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BCP, BMCE, Attijariwafa: Will Morocco’s top 3 banks see a recovery in 2021?

By El Mehdi Berrada, Joël Té-Léssia Assoko, Marie Toulemonde
Posted on Thursday, 8 April 2021 18:53

Banque Populaire de Casablanca’s administrative headquarters in Morocco. © Guillaume Mollé for JA

After a tumultuous 2020, doubts are mounting about whether subsidiaries south of the Sahara can boost the profitability of holding companies in Casablanca.

It was a bit of a blow. In February, Morocco’s three leading banks – Attijariwafa Bank, Bank of Africa (BOA, ex-BMCE) and Banque Centrale Populaire (BCP) – saw the outlook for their ratings go from “stable” to “negative” by Moody’s. Morocco’s government also received this same rating.

According to the international agency, this change “reflects the fact that the government will be unable to provide any financial support to Moroccan banks for the next 12 to 18 months.” However, these banks have retained their enviable “Ba1” rating, just one notch below an “investment grade” rating, due in particular to their “continued stable bank funding, strong liquidity and solid underlying profitability throughout the cycle.”

An extra boost

However, this raises another question regarding the strength of these banks, and that is about how much these subsidiaries south of the Sahara can contribute. The leaders of the Cherifian kingdom in sub-Saharan Africa’s breakthrough, which goes back 10 years, has strongly contributed to their growth or – during difficult years for the Moroccan market – to preserving their margins.

Will this extra boost be able to withstand the Covid-19 crisis?

This is the question that many are asking themselves on the Casablanca Stock Exchange, where the main Moroccan banks are listed and whose investors – not only in the banking sector, but also in ICT with Maroc Telecom or industry with LafargeHolcim Morocco – have become accustomed to counting on the “boost” of activities south of the Sahara.

A resilient sector

The banking sector has certainly proved itself resilient, as have the retail and telecoms sectors, but has suffered from a reduction in demand caused by the ongoing worldwide crisis.

According to a report by Fadoua Housni’s team at BMCE Capital Research, the overall net income of the six banking groups listed on the Casablanca Stock Exchange grew timidly by only +2.7% to just over 66bn dirhams (MAD) (or €6.1bn) for the past year.

“At the moment, it is a bit early to define the regions and countries that had problems in 2020 and which caused a decline in revenues. We only have a few details regarding the geographical distribution of the result,” says Ranya Gnaba, a senior analyst at the independent firm Alpha Mena.

She also says that these three groups “have not been at an advantage compared to their local competitors. According to the figures available on the growth of GNP, credits and deposits, CIH Bank ranks first – in relative terms – for posting double-digit rates of growth.”

It is important to note that detailed data for 2020 regarding the sub-Saharan subsidiaries is not yet available. Furthermore, the data collected on the “international” activities of the three largest banks in the kingdom sometimes covers operations in North Africa (Tunisia and Egypt) and certain offshore operations (Europe, investment banking).

A relatively secure portfolio

However, this slight overall evolution (in view of the sub-Saharan performances of the last few years) raises questions. Activity on the continent, outside the kingdom, represents about a third of Attijariwafa Bank’s net banking product.  For example, in the case of the Bank of Africa, this proportion is close to 40%, while it represents practically a quarter of BCP’s income. This is a real source of growth for Morocco’s three leading banks.

The latter, according to analysts at the Casablanca Stock Exchange, have been selective in terms of clients and have a fairly “secure” portfolio of Moroccan companies, governments and large multinationals.

“Pan-African banks have the opportunity to continue to leverage their presence in the rest of Africa and see their NBI grow through subsidiaries outside Morocco,” says Gnaba. Moreover, industry experts note that according to a recent stress test conducted by the Moroccan Central Bank, the three groups are able to meet all the regulatory requirements of the countries where they are present.

Warning signs are increasing

However, as the graph above shows, the contribution of “international” activities, i.e. “sub-Saharan” activities for the most part, underwent a remarkable evolution in 2020.

A specific case is that of BCP, which last year fully integrated four sub-Saharan subsidiaries acquired from the French BPCE. In contrast to its two Cherifian colleagues, this operation has enabled it to boost its income, which was derived largely from this region. It also acquired almost 5bn MAD of net banking income in 2020 compared to 3.6 bn MAD in 2019, a quarter of which (25%) is obtained from international activities.

Regarding Attijariwafa Bank and the Bank of Africa, these activities remained proportional to their 2018 and 2019 performances in terms of revenues, which amounted to about a third and a half of the turnover respectively. It should be noted, however, that data for the Bank of Africa is only available for the first half of 2020.

However, in terms of profitability – measured in terms of net profit attributable to the group (RNPG) and especially dividends for investors in Casablanca – the warning signs are increasing.

Despite the growth experienced in consolidated international revenues, which have risen sharply thanks to the integration of BPCE’s former subsidiaries, Banque Centrale Populaire‘s RNPG outside of Morocco fell sharply to 192m MAD at the end of 2020, compared with 849m MAD in 2019. Despite a growth in turnover outside the kingdom, the net profit recovered by the holding company fell by -75% outside of Morocco, which is more than the -60% drop on the national territory.

Collapse of the profit margin

As for Attijariwafa, Morocco’s leading bank, the results outside the country seem more favourable. Although it is difficult to estimate the exact role played by the Egyptian subsidiary – whose results have been fluctuating in recent years – it should be noted that despite a clear drop in the group’s net result in Morocco, which went from 3.4bn MAD to 1.5bn MAD, its international performance was more resilient, falling “only” from 1.7bn MAD to 1.25bn MAD.

In the Bank of Africa’s case, the situation is made more complex as results for the second half of 2020 are unavailable. It should be noted that the kingdom recorded a negative net income, group share (-230m MAD over six months, against +900m MAD for the whole of 2020) for a profit that remained solid outside Morocco (525m MAD between January and June, against 775m MAD for the whole of the previous year).

To explain the collapse in profit margins, investors on the Casablanca Stock Exchange point to the staggering increase in provisions that banks are making to cover future shortcomings. They have increased by more than 150% on average for five of the banks listed on the stock exchange (BOA has still not announced the level of its provisions), which automatically translates into a decrease in earning capacity.

On top of this, banks suffered from a drop in the number of transactions, due to a long lockdown but also to poor activity in many sectors. Revenues have also been hurt by the postponed deadlines put in place for individuals and businesses, which were negotiated at the beginning of the crisis. “The fall in interest rates has meant that the interest margin is struggling to take off,” says our senior analyst.

Moreover, Standard & Poor’s warned about the level of the loss ratio at the end of last year, which was expected to soar in 2020 and reach up to 12% for some banks. According to some analysts, the amount of unpaid loans will double.

Attijariwafa Bank, for example, has evaluated its cost of risk at 5.5bn MAD, the BCP at 6.1bn MAD and the CIH at 1bn MAD. “In this time of crisis, this precaution is more than recommended. The level of provisions announced remains very logical within the context of the world that we have been experiencing since 2020,” says Gnaba.

Development opportunities

Several experts agree that this crisis also offers development opportunities.

“European groups will continue to withdraw from the African continent after this crisis and several ‘small’ local banks will be in serious difficulty. Thus, acquisitions should increase very soon, and obviously Moroccan banks will benefit from this,” says a former banker who has already managed activities in West Africa.

He believes that these three Moroccan groups’ presence on the international scene will not hinder, but rather boost their revenues.

A more favourable context

That said, 2021 should be better. It will be a year of recovery that will be motivated and accompanied by the ambitious, and so far successful, vaccination campaign that Morocco has been conducting for a few weeks. Many stakeholders feel that this is the best remedy for an economy that has lacked visibility for a year.

“We expect a better rate of growth for loans and deposits in 2021 thanks to a more favourable context for the collection of savings. This should boost banks’ revenues,” says Gnaba. 2021 will likely see the reversal of provisions made, which should greatly improve earning power.

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