Overview of the Financial Sector

Morocco's financial sector comprises banks, other credit institutions, insurance and reinsurance companies, pension schemes and money and capital markets. The country’s banking sub-sector, similar to the financial sector of many African countries, is the dominant sub-sector with total assets reaching 1,564 billion dirhams (USD 173.9 billion) in 2021 compared to 690 billion dirhams (USD 76.2 billion) for the stock market, 163.4 billion dirhams (USD 18.2 billion) for the bond market, 592.9 billion dirhams (USD 65.9 billion) for the mutual funds securities, and 42.5 billion dirhams (USD 4.7 billion) for the offshore banks.

Banking Sector

Morocco’s banking sector comprises 24 banks, made up of 19 (79.2%) conventional banks and 5 (20.8%) Islamic banks (called participatory banks in Morocco). These 5 Islamic banks were licensed in 2017, paving the way for a dual banking system, although 3 of the 19 conventional banks had a participatory window prior to the new dispensation to provide shariah-compliant banking services. Of the 19 conventional banks, 5 (26.3%)  State-owned , 7 (36.85%) owned by the private sector and 7 (36.85%) with foreign investors as majority shareholders. Additionally, 6 (31.6%) of the 19 conventional banks are listed on the country’s stock exchange. Morocco’s banking sector is largely concentrated, with top 3 and top 5 banks respectively controlling 62.4% and 76.8% of the sector’s assets in 2021.

The banking sector assets have grown steadily over the years. They grew by 4.9% between 2020 and 2021  to reach  1,565 billion dirhams (USD 173.9 billion). In terms of profitability, Return on Assets (ROA) fell sharply to 0.5% in 2020 due to the impact of COVID-19 but increased to 0.8% and 1% in 2021 and June 2022 respectively. Similarly, Return on Equity (ROE) dropped substantially to 4.8% in 2020, occasioning a Central Bank directive to banks to suspend dividend payments for 2019 financial year and until otherwise determined and recovered in 2021 and June 2022 to 8.2% and 10.9% respectively. The banking sector is also well-capitalized, with prudential capital reaching 165.1 billion dirhams (USD 18.35 billion ) in 2021, up 4.7% from 2020. Of this prudential capital in 2021, 70% was Tier 1 capital, 24% was Tier 2 capital and 6% was additional capital. Compared to the  minimum solvency ratio of  12%, the banking sector solvency ratio was 15.8% in 2021. The banking sector is also relatively liquid. The ratio of liquid assets to total assets was 16.5% in 2021 compared to 16.1% and 14.1% in 2020 and 2019 respectively. However, NPL deteriorated even further in 2020, 2021 and June 2022 to reach 8.2%, 8.6% and 8.5% respectively as bad debts held by households and non-financial corporations soared in the wake of the pandemic.

Non-Bank Financial Institutions

The Non-Bank Financial Institutions (NBFIs) in Morocco consist of finance companies, offshore banks, microcredit institutions, payment institutions, the Central Guarantee Fund (CCG) and the Deposit and Management Fund (CDG). The NBFIs sector assets reached 170.7 billion dirhams (USD 19.18 billion) in 2020, down from 176.1 billion dirhams (USD 18.36 billion) in 2019. Until June 2022, The finance companies dominated the NBFIs sector, with asset size of 124.9 billion dirhams (USD 12.2 billion). In a distant second are the offshore banks, with total assets of 48.8 billion dirhams (USD 5.4 billion). The microcredit associations follow with asset size of 9.1 billion dirhams (USD 1 billion). In terms of presence, there are 28 finance companies, 6 offshore banks, 11 microcredit institutions and 20 payment institutions (with 11,935 branches) in the NBFIs sector.

Banking Regulation and Supervision

Morocco’s central bank, Bank Al-Maghrib, is the regulator of all banks and non-bank credit institutions in the country and the chair of the Group of Francophone Banking Supervisors (GSBF) in years 2020-2022. In addition to the implementation of best practices periodically outlined by GSBF, the Central Bank of Morocco also operationalizes international supervisory and regulatory standards such as the recommendations of the Financial Action Task Force (FATF), the Basel requirements, the Anti-Money Laundering and Counter Terrorism Financing (AML/CFT) and the International Financial Reporting Standards (IFRS). To mitigate the effect of the covid-19 pandemic on the quality of banking sector assets, the associated provisions and profitability, the central bank issued a directive to banks in 2020 to suspend dividend payments for the 2019 financial year.

Capital Markets

The market capitalization of the Casablanca Stock Exchange has witnessed considerable fluctuations over the years. From 453.3 billion dirhams in 2015, it reached 583.4 billion (USD 57.6 billion) in 2016 representing 28.7% increase. In 2017, growth in the market capitalization fell to 7.47% to record 627 billion dirhams (USD 67.1 billion). Following declines in prices in 2018, with indices of sectors such as real estate, building & construction materials and banking falling by 57.2%, 18.4% and 12% respectively between May and October 2018, market capitalization in that year contracted by 7.15% from 627 billion dirhams to 582.2 billion dirhams (USD 61.1 billion). There was recovery in 2019 as the market capitalization increased to 626.7 billion dirhams (USD 65.42 billion) from 582.2 billion dirhams in the prior year, representing a growth rate of 7.6%. In 2020 when the covid-19 pandemic struck, market capitalization dropped to 585 billion dirhams (USD 65.6 billion). In 2021, the capitalization reached 691 billion dirhams (US$77.64 billion) as a result of the recovery from Covid-19 and the various measures put in place by the authorities. 

As of 2021, there were 76 listed companies on the Casablanca Stock Exchange. A number of these listed companies belong to sectors such as telecommunication, building & building materials, banking & financial services, food processing, oil & gas, mining, transportation and pharmaceuticals. Banks, telecommunication and building & building materials are the top three dominant contributors to the country’s stock market capitalization. In 2021, the banks contributed 33% of the total market capitalization followed by telecommunication with 18% in 2021 and then construction & building materials with 13% in 2021.

Asset Management Sector

Morocco’s asset management sector, under the supervision of the Moroccan Capital Market Authority (AMMC), has witnessed moderate growth over the past few years in terms of assets under management and the number of asset management companies. The funds and assets under management in the sector are broadly grouped into four main investment schemes and vehicles. The first, and the most dominant in the sector, is the Undertakings for Collective Investment in Transferrable Securities (UCITS) with investments largely in equities, bonds and money market securities. The other three are Venture Capital Investment Vehicles (OPCC) which are private equity funds; Securitization Vehicles (FPCT); and the Real Estate Investment Schemes (OPCI).

The number of funds under the UCITS category increased from 450 funds in 2018 to 474 funds in 2019, representing 5.3% increase in a year that witnessed introduction of 25 fresh funds and 1 liquidation. At the end of 2021, there were 537 UCITS operating in the market, up from 502 in 2020. UCITS net assets represented 46.17% of Gross Domestic Product at the end of 2021 up from 45.40% at the end of 2020. The UCITS funds are invested largely in listed and unlisted securities such as State-backed bonds, corporate bonds, equities, negotiable debt securities and other securities. At the end of 2021, there were 22,031 UCITS investors, a rise of 1,588 from the previous year, with natural people accounting for the great majority (83.31%).

For the OPCC or private equity funds, the number of funds under management in 2021 was 10. OPCC funds are invested largely into infrastructure, agribusiness, innovation, green technology, energy, aeronautics, building materials and automotive manufacturing.

In the FPCT category, the number of funds in 2020 reached 14 with the launch of 2 new FPCTs along with 23 compartments. Total assets of the FPCT increased by 0.5% in 2020 to reach 9.52 billion dirhams (USD 1.07 billion). Following the clearance of seven securitization deals in 2021, there were seventeen FPCTs, including seven sub-funds for a total of twenty-seven sub-funds. Two FPCTs were liquidated in 2021. The FPCT funds are invested mainly in real estate assets, trade receivables, receivables from customer loan arrangements and mortgage-backed securities. The OPCI category or funds became operational in the asset management sector in 2019, following the passage of Law No. 70 – 14 relating to OPCIs. There were 21 active OPCIs in 2021, up from seven in 2020. 14 OPCIs were organized as real estate investment trusts with streamlined operating rules (SPI-RFA) and the others as real estate investment trusts (SPI). In 2021, there were a total of 45 asset management companies in Morocco comprising 19 (42.22%) companies engaged in the management of UCITS, 13 (28.9%) companies engaged in the management of OPCC funds, 4 (8.9%) companies involved in the management of FPCT funds and 9 (20%) OPCIs.

Financial Inclusion and Digital Finance

Morocco’s digital finance sector has witnessed moderate development in the context of laws, infrastructure and patronage. These developments have largely been driven by financial technology companies (Fintechs), the country’s Central Bank, the payment institutions and the banks. The Central Bank launched the concept of ‘one-stop-shop-fintechs’ in 2019 to bolster comprehensive digital finance platforms in the country. By 2020, the number of fintechs stood at 34 on the back of the implementation of the concept. The use of mobile payment in Morocco is growing, with mobile payments (m-wallet) transactions reaching 4.9 million in 2021 worth 443 million dirhams (USD 49.2 million). Additionally, the number of M-wallets issued in 2021 reached 6.1 million against 3.2 million in 2020.

The value of digital payments has increased dramatically, reaching 2 billion dirhams (about USD 195 million) in 2021, providing the groundwork for overhauling social security programs with digital financial transfers. The financial inclusion credentials of Morocco are relatively impressive compared to its North African peers. In 2021 Global Financial Inclusion Database of the World Bank, account ownership at a financial institution or with a mobile-money service provider for the segment of the population who are 15 years or older in Morocco was 44.37% relative to 44.09% for Algeria, 36.85% for Tunisia, and 27.44% for Egypt in the same year. However, the account penetration levels in Morocco are also low compared to 85.37% for South Africa, 79.19% for Kenya and 45.31% for Nigeria.

Small and Medium Enterprises (SMEs) Finance

Despite the SMEs’ role in providing broad-based employment and contributing to GDP, credit accessibility has long been a challenge for SMEs in Morocco and many African countries in general. The most recent data from the database of the SME Finance Forum (2017) reveals that the estimated micro, small and medium-sized enterprises (MSMEs) finance volume for Morocco is USD 12.5 billion, with a finance gap of as much as USD 31.5 billion which is almost three times the current volume. In recognition of this challenge, the Central Bank, in addition to the financing programme, launched in 2012 for MSMEs, unveiled an unlimited refinancing line for the self-employed. The refinancing line came with a concessionary interest rate of 1.25%. Moreover, the State-backed guarantee for loans to businesses in 2020 meant to mitigate the effect of the covid-19 pandemic benefited largely the small enterprises. Indeed, as much as 72% of the over 55 billion dirhams (USD 6.2 billion) of loans guaranteed were extended to the MSMEs firms according to the Central Bank. Additionally, as much as 78% of the businesses which benefited from loan payment moratorium instituted by the banks in 2020 were MSMEs firms.

Insurance

Morocco’s insurance sector, until the passage of Law No. 64-12 in April 2016, was regulated by the Department of Insurance and Social Welfare (DISW) under the auspices of the Ministry of Economy and Finance. The enactment of Law No. 64-12, however, gave birth to a new regulator of the insurance and social welfare sector called the Supervisory Authority of Insurance and Social Welfare (ACAPS). ACAPS is a member of the International Association of Insurance Supervisors (IAIS), Group of French Speaking Insurance Supervisors (GCAF), Association of African Insurance Supervisory Authorities (AAISA) and the Arab Union of Insurance Supervisors (AUIS). As a result, it has been implementing policies (including those on anti-money laundering) meant to align standards in Morocco with best practices established by these international bodies. There are 22 insurance companies in Morocco as of the end of 2021. In terms of business focus, 7 are into life, non-life and capitalization insurance; 3 are into only non-life insurance business; 2 are into only life insurance business; 5 are into only assistance insurance operations; 3 are into only credit insurance; and 2 are into only reinsurance business. The insurance sector intermediaries consist of agents, brokers and direct management offices. The number of agents increased from 1,416 in 2017 to 1,635 and 1,670 in 2018 and 2019 respectively but dropping to 1,655 and 1625 respectively in 2020 and 2021.

The financial investment portfolio of insurance and reinsurance companies rose by 7.5% to 221.3 billion dirhams (USD 24.8 billion) in 2021, and continues to be dominated by interest-rate assets (48.4%) and equities (44.6%). The insurance sector revenues rose by 8% to 52.4 billion dirhams (USD 5.8 billion) in 2021 compared to 2020. The premium for the insurance companies (excluding reinsurance) reached 49.6 billion dirhams (USD 5 billion) in 2021 from 45.1 billion dirhams (USD 4.6 billion) in 2020 on the back of increase in non-life insurance premiums from 24.7 billion dirhams (USD 2.5 billion) in 2020 to 26.7 billion dirhams (USD 2.8 billion) in 2021.

Pension

Morocco’s pension industry, under the regulation of the Supervisory Authority of Insurance and Social Welfare (ACAPS), has 9 pension schemes for public, semi-public and the private sector workers. Out of the 9 schemes, 6 are basic schemes whiles the remaining 3 are optional and supplementary schemes. The public sector workers come under 2 of the 6 basic schemes, namely, the civil pension scheme and the military pension scheme, both of which are managed by the Moroccan Pension Fund (CMR). The CMR also manages a supplementary scheme called ATTAKMILI on behalf of affiliates of the civil and military pension schemes. The semi-public sector workers come under The Collective Retirement Allowance Scheme (RCAR-RG). The RCAR-RG also has a supplementary scheme for its affiliates. Meanwhile, the private sector workers come under the general social security scheme under the management of National Social Security Fund (CNSS). The private sector workers also have a supplementary scheme called the Moroccan Inter-Professional Pension Fund (CIMR).

Moreover, there are 2 basic pension schemes dedicated for the workers of the country’s Central Bank and the National Office of Electricity and Drinking Water. These two dedicated schemes are managed internally by the two institutions. The number of active contributors in Morocco’s pension industry increased to 4.7 million in 2019 but decreased to 4.5 million in 2020 as the covid-19 pandemic affected the job market in Morocco (432,000 job losses), with the CNSS scheme taking the greatest knock.