Moroccan banks should continue to show resilient performance in 2022, although global and domestic conditions have become more uncertain, Fitch Ratings said on Tuesday. The recovery in credit fundamentals in 2021, with the post-lockdown rebound, has placed banks in a good position to weather global risks and domestic drought, the rating agency adds in a new comment covering the seven largest banks in Morocco.
Fitch recalls having revised the sector outlook for Moroccan banks from “positive” for 2022 to “neutral”. She points out that “this contrasts with her sector outlook for African banks, where the outlook has been revised, meaning shocks to banks in some regional markets are likely to be larger,” adding that she expects “further deterioration in 2022, although this should be manageable given banks’ cautious approach to lending.”
Sector profitability has recovered in 2021, with the average operating profit to risk-weighted assets ratio increasing to 1.7% (vs. 1% for 2020), supported by lower loan impairment charges . The improvement was confirmed in the second quarter, with the annualized net income of the largest banks reaching pre-pandemic levels, due to a 20% drop in said charges.
On the other hand, capitalization strengthened in 2021. Consolidated common equity tier 1 ratio increased to 10.2% at the end of 2021 (end of 2020: 9.7%), supported by better retention earnings and moderate loan growth. Bank capitalization should therefore remain at these levels in 2022, supported by better profitability, Fitch continues.
It says funding and liquidity remain strengths, with banks mostly funded by stable customer deposits and with moderate concentrations of single depositors by emerging market standards. And to recall that in June 2022, the Moroccan Parliament approved a law authorizing banks to issue covered bonds, which will help to further diversify the sources of financing and reduce the cost of financing for banks.