, Moody's has assigned CR Assessments to CdM. CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails, and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than expected loss and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities.

In most cases, the starting point for the CR Assessment -- which is an assessment of the ability to avoid defaulting on its operating obligations -- is one notch above the bank's adjusted BCA, which represents the rating agency's view of the probability of a bank failing on its obligations without considering government support. Moody's then assesses the likelihood of support to determine the extent of the uplift in the CR Assessment.

As a result, the CR Assessment of Baa3(cr)/P-3(cr) for CdM is one notch higher than its Ba1 local-currency deposits rating, reflecting Moody's view that authorities are likely to honour the operating obligations the CR assessment refers to in order to preserve the bank's critical functions and reduce potential for contagion.

WHAT COULD MOVE THE RATINGS UP/DOWN

Upwards pressure on CdM's ratings could develop following (1) a significant strengthening of CdM's capital buffers; (2) a reduction in single-name concentrations; and (3) material improvements in the domestic operating environment, notably existing competitiveness challenges that constrain economic growth potential.

Downward pressure on CdM's ratings could develop following (1) a deterioration in the operating environment, leading to an acceleration in non-performing loan (NPL) formation, which would erode the bank's profitability and capital; (2) intensifying liquidity pressures; or (3) a weakening in the capacity of CdM's parent bank to provide support.

LIST OF AFFECTED RATINGS

Issuer: Credit du Maroc

....Counterparty Risk Assessment , Assigned Baa3(cr)

....Counterparty Risk Assessment , Assigned P-3(cr)

....Adjusted Baseline Credit Assessment , Affirmed ba1

....Baseline Credit Assessment , Affirmed ba3

....Long-Term Deposit Rating (Local Currency) , Downgraded to Ba1 Stable from Baa3 Rating Under Review

....Long-Term Deposit Rating (Foreign Currency) , Affirmed Ba2

....Short-Term Deposit Rating (Local Currency) , Downgraded to NP from P-3

....Short-Term Deposit Rating (Foreign Currency) , Affirmed NP

..Outlook, Stable

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The Local Market analyst for these ratings 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

This rating was not initiated or not maintained at the request of the rated entity.

Moody’s considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody’s. On this basis, the rated entity or its agent(s) is considered to be a participating entity. The rated entity or its agent(s) generally provides Moody’s with information for the purposes of its ratings process.

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
Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Kanika Business Centre
319 28th October Avenue
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Sean Marion
Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Cyprus Ltd.
Kanika Business Centre
319 28th October Avenue
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's concludes review on Credit du Maroc's deposit ratings
No Related Data.
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