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Overview of the Moroccan Banking Sector

Rabi Boundi

10/11/2011

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Executive summary

The banking environment of Morocco is stable and is closely supervised to avoid any excess by banks. Indeed,

the strong regulation of the banking sector, its policy of risk management and its limited integration in the global

financial system allowed it to be spared by the financial crisis. Restructured in the late 1990s, the process of

modernizing the financial system had improved the banks’ assets quality. In the same vein, the refinancing

facilities and the increasing contribution of deposits to customers in the global resources also participated in

reinforcing the financial strength of banks. Finally, the sector's activity, being mainly focused on the traditional

business of banking, that is, bank intermediation and credit to the domestic market, protected the system from

the drifts of the international economy.

On the economic front, the dynamics facing the country over the past five years has enabled the banking sector

to strengthen its role as the engine of the Moroccan economy. Bank financing has grown considerably through a

window of opportunity marked by the rise in consumption and investment of all economic agents. Thus, the

performance recorded in recent years both in terms of GDP growth, control of inflation and rising foreign

investment, allowed the Moroccan economy to be one of the strongest and most competitive countries in the

MENA region (Middle East and North Africa).

However, like all emerging markets, the economic crisis in the West has also partially infected the country’s

financial system due to the correlation of the economic cycle with that of its European partners. The

underperformance recorded in key sectors and the recovery since the beginning of 2010 demonstrate the

resilience of the economy to the crisis.

Nevertheless, the high concentration of Moroccan banks leads them to seek growth opportunities. The

downward trend of the margin intermediation encourages banks to seek new sources of revenue in the local

market but also internationally. If financing and investment banks as well as the activity of bank assurance are

being increasingly developed, the international activities of the major banking groups are real growth

opportunities because of the economic and financial potential target markets.

This study will try to provide an outline of the Moroccan banking industry by analyzing its structure and

evolution.

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Table of Contents

1 History ................................................................................................................................................................4

1.1 Before the Protectorate .............................................................................................................................4

1.2 The colonial period .....................................................................................................................................4

1.3 After the independence .............................................................................................................................4

2 Structure .............................................................................................................................................................5

2.1 The Central Bank and its role in the economy ...........................................................................................6

2.2 Typologie ....................................................................................................................................................6

2.2.1 Public or semi-public banks ................................................................................................................7

2.2.2 Private banks ......................................................................................................................................8

2.2.3 Offshore banks ...................................................................................................................................8

3 Banking models ..................................................................................................................................................8

3.1 Attijariwafa bank and BMCE, universal banks ............................................................................................8

3.2 The Popular Banks group, an atypical universal banking model ................................................................9

3.3 The former OFS ...........................................................................................................................................9

3.4 The subsidiaries of French banks (BMCI, CDM, SGMB) ..............................................................................9

3.5 Microfinance institutions ...........................................................................................................................9

4 Banks network ................................................................................................................................................. 10

4.1 Banked population .................................................................................................................................. 10

4.2 Branches .................................................................................................................................................. 10

4.3 ATMs ........................................................................................................................................................ 11

5 Regulation ........................................................................................................................................................ 11

5.1 Monetary policy ....................................................................................................................................... 12

5.2 Foreign Currency Control ........................................................................................................................ 12

6 International growth ....................................................................................................................................... 12

6.1 The need for internationalization ............................................................................................................ 12

6.2 Expansion in Africa .................................................................................................................................. 13

6.3 The expatriate’s remittances ................................................................................................................... 14

7 The Moroccan banking sector and the global crisis ........................................................................................ 15

7.1 The threats of the financial crisis ............................................................................................................ 15

7.2 Potential developments of the crisis ....................................................................................................... 16

8 Conclusion ....................................................................................................................................................... 16

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1 History

To understand the structure of the Moroccan banking sector, it is convenient to explain its development during

the course of the history of the country.

1.1 Before the Protectorate In Morocco, there is no real banking sector until the 1800s; it was then that the first banks in Morocco were

established by the initiative of foreign powers with colonial ambitions.

The first Moroccan bank was founded in 1802 under the name of "banque Pariente". It was not until the late

19th century when the first foreign banks settled in Morocco: the "Comptoir National d'Escompte de Paris" in

1896 (French bank), and the "Deutsche Orient Bank" in 1906 (German bank).

The entry of foreign banks in Morocco was favored by two factors: On the one hand, the country's opening to

the outside, and international exchange, gives rise to agreements between Morocco and its foreign partners,

which were based on the principles of free trade. Several treaties were signed (French-Moroccan Treaties of

1785 and 1825, Moroccan-American Treaty of 1839, Anglo-Moroccan Treaty of 1856, Convention of Madrid of

1880). On the other hand, with the loss of state sovereignty over much of its territory, France took the

opportunity to put his hand on the Moroccan economy. To limit the hegemony of France, and to preserve the

financial and commercial interests of other powers, in 1906, Germany led the conference in Algeciras that

instituted the state Bank of Morocco in Tangier. The role of the Moroccan government in this bank was purely

formal.

1.2 The colonial period In 1912 with the signing of the protectorate treaty, France undertook a series of monetary and financial

measures. At that time, banking was not regulated as such, despite the large influx of foreign banks to Tangiers

mainly but also in Casablanca, and finally the end of monetary pluralism with the replacement of the Rial

Hassani in 1920 by the "Moroccan Franc".

It was not until 1943 that the first regulation was established, based in French law, for the supervision of banks

and professions related to the banking business.

At that time, the Moroccan banking system included a large number of banks: 75 in 1959 (55 in Tangier and 20

in Casablanca).

1.3 After the independence Subsequently to signing the agreements ending the protectorate, and after the removal of the status of the

international zone of Tangier (October 29, 1956), the Moroccan state recovered full sovereignty over its

territories.

The main concerns of the state were:

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The political and legal unification of the country.

The economic and social development.

Numerous reforms underwent for the Moroccan banking system:

Replacement of the State Bank by the Bank of Morocco in 1959, followed by Bank Al Maghrib (BAM)

since 1987.

The creation between 1959 and 1967 of public financial institutions involved in banking activities.

In 1967, the amendment, by royal decree, of the banking regulations in force since 1943

In February 2006, the approval of a new law reform which focuses on the following main areas:

o Improvement of the institutional framework.

o Strengthening of good governance rules.

o Strengthening the protection of the interests of clients of credit institutions.

Certainly, the evolution experienced by the Moroccan banking sector from the first until the last reform

illuminates the importance of banks in the national economy, which leads us to define the bank structure and its

various types.

2 Structure

The Moroccan banking system is similar to that of France, but not quite as sophisticated. It is composed of a

Central Bank and about 20 other commercial banks that provide a comprehensive range of services. Financing is

available from semi-public and from private institutions.

Moroccan banks are divided into 13 private banks and 7 public or semi-public banks. 6 Offshore banks control

less than 2% of the banking system assets, while the government still controls around 23% of the banking sector,

the share has been declining over the years, through selling its shares to the public.

With the government attempting to establish Morocco as a strong financial hub, the government has been

attempting to liberalize the market. Recently it offered 22% of Credit Agricole for public subscription. The

number of commercial banks in Morocco has decreased from 2003, where the number of private banks

amounted to 18. The reason for the decline in the number of banks, finance companies, and consumer credit

companies is the process of reconstructing the financial sector. This resulted in mergers and acquisitions to

emerge as strong banks and position Morocco as a hub of commercial banks with a potential for strong

leadership.

Attijariwafa is considered the leading financial institution in Morocco with around 324.9bn dirhams of assets in

2010. BMCE is the second largest with assets worth 136bn in 2010. Other large banks include BMCI, and Banque

Centrale Populaire, which together own assets amounting to over 30bn dirhams.

The Moroccan financial sector has experienced over the past two decades, a profound change marked by the

restructuring and consolidation of former Specialized Financing Organizations (Organismes de Financement

Spécialisés: BNDE, CIH, CAM), privatization of public banks (BMCE, BCP) and a major merger (BCM-Wafabank). In

addition to the overhaul of the regulatory and institutional framework, the cutting edge modernization of the

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banking sector has enabled the Moroccan financial sector today to be one of the most organized and most

powerful of the southern Mediterranean . This structural reform of the financial system has earned the country

to be recognized by the IMF as having a "stable banking sector, adequately capitalized, profitable and impact

proof" (IMF Country Report 2009).

The various financial reforms initiated in the mid-90s, whether those to modernize the capital market, liberalize

exchange or restructure the banking sector, had the expected results by allowing the banking sector to

consolidate its role as the main component of the financial system, with total assets of 112.4% of GDP in 2009.

Also, capital markets have also contributed greatly to strengthening the financial structure of the country with a

market capitalization representing 68.6% of GDP in that year.

2.1 The Central Bank and its role in the economy Bank Al Maghrib, the Moroccan Central Bank, sets the interbank interest rates. It aims to regulate money supply

and demand through 7 day advances, open market operations, repo type transactions, and currency swaps.

There is a discount window type facility charging 100bps1 over interbank rate, but meant to be used as last

resort. Traditionally, Bank Al Maghrib was administered through the Ministry of Finance. However, a legislative

change in February 2006 made the Central Bank’s authority independent from the Ministry of Finance. As a

result, the Central Bank has more autonomy when it comes to designing and implementing monetary policy.

Since 2006, the primary objective of Bank Al Maghrib is price stability. A multi-criteria approach is used to assess

the inflation risk:

change in global demand

unemployment and capacity restrictions

monetary conditions (money supply, interest rates, counterparty risks, real estate and financial prices)

import prices

inflation expectations

2.2 Typologie The Moroccan banking sector experienced in the early 1990’s a movement of restructuring and consolidation

that has enhanced the concentration of banking institutions to set up state-owned banks that were on the verge

of bankruptcy and give birth to ‘national champions', able to develop an international dimension. The past three

years have been characterized by the strengthening of the international presence through the acquisition by

two Spanish banks, namely Banco Sabadell and La Caixa, of licenses to exercise within the territory and the

acquisition by Al Barid bank for a banking license. The 20 banks can be divided into three banking groups given

the shareholding structure.

1 Basic Point System

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The three groups within the Moroccan banking sector differ clearly by the size of their branch network2 but also

by the outstanding deposits and loans to customers:

Private Shareholding: this group consists of a banking network of 1,248 branches, and manages

outstanding deposits and customer loans of 401, 6, and 310.7bn dirhams respectively. Market shares of

these two activities stood at 68.1% and 60.4% respectively;

Public Shareholding: consisting mainly of restructured former state-owned banks, this group is composed

of a network of 431 bank branches and manages outstanding deposits and loans of 66.4bn dirhams and

82.0bn dirhams. Market shares of these two activities stood at 11.3% and 15.9% respectively;

Foreign shareholding: these banks have a network of 760 branches and manage outstanding deposits and

customer loans 121.4 and 122.1bn dirhams respectively. Market shares of these two activities stood at

20.6% and 23.7% respectively.

The Moroccan banks can also be classified based on the criteria listed in Article 11 of the Banking Act of 2006:

2.2.1 Public or semi-public banks

Created by the State to perform specific tasks in terms of funding:

Bank Al Amal

Banque centrale populaire (BCP), group of 11 regional banks. It has the largest branch network and the

widest customer base in Morocco

CDG capital (Investment bank)

Crédit Agricole du Maroc (CAM), formerly Caisse National de Crédit Agricole (CNCA)

Crédit Immobilier et Hôtelier (CIH) subsidiary of CDG Group since 2005

Fond d’Equipement Communal (FEC)

Al Barid Bank, a subsidiary of the Moroccan public post company (Maroc Poste).

2 see page 11

Public shareholding

• Crédit Agricole du Maroc

• CIH

• Fonds d'Équipement Communal

• CDG Capital

• Média Finance

• Al Barid Bank

Local private shareholding

• Attijariwafa bank

• Crédit Populaire du Maroc

• BMCE bank

• Bank Al Amal

• Union Marocaine de Banques

• CFM

• CFG

Foreign private shareholding

• Société Générale Maroc

• BMCI

• Crédit Du Maroc

• Arab bank Maroc

• La Caixa

• Banco Sabadell

• Citi bank Maroc

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2.2.2 Private banks

It is worth noting that the capital of most private banks is essentially foreign:

Arab Bank Maroc, a subsidiary of the Jordanian Arab Bank

Attijari wafa Bank, the largest North African banking group and the third in Africa

Banque Marocaine du commerce extérieur (BMCE), the second largest banking group by assets, present

in Africa and Europe

Banque Marocaine pour le commerce et l’industrie (BMCI), subsidiary of BNP Paribas

Casablanca Finance Markets (CFM)

Citibank Maroc, investment bank subsidiary of Citibank

Crédit du Maroc (CDM), subsidiary of Credit Agricole SA.

Média Finance (MDF)

Société Générale (SG)

Union Marocaine de Banque (UMB)

CFG Group, a Moroccan investment bank

Banco Sabadell

La Caixa

2.2.3 Offshore banks

These banks a generally dedicated to collect resources in convertible foreign currencies, financial investment

transactions, etc. Offshore banks must obtain approval from the BAM (Bank Al Maghrib). They are all installed in

Tangier’s offshore banking zone:

Attijari international Bank (Attijari I.B-BOS)

Banque International de Tanger (BIT-BOS)

BMCI-Groupe BNP (BMCI-BOS)

Chaâbi International Bank

Société Générale Tanger Offshore (SGT-OS)

Succursale Offshore de la BMCE (SUCC.OS.BMCE)

3 Banking models

In Morocco, the last two decades have witnessed the reorganization of the banking operations through

consolidation and reconciliation, giving rise to multi-business banks. In this context, the following are the

different models existing in the Moroccan banking sector:

3.1 Attijariwafa bank and BMCE, universal banks The banking models of Attijariwafa bank and BMCE are based on the existence of several businesses, ranging

from retail banking in the bank market to collective management. Both banking groups have several subsidiaries

engaged in various activities, including the largest operating in insurance, real estate, consumer credit, etc. Their

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income originates mainly from retail banking both local and international, predominantly Attijari Tunisie and

CBAO for Attijariwafa bank and the Groupe Bank of Africa for BMCE.

3.2 The Popular Banks group, an atypical universal banking model The model of the Popular Banks group is atypical because the organizational structure of the bank is different

from a traditional universal bank. Indeed, the banking group consists of Crédit Populaire du Maroc, an entity

with 10 regional Banque Populaire (cooperatives) and the Banque Centrale Populaire(BCP), body of the Group.

The Banque Populaire regional banks are in charge of the business of retail banking in their respective regions,

while the BCP is the investment banking and finance group. The latter's main business is the investment of cash

surpluses for regional banks. During the last five years, the bank has positioned itself at the level of corporate

activity to compensate for the reduced yield of the bond portfolio and to position the group on a more

profitable segment.

3.3 The former OFS The former Specialized Financial Institutions (OFS, Organismes Financiers Spécialisés), Credit Immobilier et

Hotelier (CIH) and Credit Agricole du Maroc (CAM), have long suffered from the specialization of their activities,

up to graze bankruptcy. The concentration of the assets of both banks of the agricultural and real estate

weighed heavily on bank capital at the beginning of the 2000’s. The intervention of the state on many occasions

was needed to deal with the degradation of almost the entire customer portfolio of these banks (disputes on the

agricultural sector and real estate of more than 10bn dirhams). Unlimited risk-taking in the provision of credit

(low collateral requirements) and the failure of borrowers (farmers, property developers) has precipitated these

banks to near-bankruptcy. The various recovery plans and sanitation launched in the past decade have severely

impacted the financial performance of these banks. However, the recent adoption of a strategy of "multi-trade"

could bear fruit in the coming years, with asset diversification and positioning in the parabanking activities as

main objectives.

3.4 The subsidiaries of French banks (BMCI, CDM, SGMB) The banks with foreign ownership, especially those which are primarily owned by French banks, are primarily

engaged in universal banking in Morocco. It is worth noting that the dividend yield of these banks, namely CDM

and BMCI is of the highest in the sector, with an average of 5.0% against 2.3% for the sector. Also, the low

weight of these subsidiaries in the portfolios of the global banking groups does not encourage the management

of these banks to invest, both in terms of equity injection, or deployment of active strategies in their local

markets. Certainly, due to the weak development of their branch network, in recent years they have lost market

share in the retail banking. Besides, the insufficient size of their equity does not allow them to take part in

structuring projects developed by the country.

3.5 Microfinance institutions Since the early 1990s, USAID has helped increasing the access to financial services for the poorer groups of the

population in the developing countries, including Morocco. However, it was not until January 2000 that the

shape of the microfinance landscape was finally formalized. The law regulating microfinance stipulates that

micro credit should be carried out by essentially non‐profit finance companies. Microfinance institutions (MFIs)

cannot collect savings and there is a ceiling on loan sizes now set at about 30.000 dirhams. MFIs are only

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allowed to lend for productive activities. However, MFIs have broad permission to innovate both in mobilizing

capital and in lending methodology.

Microfinance is represented by a dozen of micro-credit associations (Associations de MicroCrédit, AMC),

however, the essential of the micro-credit activity is dominated by the largest three: Al Amana, Zakoura and

FBPMC. These institutions target the 8mn people unbanked population among which 1.2mn are already covered

by the AMC, accounting for a total of 5.7bn dirhams in micro-credits. Moreover, since 2007 the sector benefits

from a financing fund: “Jaida “, held by Dépôts et Gestion, la Poste, Caisse des Dépôts et Consignations (France),

KFW (Germany) and the French Development Agency.

Some actions in order to downscale the services of some major banks, directly or in partnership with the AMC,

are being undertaken. Some examples include the partnerships of Attijariwafa bank and FONDEP22 with the

project of to make accessible bank services to the unbanked population, or the partnership of BMCE and Al

Amana for the sale of home loans.

4 Banks network

4.1 Banked population The banking rate (number of accounts / total population) has risen sharply in recent years and it is forecasted to

reach 50% before 2013. Indeed, in late 2009, the banking rate of the Moroccan population was 47%. This rate is

similar to that experienced by emerging markets but remains well below that of developed countries such as

Spain or France, which is respectively 92% and 99%. Taking into account the entire network of the public postal

service and its bank “Al Barid Bank”, the banking sectors accounts for a bank branch for each 6000 inhabitants.

Given this fact, it appears that the improvement of the banking penetration is a major challenge for the

Moroccan financial system. Indeed, the sector has the leverage of improving the banking rate, to increase the

growth of consumption and investment of economic agents. It is worth noting that the Moroccan economy is

becoming more and more a debt economy where bank financing is central, portending a favorable development

of banking in the country.

4.2 Branches For the coming years, the most important banks are planning to open an average of 400 branches per year.

Table 1 Number of branches

2009 2012

Attijariwafa bank 791 1091

BCP 850 1150

BMCE 555 765

Société Générale Maroc 317 467

CDM 266 371

BMCI 254 329

CIH 152 227

Total 3185 4400

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In 2012, the banking network of the main institutions of the place would amount to 4.400 branches, plus the

network of public postal service (1.880 branches at end-2012), bringing the banking rate above 55%.

4.3 ATMs The ATM network is constantly increasing its density with more than 4.700 terminals all over the country. Given

that the banked population rate is estimated at 47%, this means there is 1 ATM for every 3.000 Moroccans

holding a bank account. 7,3mn cards have been issued so far by local banks including more than 5,7mn

debit/credit cards (Visa, MasterCard, etc.) and about 1,6mn cards used only for withdrawals in the issuing bank

ATMs.

The number of transactions is steadily increasing since 2007 when the number of ATM transactions was 85mn,

amounting to 72bn dirhams. In 2010, more than 120mn transactions from ATM were performed, accounting for

more than 90bn dirhams.

In regards of credit cards purchases, nearly 39mn transactions were performed in the first quarter of 2011, with

Moroccan bank cards in shops equipped with electronic payment terminals (TPE), for a total of 33bn dirhams, an

increase of 23% over the same period in 2010.

Cash withdrawals continue to represent the bulk of transactions through credit/debit cards.

Two are the main technological suppliers of ATM operating systems:

HPS (PCO SGMB, CIH, Arab Bank and the Post Office)

M2M (BMCE and Attijariwafa bank)

These suppliers do not skimp on technology innovations to optimize the better use of the equipment, thus,

offering new services to meet the Moroccans needs, such as mobile phone and prepaid cards top-ups, bill

payments or cash deposits.

Since mid-2011, a new law allows Moroccan banks to issue international credit cards to perform e-commerce

transactions.

5 Regulation

The banking industry is highly regulated. Central Bank regulations deal with minimum capital requirements,

liquidity, solvency and legal lending limit ratios.

The Banking Act of February 14, 2006 is the basic document governing the activities of credit institutions. The

financial lawmaker is fundamentally independent, and plays a decisive and proactive role. If the Moroccan

banking system is living through the crisis in a very satisfying manner, it is thanks to the lawmaker's strict

regulations issued every month since 1993, in line with international standards in terms of risk management

(Basel II standardized norms, IFRS). The lawmaker urged all Moroccan banks to implement these norms.

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5.1 Monetary policy The tight monetary policy of the Central Bank (Bank Al Maghrib) in recent years, marked by flexibility in the

policy rate to maintain price stability and mitigate the risks of inflation and the fluidity of the interbank market

have allowed the central bank to play at full its role as regulator of the Moroccan economy. Thus, this sound

policy has allowed the Moroccan central authority to deal with economic shocks when the European and U.S.

central banks have failed in their missions.

5.2 Foreign Currency Control The Moroccan government has made the Moroccan Dirham (MDh) convertible for an increasing number of

transactions over the last years. As of February 1993, the MDh was made convertible for all current transactions

and for some capital transactions, notably, capital repatriation by foreign investors. Foreign exchange is

routinely available through commercial banks for such transactions. The Central Bank sets the exchange rate for

the MDh against a set of currencies of its principal trading partners. The rate against this set has been steady

since the 9% devaluation in May 1990, with changes in the rate of individual currencies reflecting changes in

cross-rates. In a further move, the Ministry of Finance recently decided that private enterprises are allowed to

access international financial markets directly.

The Moroccan exchange rate regime is based on a set of currencies consisting of the Euro and the US dollar,

with weights of 80 and 20 percent respectively, broadly reflecting Morocco’s trade flows.

International financial transactions are subject to the control of the Moroccan Exchange Office, which retains

the authority to act in the balance of payments in case of liquidity problems.

The liberalization of the exchange control has removed all barriers for international trade transactions, foreign

investments, income transfer, foreign technical assistance and tourism. Remittances of capital and related

income to non-residents are guaranteed. No limitations are imposed on the amount of profit remitted. Loans,

however, must be authorized by the Office d’Echange. Another important decision gives the banks the

possibility to freely conduct investment operations in international capital markets and to engage in hard

currency accounts or in any other amount of capital deposited by foreign entities.

6 International growth

In globalized market, technological change and deregulation, the banking industry has experienced over the last

decade profound changes. Increased domestic competition has led all banks in the world to reflect on their

value chain in domestic markets but also in terms of external growth. The expansion of the space of

consolidation of the Moroccan banks in recent years, mainly in the international business, has profoundly

changed their consolidated balance sheet structure. Specifically, the strategy of growth of the two largest

banking groups in Morocco, namely Attijariwafa bank and BMCE, materialized by taking majority stakes of banks

with high growth potential in the Maghreb and Africa.

6.1 The need for internationalization In Morocco, the need for internationalization of banking groups arose from the conjunction of three factors:

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The Moroccan banking market is highly concentrated with a combined market share in retail banking

of more than 60% owned by the three largest banking groups in Morocco. Also, the downward trend

of the intermediation margin pushes them to seek sources of revenue beyond the borders. It is

noteworthy however that the banking market in Morocco is far from being a mature market given the

low rate of banked population and the evolution of growing domestic demand;

The important weight of export sectors in the Moroccan economy, as well as the positioning of large

companies abroad such OCP (the world's biggest exporter of phosphates) or IAM (Public Telecom

Company) push banks to expand internationally to attract the new business flows. Also, the recent

privatization of the banking sector in some African countries encourages Moroccan banks to position

themselves abroad;

Finally, the low rate of banked population and the growth potential of the economy of neighboring

countries are all factors that encourage Moroccan banking groups to position themselves in these

markets.

Looking at the potential of the markets targeted by Moroccan banks and taking into account the economic

aspects of these regions, and their degree of maturity, we can draw the following conclusions:

North America and Europe: they are very mature markets, especially competitive, with the highest

rates of banking in the world. Countries in these regions have very high rates of bank density with an

average of more than 2000 bank accounts per 1000 adults compared with an average of 661 accounts

per 1000 adults in developing countries. For example, France, Germany and the United States have

banking rates exceeding 95% and a number of credit institutions from 349 banks in France to over

16,878 institutions in the United States. The internationalization of Moroccan banks to these areas is

impossible, if not through the establishment of subsidiaries in countries with large North African

community in order to attract financial flows of the latter to Morocco;

The Asian market and South America: the two markets represent potential development for European

and American countries which have historical economic and political relations with these target

markets. Also, economic and language barriers do not allow Moroccan banks to expand in these

regions;

The African market: it is a poorly banked market with an underdeveloped the financial system. The

countries of this continent have a very important potential for economic growth. Moroccan banks may

introduce new sources of growth in these countries.

6.2 Expansion in Africa The development potential of the economy of these countries, the low level of banking services, the advanced

stage of development of the banking industry and the limited presence of foreign banks prompted the largest

banks in place to be positioned upstream in order to develop their activities in Africa, a very profitable source of

growth in the years to come. It is worth noting that in growing economies, the first foreign bank gets a very

advantageous position by attending customer requests, and establishing a barrier of entry to potential

competitors.

If the external growth strategies differ from one bank group to another, there is no doubt that international

activities are a great growth driver for Moroccan banks in the years to come. Indeed, despite strong domestic

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demand, fierce competition at the local level, represented by a price war, naturally pushes banks to expand

beyond the borders. However, it is clear that the historical contribution from subsidiaries of these groups,

mainly finance companies and insurance companies that display results in strong growth, ensures a recurring

growth of the group results at the local level. The need for increased funding of economic agents, improving the

banking and business development of bankassurance, will most probably make these subsidiaries to be

important contributors to earnings growth of the sector in the coming years

6.3 The expatriate’s remittances Since the 1960’s, Morocco is facilitating the access to banking services to its expatriate citizens in order to

capture their capital flows. For these means, the consulates are used to host branches of “Banque Populaire du

Maroc” (or Banque Chaabi). In the early 1970’s Moroccan banks opened branches in France (Banque Chaabi,

BMCE 1972). Soon, the strategic role of the expatriates money transfer was integrated into a set of public

systems partnered with the private sector. This strategy resulted in making Morocco the most advanced country

in the world in the field of management of the money transfers of migrants, and one of the main recipients of

remittances from migrants in relation to its population.

The financial sector was partly structured by the pursuit of capturing the remittances of migrants. At present,

the number of bank branches exceeds 4000, as well as the number of ATMs. The five companies approved for

money transfer have deployed nearly 900 points of service in addition to 1700 postal offices (Al Barid bank) that

offer money transfer services like Western Union or Eurogiro. The package of products oriented to expatriates

includes currency accounts in dirhams and convertible dirhams, remotely rechargeable prepaid cards, savings

and real estate credits. Currently, the cost of transfers between accounts, even from France, goes to zero.

Deposits of Moroccans living abroad (or MRE - Marocains Résidents à l’Etranger) are an important part of

customer deposits with a share of 20.5% in 2009, down 4,7 points compared to 2005. Although the share of

these resources has declined sharply in absolute terms from over 80bn dirhams between 2000 and 2004 to less

than 30bn dirhams over the period 2005-2009, its share in total deposit remains on average 21.9%. However, it

is clear that the economic behavior of the MRE has changed in recent years, due to the substitution of the

investment offering. Indeed, the evolution of consumption, investments in financial markets and investing in

real estate rose sharply at the expense of saving.

Crédit Populaire du Maroc, historical actor in this segment, remains the leader in collecting deposits of this type

of customer with an average market share approaching 54.1% over the period 2006-2009 against an average

market share of 26.8% for Attijariwafa bank and of 10.3% for BMCE. The license granted in 2008 to perform

banking activities in European countries with strong Moroccan community resident abroad will help Attijariwafa

bank and BMCE to increase competition in this segment, where the BCP previously owned 90%. In this context,

Attijariwafa bank and BCP that already have an important branch network abroad are distributing banking

products and services to have an advantage over their competitors. The two banks are in the process of opening

over 40 branches in Europe in the coming years demonstrating the potential of this segment in terms of cross-

selling of financial products and remittances.

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7 The Moroccan banking sector and the global crisis

Lots have been written about the current international crisis. In our case, we will focus in the consequences for

Morocco and its financial industry.

It is not until recently that Morocco began to feel the first effects of the global crisis, mainly through trade. The

intelligence committee (Comité de veille stratégique), established by the Government, is responsible for

monitoring its effects and to propose new measures for the population, companies and sectors affected.

The recent global crisis has put an end to a good economic cycle, starting at the beginning of the decade in

which most of the industrialized and emerging countries have achieved significant growth rates and contributed

to the development of international trade. Morocco, as emerging economy, has also been exposed to the harm

of the economic crisis in 2009, namely the contraction of foreign investment, diminishing expatriates transfers,

the decline in trade but also the decline in income from operations built as a priority development sectors for

the government, namely tourism and Offshoring. However, the banking sector has managed to emerge

unscathed from the crisis, for several reasons, both structural and cyclical. Indeed, the strong financial system

regulation and the favorable macroeconomic developments in the country have enabled the country to cushion

the effects of this crisis. Although the Moroccan economy has been hit since the first quarter of 2009 by factors

of transmission of the international economic crisis, the fact remains that the favorable trend of

underperformance against these waves of infection during this year shows that the country has the necessary

shields to withstand the deterioration of macroeconomic balances. Without a doubt, the strong domestic

demand of households but also of public and private companies, helped mitigate these external shocks,

supported by a banking sector holding quality assets and a financial strength enabling it to fulfill its mission

perfectly.

While most developed countries liberalized their financial sectors in the 1960’s to allow market mechanisms to

regulate financial systems instead of the state, financial liberalization in Morocco started in the 1990’s in a

progressive manner, with the objectives of the modernization of the banking sector and the development of

market activities. The reform of the banking sector liberalized interest rates, modernized the instruments of

monetary policy and strengthened prudential regulation. The Moroccan banking system has high barriers of

entry. Indeed, the low exposure of banks abroad (3.1% of total bank assets at the end of 2009), the rigidity of

the foreign exchange market (restrictions on capital outflows) and the embryonic state of securitization and

derivatives markets makes the banking sector fairly tight.

7.1 The threats of the financial crisis The entry into recession in the developed world became obvious in late 2008. In turn, all the emerging

countries, even those spared by the financial crisis, due to their limited integration with global financial system,

were affected by the propagation wave of the economic crisis, mainly due to the sharp contraction of trade and

the slowdown in global private capital flows. The impact of the crisis on emerging markets is still very variable

according to their degree of integration into the global economy, the structure of their economy, the soundness

of their financial system and debt levels.

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Although not affected by the financial crisis, Morocco could not escape the initial effects of the global economic

crisis, felt through the activities most sensitive to the international situation. Thanks to the reforms undertaken

in recent years, particularly on the economic front, and to the strong internal dynamic, Morocco faces the

financial crisis in a relatively favorable position.

7.2 Potential developments of the crisis In this crisis, growth forecasts are highly uncertain, as reflected in successive revisions still to lower growth

forecasts by the IMF. Even in its latest projections, the IMF recognizes that they are subject to "exceptional

uncertainty and hazards”.

The persistence of a depressed international market, suggests that the transmission channels of the initial crisis

in Morocco will remain active in the short term. Critical developments could affect the foreign exchange

reserves, domestic economic dynamics, the labor market and social rights and public finances.

Currently, the Moroccan financial system appears as one of the best performing sectors of the Southern

Mediterranean, it allows for monetary transactions necessary for economic exchanges, as well as it allows

economic agents with funding capacity to issue capital and other financial resources available to other economic

agents in need of capital. It is controlled by two agents: the Ministry of Public Finance (Ministère des Finances

Publiques) and Bank Al Maghrib.

The reforms experienced by this sector affect all of its components, namely monetary policy, Treasury financing,

capital markets, foreign exchange regulations, and of course a large number of banks that were placed in the

center of this dynamic of reforms, given its key role in enhancing growth and acceleration of the convergence

process.

As the main component of the Moroccan financial system, the banking sector is considered a mainstay of the

economy of Morocco; it has a degree of diversification rather similar to the one of developed countries with a

higher level of financial development.

In recent years, the banking sector has seen major changes in its own organization and relational modes. It is

characterized by a high concentration. The prime goal of profitability follows an overall business strategy in

which all employees must have the motivation and the desire to go in the same direction.

8 Conclusion

In the last five years, the Moroccan banking sector has experienced a significant development because of the

changing regulatory framework, the economic environment and the clear desire of development. However, the

volume recorded in the credit business, the intense competition and its negative impact on the rate margins and

commitment of banks to finance certain sectors, established as a national priority by the government, are

increasing the risk exposure of banks.

The Moroccan banking sector is able to withstand the various international shocks due to its low exposure to

global regulations and its financial market. The consolidation of domestic demand in recent years and the

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international deployment reflects the industry's ability to grow organically. Finally, the sector, as a whole,

possesses quality bank assets and a sound financial stability, reinforced by the weight of unpaid resources, the

quality of capital and constant improvement of indicators of risk/remuneration. It is also worth mentioning the

active role played by Bank Al Maghrib to regulate the liquidity needs of the banking system, thus diminishing the

tensions in the interbank market.

Through the analysis of the different banking models, we have shown that the model of universal banking is the

dominant one in Morocco. However, the development of the main activities of the banking model, namely the

commercial bank and the bank markets and investment remains very disparate. Indeed, the models of

Attijariwafa bank, BMCE and the Popular Banks group, have an income over commercial banking and investment

banking and markets much higher than that of French subsidiaries groups or the former OFS.

The three universal banks Attijariwafa bank, Credit Populaire du Maroc and the BMCE, because of their market

share, the size of their networks and their financial base, form the core of the banking sector. These three

banking groups monopolize more than 60% of the activity of credit and deposits and more than 60% of bank

assets and branch network. These three banks have, in total, increased their netted income, driven by the

volume effect, by improving the risk / return, and by expanding the scope of consolidation;

Faced with the low development of local retail banking, the Moroccan banking sector is more and more focusing

in market activities, Investment and bankassurance. Indeed, the development of financial markets, the opening

of Morocco to international markets and the relaxation of currency exchange control regulations portend a

growing trend of this activity in the coming years. On the external part, the maturity of the local market, the

phenomenon of globalization and the search for new growth are pushing banks to internationalize. The

potential target market for Moroccan operators is the African continent. The geographical and cultural

proximity, the level of development and potential economic growth of African countries are strong assets,

justifying the export of Moroccan banks in this area. The banking sector is sufficiently capitalized, as a whole, to

ensure sustained growth of its business indicators in the years to come.