Banque Marocaine pour le Commerce et l'Industrie – Ratings Affirmed

(MENAFN- Capital Intelligence Ltd) Capital Intelligence Ratings (CI Ratings or CI) today announced that it has affirmed the Long-Term Foreign Currency Rating (LT FCR) and Short-Term Foreign Currency Rating (ST FCR) of Banque Marocaine pour le Commerce et l'Industrie (BMCI) at ‘BBB-’ and ‘A3’, respectively. At the same time, CI Ratings has affirmed both BMCI’s Bank Standalone Rating (BSR) and Core financial Strength (CFS) at ‘bb’. The Outlook for the LT FCR and BSR is Stable.

BMCI’s LT FCR incorporates two notches of uplift above its BSR. The uplift reflects our assessment of the high likelihood of extraordinary support, if needed, from the Bank’s strong majority shareholder, France’s BNP Paribas (BNPP). CI believes that BNPP has the financial capacity to provide support and would be willing to assist its subsidiary since BMCI is currently an important part (as BNPP’s largest African subsidiary) of BNPP’s North African and wider African operations (although the Bank is very small in the context of BNPP’s overall size and resources). However, that said, BNPP could in the future decide to reduce (or exit) its ownership (other French banks have exited Morocco over the last few years). In theory, although the French parent’s ability to provide support could be constrained by regulatory restrictions of either the ECB or France’s bank supervisory authority, we believe this is unlikely in respect to BMCI. BMCI represents less than 0.3% of BNPP’s total assets and 0.5% of equity.

BMCI’s BSR is derived from a CFS rating of ‘bb’ and an Operating Environment Risk Anchor (OPERA) of ‘bb+’. The CFS reflects the Bank’s steady and defendable franchise, long-term track record of fairly stable revenue and high net interest margin (NIM), adequate capital position including a satisfactory Tier 1 ratio, and reasonable – but not significant – credit-loss absorption capacity.

The main financial challenges are the Bank’s high level of both NPLs and Stage 2 loans, an elevated loans to customer deposits ratio, and weak returns at the net profit level suppressed by a high cost base and high cost of risk. Although BMCI has a good base of medium- and long-term funding, which provides some funding diversification, the proportion of funding from core customer deposits is fairly low, and customer deposit growth has been lacklustre. Hence, the Bank’s reliance on wholesale funding is quite high.

BMCI has a satisfactory market position in the Moroccan banking sector as the country’s seventh largest bank. However, asset growth has been lacklustre for some time, although slightly higher growth was seen last year. The Bank’s activities are very much focused on the domestic market, traditionally to the corporate sector, but BMCI has also expanded in the retail sector, and home loans are around one-quarter of total financing. It has diversified financial activity through a number of subsidiaries, including leasing and insurance, but these are quite small. Key management positions are BNPP seconded personnel and risk management is governed by parent-bank principles.

Loan and overall asset quality is weak and NPLs represent a high but lower 12.5% of gross loans at end-2023. Stage 2 classified loans are also elevated at 12% of gross loans but again declined in 2023. BMCI’s level of stage 2 loans is higher than peer banks in Morocco. BMCI is considered to be conservative in its definition of NPLs, and also prefers not to take a fiscal risk with write-offs. BMCI has traditionally had a more systematic and mechanical process of downgrading loans to NPL status than some other local competitors. However, in any case, BMCI has weak loan asset quality.

BMCI has a reasonably stable income generation, supported by a fairly low-cost funding base and associated good NIM. Revenue growth has been pedestrian for some time, but recorded an improvement in 2023, driven by higher net interest income and increased gains from securities. Operating profit also showed improvement. However, the cost of risk remains elevated as does the expense base. The Bank’s returns at the operating profit level are low, and the weakest in the Moroccan peer group. BMCI’s ROAA is also weak and the lowest amongst peers, impacted by weak cost efficiency and the high impairment charge. That said, in Q1 24, net profit nearly doubled to MAD103mn, driven by improved NII, higher fee income and further gains from securities. The cost of risk was stable.

Funding and liquidity are considered just adequate. The level of liquid assets is satisfactory, although net loans as a proportion of customer deposits is stretched (and net broad liquid assets is low). BMCI has an adequate ratio of net loans to stable funds, supported by a good base of medium- and long-term funding and capital position, and the LCR is comfortably above the regulatory minimum. Funding and liquidity should also be viewed in the context of its majority owner, the BNPP Group. Liquidity ratios were steady at Q1 24.

BMCI’s capital ratios are adequate, and the capital position provides a reasonable but not significant buffer against unforeseen events. Shareholders would be expected to participate in any capital raising activity initiated by the Bank, and BNPP would be expected to maintain satisfactory capital ratios for BMCI. Internal capital generation has been low due to a high dividend payout. The Bank is likely to continue to issue subordinated debt and could issue AT1 capital.

Rating Outlook

The Stable Outlook indicates that the ratings are likely to remain unchanged over the next 12 months. CI expects BMCI to maintain its financials at a satisfactory level this year relative to its current ratings.

Rating Dynamics: Upside Scenario

A favourable rating action is unlikely in the next 12 months. An upward revision would require a significant improvement in the Bank’s loan asset quality, including a much-reduced level of NPLs, improved coverage, and strengthened liquidity metrics, including customer deposit-linked ratios. The Bank’s profitability would also need to improve. An upgrade in CI’s internal assessment of sovereign risk for Morocco and/or OPERA, which is considered remote at present, could exert upward pressure on the ratings.

Rating Dynamics: Downside Scenario

A weakening of BMCI’s loan asset quality or liquidity could lead to a lowering of the ratings. This would also be the case if BMCI’s capital ratios weakened. A downgrade in CI’s internal assessment of sovereign risk for Morocco and/or OPERA would exert downward pressure on the FC ratings. In the event of BNPP reducing its shareholding to below a majority stake, this may cause a rating downgrade and a lowering of ESL.

Contact

Primary Analyst: Darren Stubing, Senior Credit Analyst; E-mail: ...
Secondary Analyst: Farah Khan, Senior Credit Analyst
Committee Chairperson: Morris Helal, Senior Credit Analyst

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