Moroccan banks’ net income to recover strongly while cost of risk remains high

Moroccan banks’ net income to recover strongly while cost of risk remains high

Positive operational conditions helped Moroccan banks’ profitability to rebound significantly in the first half of 2023, with total net income hitting record highs, according to a report released Monday by Fitch Ratings.

Hefty impairment charges thwarted a larger gain, but because of rising interest rates and expanding loan books, the trend should remain positive through 2024.

Due to increased revenue, the combined net income of the seven biggest banks climbed by 28% year over year in the first half of the current year. 

Additionally, net interest income increased by 7% as lending rates hit their highest points since 2017. 

The aggregate net interest income of pan-African banks, namely Bank of Africa, Groupe Banque Centrale Populaire, and Attijariwafa Bank, increased at a sharper rate (11%), which can be attributed to higher interest rate increases in other parts of Africa, explained the same source.

“We expect positive operating jaws to continue as higher interest rates continue to feed into banks’ revenues,” emphasized Fitch Ratings.

Because of low-cost current and savings account deposits (77% of sector deposits at end-3Q23), Moroccan banks are positively geared to rising interest rates. However, because of their relatively long maturities, asset repricing is slower than in many emerging markets. 

Cost-saving strategies and slower inflation should contribute to a further decline in cost-to-income ratios. 

The average ratio of the top seven banks fell from roughly 50% in 2022 to roughly 45% in the first half of 2023, pointed out Fitch Ratings.

It underlined that the earthquake that struck Morocco in September will have a negligible impact on banks’ profitability given their minimal exposure to the worst-affected regions.

Fitch projects that Morocco’s real GDP growth will average 3.3% in 2024–2025. Additionally, inflation and interest rates are expected to stay above historical norms, placing pressure on the creditworthiness of borrowers. 

A more pessimistic prediction might result from slower-than-anticipated growth in the eurozone, Morocco’s principal trading partner, or from persistently high energy and food costs.

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