Moroccan lenders support small businesses but risks loom

For the good fortune of Moroccan small businesses, the country’s banks were ready to help them get through the pandemic before it even started.

In early 2020 – when the coronavirus had not yet become a global emergency – the government unveiled an 8 billion dirhams ($ 900 million) fund to finance small and medium-sized businesses over the next three years, as well as other measures to simplify and speed up applications for business loans.

The measures have proven to be a lifeline. “The banking sector has really played a pivotal role in financing the local economy,” says Jamal El Mellali, associate director for financial institutions at Fitch Ratings in London.

“Credit growth to the private sector in the first half of 2021 was 5%, which is quite dynamic given the economic conditions.”

Then, when the coronavirus crisis arrived, the initial measures were quickly replaced by two larger programs, РDamane Oxyg̬ne and Damane Relance Рwhich together provided loans at subsidized rates, amounting to more than 65 billion dirhams by the end of June of this year.

According to El Mellali.

Morocco has been particularly affected by the pandemic, in part because of its relatively high dependence on tourism. Of the six major economies in the Middle East and North Africa, it suffered the second most severe slowdown in 2020 – a 6.7% contraction, just below the 8.6% seen in Tunisia, according to S&P Global Ratings.

Hotel and restaurant activities were 57% below pre-pandemic levels last year, according to S&P – the region’s largest contraction.

Today, however, S&P expects the economy to grow 5% this year and more than 3.6% each of the next three years, putting Morocco’s recovery behind that of Egypt. In the region.

We expect credit growth to run out of steam when government guaranteed loan programs end

Despite this, Goksenin Karazog, S&P’s director of financial services ratings and analysis for Central Europe, the Middle East and North Africa, believes that support for the banking sector is likely to be undermined. tough test.

“We expect credit growth to run out of steam as government-guaranteed loan programs end and their momentum wanes,” he said. Damane Oxygène ended at the end of last year and Damane Relance closed at the end of June 2021.

This will be particularly difficult for small businesses, which employ around half of Morocco’s workforce, produce around one-third of the country’s exports and provide around one-fifth of value added in the economy and government tax revenue. , according to Fitch.

This may mean an increasing dependence of Moroccan banks on their operations abroad. The three largest banks – Attijariwafa Bank, Moroccan Foreign Trade Bank and Banque Centrale Populaire Group – control around two-thirds of the domestic market but have between a quarter and a third of their assets in sub-Saharan Africa, according to Fitch.

Taha Jaidi, head of strategy at Attijari Global Research, a subsidiary of Attijariwafa, says that after more than a decade of internationalization, “Moroccan banks are standing out brilliantly by posting one of the best long-term returns in the industry. global banking ”.

Nonetheless, says Fitch, the greater risk appetite among Moroccan banks willing to operate in countries like Ghana and Kenya means that they tend to have lower asset quality than other banks focused on the investment. indoor market.

The downside for the latter group – comprising banks such as the Moroccan Bank for Commerce and Industry and Credit du Maroc – is that their market is comparatively saturated and stagnant. It is also highly concentrated, with around a third of the activities in the retail sector and another third in trade, services and construction.

This leaves banks “exposed to a few specific sectors and a high risk of concentration on one name,” Karazog explains. “Despite some improvements, these risks remain high,” he adds.

On the positive side, funding for the sector is relatively cheap, with more than three-quarters coming from low-cost deposits. The remainder comes from Morocco’s capital markets, which are small by advanced economy standards but sufficiently well developed to be an easy source of borrowing for the government and the banking sector.

But the sector faces a difficult period at least until next year. The bad loan rate at the country’s seven largest banks rose to 9.7% at the end of 2020, from 8.7% at the end of 2019. Fitch believes the real situation was even worse, as the banks were allowed to delay the classification of loans. as weakened, to support companies in difficulty.

This year does not look better. El Mellali says the proportion of non-performing loans has continued to rise, as the pandemic pushes more businesses into default.