Overview of the Moroccan Banking Sector

Rabi Boundi 10/11/2011 1

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 countrys 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.

Table of Contents 1 History ................................................................................................................................................................4 1.1 1.2 1.3 2 Before the Protectorate .............................................................................................................................4 The colonial period .....................................................................................................................................4 After the independence .............................................................................................................................4

Structure .............................................................................................................................................................5 2.1 2.2 The Central Bank and its role in the economy ...........................................................................................6 Typologie ....................................................................................................................................................6 Public or semi-public banks ................................................................................................................7 Private banks ......................................................................................................................................8 Offshore banks ...................................................................................................................................8

2.2.1 2.2.2 2.2.3 3

Banking models ..................................................................................................................................................8 3.1 3.2 3.3 3.4 3.5 Attijariwafa bank and BMCE, universal banks ............................................................................................8 The Popular Banks group, an atypical universal banking model ................................................................9 The former OFS...........................................................................................................................................9 The subsidiaries of French banks (BMCI, CDM, SGMB) ..............................................................................9 Microfinance institutions ...........................................................................................................................9

Banks network ................................................................................................................................................. 10 4.1 4.2 4.3 Banked population .................................................................................................................................. 10 Branches .................................................................................................................................................. 10 ATMs ........................................................................................................................................................ 11

Regulation........................................................................................................................................................ 11 5.1 5.2 Monetary policy....................................................................................................................................... 12 Foreign Currency Control ........................................................................................................................ 12

International growth ....................................................................................................................................... 12 6.1 6.2 6.3 The need for internationalization............................................................................................................ 12 Expansion in Africa .................................................................................................................................. 13 The expatriates remittances ................................................................................................................... 14

The Moroccan banking sector and the global crisis ........................................................................................ 15 7.1 7.2 The threats of the financial crisis ............................................................................................................ 15 Potential developments of the crisis ....................................................................................................... 16

Conclusion ....................................................................................................................................................... 16 3

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: 4

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 Spcialiss: 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 5

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 Banks 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 1990s 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.

Basic Point System

Public shareholding
Crdit Agricole du Maroc CIH Fonds d'quipement Communal CDG Capital Mdia Finance Al Barid Bank

Local private shareholding Attijariwafa bank Crdit Populaire du Maroc BMCE bank Bank Al Amal Union Marocaine de Banques CFM CFG

Foreign private shareholding Socit Gnrale Maroc BMCI Crdit Du Maroc Arab bank Maroc La Caixa Banco Sabadell Citi bank Maroc

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) Crdit Agricole du Maroc (CAM), formerly Caisse National de Crdit Agricole (CNCA) Crdit Immobilier et Htelier (CIH) subsidiary of CDG Group since 2005 Fond dEquipement Communal (FEC) Al Barid Bank, a subsidiary of the Moroccan public post company (Maroc Poste).

see page 11

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 extrieur (BMCE), the second largest banking group by assets, present in Africa and Europe Banque Marocaine pour le commerce et lindustrie (BMCI), subsidiary of BNP Paribas Casablanca Finance Markets (CFM) Citibank Maroc, investment bank subsidiary of Citibank Crdit du Maroc (CDM), subsidiary of Credit Agricole SA. Mdia Finance (MDF) Socit Gnrale (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 Tangiers offshore banking zone: Attijari international Bank (Attijari I.B-BOS) Banque International de Tanger (BIT-BOS) BMCI-Groupe BNP (BMCI-BOS) Chabi International Bank Socit Gnrale 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

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 Crdit 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 Spcialiss), 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 2000s. 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 nonprofit 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 9

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 MicroCrdit, 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 Dpts et Gestion, la Poste, Caisse des Dpts 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 Attijariwafa bank BCP BMCE Socit Gnrale Maroc CDM BMCI CIH Total 791 850 555 317 266 254 152 3185

2012 1091 1150 765 467 371 329 227 4400

10

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. 11

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 Moroccos 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 dEchange. 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: 12

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 13

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 expatriates remittances

Since the 1960s, 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 1970s 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 Rsidents lEtranger) 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. Crdit 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 crossselling of financial products and remittances.

14

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 (Comit de veille stratgique), 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 1960s to allow market mechanisms to regulate financial systems instead of the state, financial liberalization in Morocco started in the 1990s 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.

15

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 (Ministre 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 16

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.

17