(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 Centrale Populaire (BCP or the Bank) at ‘BBB-’ and ‘A3’, respectively. At the same time, CI Ratings has affirmed BCP’s Bank Standalone Rating (BSR) of ‘bb’, the Core Financial Strength (CFS) rating of ‘bb+’ and the Extraordinary Support Level (ESL) of High. The Outlook for the LT FCR and BSR remains Stable.

The two-notch uplift of the Bank’s LT FCR above the BSR reflects the high likelihood of the Bank receiving extraordinary support from the authorities in the event of need given its shareholder base and, inter alia, its classification in domestic law as a strategically important company in Morocco, as well as its 25% market share of customer deposits. The government maintains a ‘golden’ share in BCP, which gives it the power to veto and/or outvote all other shares, and hence the power to dictate ownership and direction. BCP is also classified as a domestic systemically important bank (D-SIB) in Morocco.

The BSR is derived from a CFS rating of ‘bb+’ and an adjusted Operating Environment Risk Anchor (OPERA) of ‘bb’, which is lower than the OPERA of Morocco (‘bb+’) due to the Bank’s exposure to assets in higher-risk African countries. Similar to its major competitor banks in Morocco (Attijariwafa and Bank of Africa), BCP has been expanding its banking operations in the Sub-Saharan African region and is present in 18 African countries where a significant part of the asset base is located. The African activities generate heightened credit risks, although they provide more opportunities for growth and higher margins.

The CFS is underpinned by the Bank’s satisfactory profitability at the operating and net levels, its stable revenue base, full loan-loss coverage, good liquidity profile, and a very strong franchise in Morocco. BCP has a diversified earnings base within its Moroccan operations, as well as through its African subsidiaries. Of gross operating income and net profit, around three-quarters were generated by Moroccan-based activities in 2024. The Bank has a good funding and liquidity profile, supported by its strong market position in customer deposits in Morocco.

BCP’s principal credit challenges include a high level of NPLs, and a significant asset base outside of Morocco in higher-risk sovereigns in Sub-Saharan Africa. The level of NPLs remains slightly above the Moroccan banking sector. However, loan-loss reserve (LLR) coverage is good at full coverage following improvement in 2024. The NPL ratio has been stable for some years. Moreover, the percentage of Stage 2 loans against gross loans is at a moderate level. The operating environments in both Morocco and, to a greater degree, in a number of African markets where the Bank is active remain challenging. However, Moroccan economic growth improved in 2024 due to a strong performance in non-agricultural sectors – particularly industry, construction, tourism and transport services. The short- to medium-term growth outlook for the sovereign appears favourable, supported by structural reforms, recovery in agricultural production, infrastructure investment, and diversification in high-value export sectors. This should aid both BCP and the Moroccan banking sector in general.

The BCP Group is a cooperative-type banking organisation, with cross shareholdings within the principal body of BCP and regional banks. The major part of the Group consists of BCP and eight member banks, or Banques Populaires Regionales (BPRs). BCP (which is the legal entity of the Group) plays a central role in the Group and is entrusted with two main tasks: as a credit institution authorised to carry out all banking transactions, and as a ‘central bank’ to the BPRs.

Both revenue and returns recorded good improvement in 2024. Operating profitability has been sound for some time, and strengthened further in 2024 due to increased gains from securities as market conditions improved and interest rates declined, in addition to higher net interest income (NII) and fee income. The net interest margin is good, supported by low-cost funding through the Bank’s large customer deposit base and significant volume of CASA deposits. Net profit and the ROAA both increased in 2024 despite the loan impairment charge remaining high; the cost of risk is elevated. BCP’s profitability is in line with the peer group.

Q1 25 net profit was 19% higher at MAD1,492mn against MAD1,255mn in Q1 24. NII and fee income were slightly higher, but gains from financial instruments at fair value through the P&L increased significantly as markets were good due to a favourable interest rate environment (the policy rate was lowered to 2.25% in Q1 25). The cost of risk was higher at MAD1,548mn. For the full year, we expect slightly stronger returns.

BCP’s capital ratios improved in 2024 and are satisfactory. They are slightly above its two major competitors, Attijariwafa Bank and Bank of Africa. Although NPLs are currently fully covered by LLRs, the Bank’s overall absorption buffer is not significant. BCP’s buffer above the regulatory minima (minimum CAR 12%) is somewhat modest, while internal capital generation has been moderate.

All liquidity ratios improved in 2024, and BCP’s liquidity profile is good. The funding base is stable and well-diversified, with the bulk of assets funded by its steady and core customer deposit franchise. Due to its strong franchise and its mutual status, the Bank has a very granular deposit base with little customer concentration. Funding is further supported by medium- and long-term facilities from the local market, subordinated debt, and bank deposits. The level of liquid assets is sound. Other main liquidity ratios are at comfortable levels and better than peer banks. Liquidity was stable at Q1 2025 and is expected to remain so over the next year.

Rating Outlook

The Stable Outlook indicates that BCP’s ratings are likely to remain unchanged over the next 12 months, and balances challenges relating to the operating environment against the expectation that the Bank will maintain its financials at a satisfactory level this year relative to its current ratings.

Rating Dynamics: Upside Scenario

The likelihood of an upward revision in the LT FCR or the outlook is currently unlikely, as the rating is aligned with our internal assessment of Moroccan sovereign risk. An upward revision of CI’s internal sovereign risk assessment could see a similar change in BCP’s LT FCR or the outlook. A favourable rating action for the BSR in the future would require further improvement in the Bank’s capital adequacy and loan asset quality metrics.

Rating Dynamics: Downside Scenario

A significant weakening of capital ratios and loan asset quality that the Bank may not be able to correct in a reasonable period of time could lead to a lowering of the ratings. Although not our base case scenario, the outlook and/or LT FCR could be adjusted downwards if CI accordingly revises its internal assessment of Moroccan sovereign risk.

Contact

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