Bank of Africa - 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 Bank of Africa (BOA or the Bank) at ‘BB+’ and ‘B’, respectively. At the same time, CI Ratings has affirmed BOA’s Bank Standalone Rating (BSR) of ‘bb-‘, Core Financial Strength (CFS) rating of ‘bb-’ and Extraordinary Support Level (ESL) of High. The Outlook on the LT FCR and BSR is Stable.

The two-notch uplift of the LT FCR above the BSR is based on an ESL of High. The ESL takes into account the high likelihood of extraordinary support from the authorities in view of BOA’s significant market share of both domestic assets and customer deposits. The Bank is classified as a domestic systemically important bank in Morocco, controlling around 14% of banking sector assets.

The Bank’s 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 considerable exposure to assets in higher-risk African countries. The latter represents around 28% of the consolidated balance sheet. The CFS is underpinned by BOA’s good profitability at both the operating and net levels, together with a good franchise in Morocco. BOA is Morocco’s third-largest bank with a significant domestic customer base, a diversified banking operation and a stable revenue stream. The Bank also possesses a satisfactory funding and liquidity profile with a high level of liquid assets.

Credit challenges include modest capital ratios and limited buffer, a high level of NPLs and associated moderate credit risk absorption capacity, high wholesale funding, and a significant asset base outside of Morocco in higher-risk sovereigns in Africa. African subsidiaries are funded locally. There is FX risk on the equity side, but this is hedged. While diversifying its geographical asset base and earnings profile, the expansion and growth in sub-Saharan Africa increases the risk profile of the BOA Group. BOA’s operating environments in both Morocco and, to a greater degree, its activities in pan-African markets remain challenging. However, Moroccan economic growth improved in 2024 and is expected to be higher this year. The short- to medium-term outlook for the sovereign appears favourable on the back of continued recovery in domestic demand supported by declining inflation, improving private investment and the completion of significant infrastructural projects. We expect BOA to maintain steady loan asset quality and satisfactory profitability over the short to medium term.

BOA is a universal bank in Morocco operating in retail banking, SME, corporate and investment banking, and consumer finance. Its core market remains Morocco, but the Bank has become a major pan-African player through its majority ownership of Bank of Africa Group – the African bank acquired by Banque Marocaine du Commerce Exterieur (BMCE) prior to the name change of the BMCE Group; BOA now uses BOA Group as the name for the African subsidiary – with banking operations in 20 countries across the African continent.

The risk profile of the Group places an increased need for a robust capital base. BOA’s capital ratios are modest in CI’s view, and current capital levels provide only a limited buffer against unforeseen events. However, capital ratios improved slightly in 2024 with the total CAR at 12.7%. The increase in capital ratios was due to another perpetual subordinated debt issue, together with retained earnings. Further, in June 2025, BOA successfully issued MAD1bn in AT1 capital. Management expects a further slight rise in capital ratios in 2025.

BOA’s profitability at both the operating and net levels improved again in 2024; they are satisfactory and above peer averages. BOA’s earnings strength is considered solid, and returns have been consistently on an upward trend for some years. The Bank’s net interest margin is also satisfactory, aided by high interest income from earning assets. Earnings are generated mainly from core and stable banking operations. Of operating and net income, around one-half is generated by international retail banking activities, specifically the wider African operations. The latter offer greater growth potential but could also be the source of greater volatility. BOA’s operating efficiency has improved over the last few years and is now at a satisfactory level. The cost of risk, however, remains slightly on the high side.

Net profit in Q1 25 was 22% higher at MAD1,329mn. Net interest income was up by 10%, with fee income steady and gains on securities higher. The impairment charge was similar. We expect the ROAA in 2025 to again be solid.

The NPL ratio remains high. However, stage 2 loans declined further in 2024, and are at a moderate level and below the peer average. Regarding the loan portfolio, just over one-quarter is African exposure. Loan-loss reserve coverage is satisfactory but slightly below that of its two main Moroccan competitors, Attijariwafa Bank and Banque Centrale Populaire. We expect loan asset quality to remain steady in 2025.

BOA’s liquidity and funding profiles are satisfactory. The bulk of funding is through a stable and diversified customer deposit base. Just over one-third of customer deposits are sourced from its wider African banking operations, thus providing increased diversification. Customer deposit funding is complemented by medium- and long-term funding facilities from the local market, subordinated debt, and bank deposits. BOA’s level of liquid assets is good and some way above peer banks. The net loans to customer deposits and to stable funds ratios are both at satisfactory levels, and the liquidity coverage ratio is at a high level. Q1 25 liquidity remained sound.

Rating Outlook

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

Rating Dynamics: Upside Scenario

An upward revision in the ratings or the outlook is currently unlikely. A favourable rating action in the future would require strengthening in the Bank’s capital adequacy, particularly core capital. Improvement in loan asset quality metrics could also place some upward pressure on the ratings, provided it occurred together with increased capital ratios.

Rating Dynamics: Downside Scenario

A 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.

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
 
About the Ratings

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The following information source was used to prepare the credit ratings: public information and information provided by the rated entity. Financial data and metrics have been derived by CI from the rated entity’s financial statements for FY2020-24. CI may also have relied upon non-public financial information provided by the rated entity and may also have used financial information from credible, independent third-party data providers. CI considers the quality of information available on the rated entity to be satisfactory for the purposes of assigning and maintaining credit ratings. CI does not audit or independently verify information received during the rating process.

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With Rated Entity or Related Third Party Participation: Yes
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With Access to Management: Yes

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