Moroccan banks poised for growth amid strengthened financial foundations

Morocco’s largest banks are entering a promising phase as they prepare to capitalize on enhanced financial stability, according to a recent report by Fitch Ratings. The agency highlights that improved profitability, robust capital levels, and sound liquidity position the nation's top lenders to expand both domestically and across parts of Africa in the coming years.

In a climate of increased challenges in 2024, marked by higher loan losses, the combined net income of Morocco's seven largest banks surged by 22%. This notable growth stemmed from gains in fixed-income trading, increased lending income, and stringent expense management.

Looking ahead, Fitch anticipates further opportunities for growth. With a more stable economic outlook in Morocco and numerous African markets, banks are likely to recover unpaid loans and reverse some past provisions. Additionally, an uptick in lending activity is expected to bolster revenues.

Despite potential declines in interest rates, Fitch maintains that Moroccan banks will remain largely unaffected due to the historical resilience of their net interest margins.

For years, limited capital buffers have constrained some banks, which operated marginally above regulatory minimums, restricting their growth potential. However, Fitch points out that stronger earnings and the strategic use of subordinated debt have fortified capital levels, granting banks greater flexibility for expansion.

A key area for potential growth lies in infrastructure. Projections indicate that Morocco may require upwards of USD 100 billion in financing for infrastructure projects from 2025 to 2030—an amount equivalent to 61% of the country’s GDP for 2024. This need is expected to drive credit growth into the mid-single digits, with even higher rates for banks that prioritize corporate lending.

Moreover, the potential for structural change exists. If Morocco successfully establishes a secondary market for non-performing loans, banks could offload bad debt, freeing up additional capital for lending. Although still in development, this initiative would empower the sector to better manage risk and secure funding for new ventures.

Fitch's report underscores the strength of the funding base for Moroccan banks. Most institutions rely on customer deposits, a low-cost and stable financing source. A tax amnesty in 2024 incentivized many to deposit previously undeclared funds into the banking system, further enhancing liquidity.

With a more comfortable capital cushion, reliable funding, and a robust pipeline of investment opportunities, Moroccan banks appear to be entering a transformative era.