## _cr15106 ## Source details **Canonical URL:** [_cr15106](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15106.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15106.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15106.pdf.json) --- ### A. Overview of the Moroccan banking sector — structure and soundness - Banking system size and composition - Bank assets equivalent to 126 percent of GDP in 2013 (81 percent in 2004). - The system comprises 19 banks, of which five are majority public-owned and seven majority foreign-owned. - The five largest banks hold a market share of deposits and credit of about 80 percent. - The three largest banks (Attijariwafa, BMCE, and BCP) hold about two-thirds of total bank assets. - Soundness indicators and funding - Average capital adequacy ratio was 13.5 (June 2014), above the minimum requirement. - Deposits amounted to two-thirds of bank liabilities on average in 2013. - Cash advances provided by BAM reached about 7 percent of total bank liabilities in 2013. - Nonperforming loans (NPLs) reached 6.9 percent in October 2014. - Foreign-exchange exposure: only about 3 percent of total domestic credit is in FX. - International activity scale (three largest banks) - Present in 10 European and 22 African countries with a total of 40 subsidiaries and 14 branches (end-2013). - International activity constituted about 19 percent of total consolidated sector activity (17 percent in Africa; about 2 percent in Europe). - On a consolidated basis, international activity accounted for 21 percent of total deposits, 16 percent of credit, and 21 percent of revenues. ### B. Systemic presence in SSA and subsidiary performance - Share of SSA assets in group consolidated assets (2013) - BCP: 9 percent - Attijariwafa: 20 percent - BMCE: 24 percent - Examples of countries with systemic presence: Benin, Burkina Faso, Cameroon, Congo, Djibouti, Gabon, Ivory Coast, Madagascar, Mali, Niger, Senegal. - Subsidiary-level indicators (limited availability) - Return on assets across subsidiaries with public data varied between -1.6 percent and 2.7 percent. - NPLs across subsidiaries with public data varied from 0.7 percent to 29.8 percent. - Definition of a systemically important subsidiary - Deposit share exceeding 10 percent of total deposits in the country OR asset share above 7 percent of GDP per country. ### C. Drivers of expansion and the role of Bank-Al-Maghrib (BAM) - Expansion modes and timing - Attijariwafa: expanded in 2008 by acquiring Crédit Agricole’s retail banking network in five West African countries. - BMCE: acquired an initial stake in Bank of Africa (BAO) in 2008; equity stake increased from 35 percent to 73 percent in 2014. - BCP: in 2012 signed strategic partnership with Atlantic Financial Group (AFG) to establish Atlantic International Business; BCP holds 50 percent of AFG and controls its management. - Motivations for expansion - Credit to private sector growth declined from 11.2 percent in 2011 to 4.2 percent in August 2014. - Holding of public bonds increased by 70 percent over the same period. - Exports to SSA grew more than fivefold in nominal terms over 2003–13; SSA is the only region with which Morocco has a trade surplus. - Moroccan direct investment in SSA (2008–12): banking sector attracted 54 percent of total investment; telecommunications attracted 34 percent. - BAM supervisory and governance role - Prior authorization required for new international expansion; assessments include country risk and bank performance, financial soundness, and governance. - Banks must transmit annually to BAM three-year business plans for establishments abroad (credits, deposits, network, results). - BAM sponsored a code of conduct and created an African Committee where the three banks meet with BAM; Committee meets twice a year at highest level and quarterly at technical level. - Bilateral MOUs exist with most host countries covering prudential supervision, information sharing, inspections, and training; MOUs generally do not include banking resolution provisions. - Consolidated supervision practiced by BAM; BAM requests prudential standards higher than host countries and organized a first supervisory college meeting for one large bank; expects others in Q1 2015. - Legal and resolution framework developments: - Parliament approved a new banking law (November 2014) expected to strengthen BAM’s supervision powers (e.g., allowing rejection of acquisitions that may pose stability challenges even within legal thresholds). - New banking law authorizes the governor to impose special measures for domestic systemic institutions, including special resolution plans, provisional administrators, transfer of nonperforming assets to ad hoc structures, or possible splits. ### D. Opportunities for Morocco and host countries - For Morocco - About 21 percent of banking sector revenue comes from cross-border activities. - Cross-border presence promotes diversification of risk, economies of scale, and better allocation of resources. - For host countries (potential benefits) - Competition, efficiency, and innovation: increased competition, access to skills/expertise, access to capital, and potential governance improvements. - Financial deepening and inclusion: potential to reach underserved market segments; data insufficient to assess Moroccan banks’ impact on inclusion. - Financial stability: diversification of financing sources and potential upgrades in supervision and regulation if home supervisors implement high consolidated standards and cooperate with host supervisors (for example, adoption of IFRS and Basel II/III standards). ### E. Challenges, new spillover channels, and risk drivers - New transmission channels and potential negative spillovers - Amplified real-financial interactions: exposure concentration (e.g., real estate) in upturns can create vulnerabilities transmitted in downturns via declines in collateral values, capital erosion, credit reduction, and depositor confidence loss. - Contagion via common lenders: a contaminated common funding source can spread liquidity/solvency problems across countries. - Parent-related risk reassessment: sudden reassessment of the parent’s exposure or need for recapitalization can trigger pressures on subsidiaries. - Cross-border syndicated loans: connected exposures via syndicated lending may create spillovers (amounts not disclosed). - Reputational risk: perceived mismanagement or macro/financial vulnerabilities can increase operational risk, funding costs, and difficulty in deposit capture. - Factors influencing magnitude and form of contagion - Banking model: subsidiaries versus branches - Standalone subsidiaries with firewalls (Morocco model) preferred by home authorities for riskier host environments; host authorities may prefer subsidiaries if domestic conditions are stronger. - Branch models may be preferred where host financial systems are underdeveloped and home supervision is stronger. - Funding structure - Retail deposit–based funding (as in Morocco) is likely to be more resilient. - Heavy reliance on wholesale funding and substantial interbank linkages increase potential for liquidity contagion. - Host financial market structure - Degree of financial intermediation and market sophistication affects diversification and risk coverage; complex structures/products may introduce additional stability risks. ### F. Institutional soundness, supervisory challenges, and operational complexities - Institutional soundness and macroeconomic fundamentals - Sustained financial system health depends on an adequate regulatory environment and incentive structure. - A poorly regulated and supervised financial system can become overextended and vulnerable, especially during rapid expansion. - A sound banking system that can absorb shocks helps reduce the frequency and amplitude of macroeconomic fluctuations. - Supervisory challenges for cross-border expansion in SSA - BAM implements high supervisory standards, for example: IFRS accounting and Basel II/III standards; consolidated supervision; appropriate NPLs reporting benchmarks; threshold limiting international exposure to about 25 percent of the total assets of the banking group. - Compliance with high international supervisory standards varies widely among African host countries and is generally lower than in the rest of the world, posing major challenges for consolidated supervision, differences in accounting and data standards, and home-host coordination. - The systemic importance at home and abroad of the three cross-border Moroccan banks imposes additional potential negative externalities to be taken into account by supervisors, including moral hazard costs associated with direct support and implicit government guarantees. - Operational and supervisory complexities - Increasing complexity of banking groups’ corporate structures makes consolidated supervision more difficult; insufficient transparency may allow undisclosed risk transfer. - Strong risk management frameworks are essential as cross-border activities increase operational risks. - Differences in accounting and data standards complicate consolidated supervision; Morocco applies IFRS, but many other African jurisdictions lag behind. - BAM has formal cooperation agreements with other supervisors, but gaps remain, notably in crisis resolution coverage of bilateral MoUs. ### G. Policy directions and supervisory priorities (enumerated) - Strengthen consolidated supervision and supervisory cooperation between home and host authorities (including supervisory colleges and joint inspections). - Improve data availability on cross-border interconnections and subsidiary-level exposures to detect risks early. - Enhance MOUs and bilateral cooperation to explicitly cover banking resolution arrangements, requiring involvement of Ministers of Finance. - Prefer consolidation and deeper integration (accounting standards, IT systems) of existing foreign subsidiaries over further geographic expansion, per BAM’s guidance. - Use legal powers (new banking law) to impose prudential measures and special resolution tools for systemic domestic institutions. - Continued close monitoring of the cross-border presence of Moroccan banks; BAM should ensure banks avoid further acquisitions that might endanger their financial soundness. - Require any further acquisition to have as a precondition the signature of a bilateral MoU to ensure adequate information provision from host to home supervisor (ex ante) and a framework for future collaboration. - Strong implementation of the new banking law and timely completion of the revision of the central bank law to strengthen BAM’s supervisory and crisis resolution powers. - Preventive measures for reputational risk: - Implement the Basel framework for dealing with domestic systemically important banks, including higher loss absorbency capital requirements. - Closely monitor the funding of subsidiaries; encourage broad reliance on local funding. - Strengthen risk management frameworks, including internal risk limits and controls on subsidiaries that are stricter than prudential limits set by host supervisors where appropriate. - Establishment and use of supervisory colleges: - Proceed with BAM’s plan to establish supervisory colleges for all three cross-border banks; the first meeting for one bank has already taken place. - Colleges should cover a broad range of issues, including anti-money laundering, and be structured to serve as effective tools for cooperation among supervisors. - Encourage simplification of complex corporate structures inherited from international acquisitions; BAM should continue discussions with banks about plans to simplify integration of subsidiaries. - Continue progress on implementing a macroprudential toolkit to strengthen surveillance of systemic risks, supported by extensive Fund technical assistance. - Advance the setting up of the crisis resolution mechanism provided in the new banking law: - Introduce a special resolution regime (SRR) where no judge could reverse a resolution decision to allow prompt action to resolve a bank if needed. - Continue work on crisis preparedness and crisis management: - Create a high-level crisis management committee. - Establish working groups to conduct “what-if” simulations. - Develop contingency planning manuals with checklists and guidelines and an effective communication plan. - Strengthen cooperation and exchange of information, including on-site visits, among African supervisors: - MoUs should be in place with all countries in which Moroccan banks are present; MoUs have already been signed with most African countries. - Extend current MoU coverage to areas still outside their scope. - Agreements among supervisors should establish clear lines of responsibility and accountability and burden-sharing plans to ensure an orderly and timely resolution framework. - Cooperation with other domestic supervisors, including agreements among Ministers of Finance, may facilitate a common supervisory approach for systemic groups. - Morocco could provide technical assistance to other supervisors in the region, sharing its experience of good practices and relatively advanced supervisory capacity. *Source: _cr15106 - 17. The vulnerability of a banking system will also depend on institutional soundness and (IMF PDF)* ### References _______________________________________________________________________________ 15 ### THE SUB-SAHARAN EXPANSION OF MOROCCAN BANKS: CHALLENGES AND OPPORTUNITIES ### A. Overview of the Moroccan banking sector — structure and soundness - Banking system size and composition - Bank assets equivalent to 126 percent of GDP in 2013 (81 percent in 2004). - The system comprises 19 banks, of which five are majority public-owned and seven majority foreign-owned. - The five largest banks hold a market share of deposits and credit of about 80 percent. - The three largest banks (Attijariwafa, BMCE, and BCP) hold about two-thirds of total bank assets. - Soundness indicators and funding - Average capital adequacy ratio was 13.5 (June 2014), above the minimum requirement. - Deposits amounted to two-thirds of bank liabilities on average in 2013. - Cash advances provided by BAM reached about 7 percent of total bank liabilities in 2013. - Nonperforming loans (NPLs) reached 6.9 percent in October 2014. - Foreign-exchange exposure: only about 3 percent of total domestic credit is in FX. - International activity scale (three largest banks) - Present in 10 European and 22 African countries with a total of 40 subsidiaries and 14 branches (end-2013). - International activity constituted about 19 percent of total consolidated sector activity (17 percent in Africa; about 2 percent in Europe). - On a consolidated basis, international activity accounted for 21 percent of total deposits, 16 percent of credit, and 21 percent of revenues. ### B. Systemic presence in SSA and subsidiary performance - Share of SSA assets in group consolidated assets (2013) - BCP: 9 percent - Attijariwafa: 20 percent - BMCE: 24 percent - Countries where Moroccan banks have a systemic presence (examples): Benin, Burkina Faso, Cameroon, Congo, Djibouti, Gabon, Ivory Coast, Madagascar, Mali, Niger, and Senegal. - Subsidiary-level indicators (limited availability) - Return on assets across subsidiaries with public data varied between -1.6 percent and 2.7 percent. - NPLs across subsidiaries with public data varied from 0.7 percent to 29.8 percent. - Definition used for a systemically important subsidiary - Deposit share exceeding 10 percent of total deposits in the country OR asset share above 7 percent of GDP per country. ### C. Drivers of expansion and the role of Bank-Al-Maghrib (BAM) - Expansion modes and timing - Attijariwafa: expanded in 2008 by acquiring Crédit Agricole’s retail banking network in five West African countries. - BMCE: acquired an initial stake in Bank of Africa (BAO) in 2008; equity stake increased from 35 percent to 73 percent in 2014. - BCP: in 2012 signed strategic partnership with Atlantic Financial Group (AFG) to establish Atlantic International Business; BCP holds 50 percent of AFG and controls its management. - Motivations for expansion - Limited domestic credit growth: credit to private sector growth declined from 11.2 percent in 2011 to 4.2 percent in August 2014. - Holding of public bonds increased by 70 percent over the same period. - Exports to SSA grew more than fivefold in nominal terms over 2003–13; SSA is the only region with which Morocco has a trade surplus. - Moroccan direct investment in SSA (2008–12): banking sector attracted 54 percent of total investment; telecommunications attracted 34 percent. - BAM’s supervisory and governance role - Prior authorization required for new international expansion; assessments include country risk and bank performance, financial soundness, and governance. - Banks must transmit annually to BAM three-year business plans for establishments abroad (credits, deposits, network, results). - BAM sponsored a code of conduct and created an African Committee where the three banks meet with BAM; Committee meets twice a year at highest level and quarterly at technical level. - Bilateral MOUs exist with most host countries covering prudential supervision, information sharing, inspections, and training; MOUs generally do not include banking resolution provisions. - Consolidated supervision practiced by BAM; BAM requests prudential standards higher than host countries and organized a first supervisory college meeting for one large bank; expects others in Q1 2015. - Legal and resolution framework developments - Parliament approved a new banking law (November 2014) expected to strengthen BAM’s supervision powers (e.g., allowing rejection of acquisitions that may pose stability challenges even within legal thresholds). - New banking law authorizes the governor to impose special measures for domestic systemic institutions, including special resolution plans, provisional administrators, transfer of nonperforming assets to ad hoc structures, or possible splits. ### D. Opportunities for Morocco and host countries - For Morocco - Cross-border presence brings new business opportunities: about 21 percent of banking sector revenue comes from cross-border activities. - Promotes diversification of risk, economies of scale, and better allocation of resources. - For host countries (potential benefits) - Competition, efficiency, and innovation: increased competition, access to skills/expertise, access to capital, and potential governance improvements. - Financial deepening and inclusion: potential to reach underserved market segments, though outcomes are context-specific and data are insufficient to assess Moroccan banks’ impact on inclusion. - Financial stability: diversification of financing sources and potential upgrades in supervision and regulation if home supervisors implement high consolidated standards and cooperate with host supervisors (for example, adoption of IFRS and Basel II/III standards). ### E. Challenges, new spillover channels, and risk drivers - New transmission channels and potential negative spillovers (examples) - Amplified real-financial interactions: exposure concentration (e.g., real estate) in upturns can create vulnerabilities transmitted in downturns via declines in collateral values, capital erosion, credit reduction, and depositor confidence loss. - Contagion via common lenders: a contaminated common funding source can spread liquidity/solvency problems across countries. - Parent-related risk reassessment: sudden reassessment of the parent’s exposure or need for recapitalization can trigger pressures on subsidiaries in other countries. - Cross-border syndicated loans: connected exposures via syndicated lending may create spillovers (amounts not disclosed). - Reputational risk: perceived mismanagement or macro/financial vulnerabilities in home or host countries can increase operational risk, funding costs, and deposit capture difficulty. - Factors that influence magnitude and form of contagion - Banking model: subsidiaries versus branches - Standalone subsidiaries with firewalls (Morocco model) preferred by home authorities for riskier host environments; host authorities may prefer subsidiaries if domestic conditions are stronger. - Branch models may be preferred where host financial systems are underdeveloped and home supervision is stronger, facilitating credit based on parent strength. - Funding structure - Retail deposit–based funding (as in Morocco) is likely to be more resilient. - Heavy reliance on wholesale funding and substantial interbank linkages increase potential for liquidity contagion. - Host financial market structure - Degree of financial intermediation and market sophistication affects diversification and risk coverage; complex structures/products may introduce additional stability risks. ### F. Policy directions and supervisory priorities highlighted - Strengthen consolidated supervision and supervisory cooperation between home and host authorities (including supervisory colleges and joint inspections). - Improve data availability on cross-border interconnections and subsidiary-level exposures to detect risks early. - Enhance MOUs and bilateral cooperation to explicitly cover banking resolution arrangements, requiring involvement of Ministers of Finance. - Prefer consolidation and deeper integration (accounting standards, IT systems) of existing foreign subsidiaries over further geographic expansion, per BAM’s guidance. - Use legal powers (new banking law) to impose prudential measures and special resolution tools for systemic domestic institutions. *Source: IMF staff report, January 23, 2015 — “THE SUB-SAHARAN EXPANSION OF MOROCCAN BANKS: CHALLENGES AND OPPORTUNITIES.”* ### 17. The vulnerability of a banking system will also depend on institutional soundness and ### _cr15106 - 17. The vulnerability of a banking system will also depend on institutional soundness and ### Institutional soundness and macroeconomic fundamentals - Sustained financial system health depends, in large part, on an adequate regulatory environment and incentive structure. - A poorly regulated and supervised financial system can easily become overextended and vulnerable, especially during a period of rapid expansion. - A sound banking system that can absorb shocks (such as a sudden weakening of asset quality or a loss of deposits) helps reduce the frequency and amplitude of macroeconomic fluctuations. ### Cross-border expansion in Sub-Saharan Africa (SSA): supervisory challenges and systemic risks - BAM implements high supervisory standards, for example: - IFRS accounting and Basel II/III standards - consolidated supervision - appropriate NPLs reporting benchmarks - threshold limiting international exposure to about 25 percent of the total assets of the banking group - Compliance with high international supervisory standards varies widely among African host countries and is generally lower than in the rest of the world, posing major challenges for: - consolidated supervision - differences in accounting and data standards - home-host coordination - The systemic importance at home and abroad of the three cross-border Moroccan banks imposes additional potential negative externalities to be taken into account by supervisors. - Systemically important banks create negative side effects that usual regulatory policies do not take into account (footnote 6). - Negative externalities include the possibility of failure or impairment transmitting shocks through the financial system and harming the real economy. - Moral hazard costs associated with direct support and implicit government guarantees may amplify risk-taking, reduce market discipline, create competitive distortions, and further increase the probability of distress, adding to direct high costs borne by taxpayers. ### Operational and supervisory complexities - Increasing complexity of banking groups’ corporate structures makes consolidated supervision more difficult. - Insufficient transparency may provide opportunities for undisclosed risk transfer and obscure the true risk within the group. - Strong risk management frameworks are essential as cross-border activities increase operational risks. - Large interconnections and competition pressures increase the pace of innovation and business complexity. - Proper identification of risks enables adequate monitoring of exposures and capital positions. - Internal bank controls should ensure activities are efficient and effective, information is reliable, timely, and complete, and that the bank is compliant with applicable law and regulations. - Differences in accounting and data standards complicate consolidated supervision and make comparative analysis more difficult. - Morocco applies IFRS standards for financial statement reporting, but many other African jurisdictions lag behind. - Differences in NPL reporting and the appropriate provisioning may render it difficult to understand the actual situation of a particular subsidiary. - Intra-group expertise can sometimes help fill gaps among jurisdictions. - BAM has well-established formal cooperation agreements with other supervisors, but gaps remain. - Some areas, such as crisis resolution, have so far remained beyond the scope of bilateral MoUs. - Current agreements on cooperation and exchange of information could be further strengthened. ### Policy recommendations - Continued close monitoring of the cross-border presence of Moroccan banks is essential. - BAM should ensure banks avoid further acquisitions that might endanger their financial soundness. - Any further acquisition should have as a precondition the signature of a bilateral MoU to ensure adequate provision of information from the host to the home supervisory agency (ex ante) and establish a framework for future collaboration. - Strong implementation of the new banking law and timely completion of the revision of the central bank law are instrumental for strengthening BAM’s supervisory and crisis resolution powers. - These laws expand BAM’s role, reinforce its instruments, and give the governor the power to resolve banking crises by setting up an urgency mechanism. - Preventive measures for reputational risk posed by being home to three systemically important cross-border banks should be implemented, including: - Implementing the Basel framework for dealing with domestic systemically important banks, including higher loss absorbency capital requirements for these banks (footnote 7). - Closely monitoring the funding of subsidiaries; broad reliance on local funding should be encouraged. - Strengthening risk management frameworks, including internal risk limits and controls on subsidiaries that are stricter than prudential limits set by host supervisors, especially where credit concentration regulatory limits are too high. - Establishment and use of supervisory colleges: - BAM’s plan to establish supervisory colleges for all three cross-border banks is welcome (footnote 8). - The first meeting of a supervisory college for one of the banks has already taken place; colleges for the other two banks should proceed as planned. - Colleges should cover a broad range of issues, including anti-money laundering, and be structured to serve as effective tools for cooperation among supervisors. - Encourage simplification of complex corporate structures inherited from international acquisitions. - BAM should continue discussions with banks about plans to simplify integration of subsidiaries; one group has designed a medium-term plan for this. - Continue progress on implementing a macroprudential toolkit to strengthen surveillance of systemic risks, supported by extensive Fund technical assistance. - Advance the setting up of the crisis resolution mechanism provided in the new banking law. - Introducing a special resolution regime (SRR) where no judge could reverse a resolution decision would allow prompt action to resolve a bank if needed. - This mechanism is important for nonsystemic banks to prevent contagion and deposit runs and is even more important in systemic situations to maintain public confidence and financial stability. - Continue work on crisis preparedness and crisis management: - Create a high-level crisis management committee. - Establish working groups to conduct “what-if” simulations. - Develop contingency planning manuals with checklists and guidelines and an effective communication plan. - Strengthen cooperation and exchange of information, including on-site visits, among African supervisors. - MoUs should be in place with all countries in which Moroccan banks are present; MoUs have already been signed with most African countries. - Extend current MoU coverage to areas still outside their scope. - Agreements among supervisors should establish clear lines of responsibility and accountability and burden-sharing plans to ensure an orderly and timely resolution framework. - Cooperation with other domestic supervisors, including agreements among Ministers of Finance, may facilitate a common supervisory approach for systemic groups. - Morocco could provide technical assistance to other supervisors in the region, sharing its experience of good practices and relatively advanced supervisory capacity. *Source: _cr15106 - 17. The vulnerability of a banking system will also depend on institutional soundness and (IMF PDF)* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15106.pdf_