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4-Traders Homepage  >  Equities  >  Nyse  >  Moody's Corporation    MCO

Delayed Quote. Delayed  - 10/24 10:02:04 pm
102.84 USD   +0.59%
05:47p MOODY : Outward expansion increasing risk for Moroccan banks
12:12p MOODY : Asset quality in Saudi, Qatar and the UAE most resilient to ..
08:12a MOODY'S AFFIRMS : changed outlook to positive
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Moody : Outward expansion increasing risk for Moroccan banks

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10/24/2016 | 05:47pm CEST

Morocco's largest banks have grown steadily into the regional market, reaping large profits but potentially boosting credit risk.

On 4 October, Attijariwafa Bank announced a coup on the acquisition front--an agreement with Barclays Bank Plc for 100 per cent of the share capital of Barclays Egypt, for an undisclosed amount, although Reuters reported sources pricing it at $400 million.

Barclays Egypt posted net income of EGP 1.517 billion ($169 million) and net income of EGP 606 million ($67.97 million) in 2015. Its total assets and shareholders' equity amounted EGP 20.2 billion ($2.26 billion) and EGP 3.4 billion ($381 million) respectively as of 31 December 2015.

"The Egyptian economy and banking sector offer significant growth prospects in the medium and long term. Barclays Bank Egypt, thanks to its positioning, highly talented management and motivated workforce, strong capitalisation and clean balance sheet, is the ideal platform to roll out Attijariwafa bank's universal banking model in Egypt," Mohamed El Kettani, Chairman and CEO of Attijariwafa, said.

"This transaction will allow Attijariwafa Bank to contribute to further economic integration between Egypt and our countries of presence in Maghreb, Western and Central Africa. It will also offer Attijariwafa bank a unique opportunity for further development in the Middle East and Eastern Africa," he added.

As Kettani mentioned, Attijariwafa is currently present in 25 countries and soon to be another. On 19 October it announced an additional acquisition, a 75 per cent stake in Rwanda's Cogebanque, in a $41 million deal according to the Rwandan President's office. Overall, the Attijariwafa Group reported total assets of $42.6 billion and shareholders' equity of $4.2 billion as of 30 June 2016. In 2015, it recorded net banking income of $1.9 billion and net income of $535 million. The Bank is currently listed on the Casablanca Stock Exchange with a market capitalisation of $7.4 billion as of 30 September 2016.

Moroccan banks such as Attijariwafa are coming from a relatively stable operating environment, certainly compared to many of their North African neighbours. Yet with aggressive outward expansion by several of the country's largest banks, elevated risk is a natural side effect. For the three biggest banks--Attijariwafa, Banque Central Populaire (BCP) and Banque Marocaine du Commerce Extérieur (BMCE)-their combined cross-border exposure accounted for 20 per cent of total assets in 2015.

In a 21 September report on the sector, Moody's Investor Services said that Moroccan banks are facing high credit risks, but the country's sound economy and the banks' stable funding and resilient profitability metrics are helping to stabilise their credit profiles.

"Non-performing loans [NPLs] for Moroccan banks have increased to 7.7 per cent of gross loans as of Q1 2016, but we expect them to stabilise," Olivier Panis, Moody's Vice President and Senior Credit Officer, said. "Retail sector NPLs have already stabilised at around 8.1 per cent as of Q1 2016 and reducing share of doubtful and watchlist loans points to a slowing trend in NPL formation." Moody's also highlighted efforts by the Moroccan central bank, Bank al-Maghrib, to curb potential expansion risk, including prudential guidance and supervisory colleges for banks with significant exposure to Sub Saharan Africa (most of Attijariwafa's Africa operations are in the West African region.) The banks are also supported by relatively strong economic growth, particularly compared to the rest of the North African region--Moody's expects 3.5 per cent GDP growth in 2017 and foreign direct investments at 2.5 per cent of GDP.

Moody's expects Moroccan banks' profitability to remain stable, or even improve, from their recent levels over the next 12 to 18 months, which will contribute to support growth while conserving capital. "We expect that Moroccan banks will continue posting high net interest margins (NIMs) of around 3.5 per cent, well above the two per cent global Moody's average, and supported by lower cost of funds," Panis said. The ratings agency indicated that this, combined with the expectation of a modest growth in risk-weighted assets, will contribute to the stability of moderate capital buffer, with a reported Tier 1 ratio at 11.8 per cent.

It also said that banks will further benefit from a continued stable funding base, which is 65 per cent sourced from deposits, and liquid banking assets that Moody's estimates at 27.3 per cent--including government securities--and well above Basel III liquidity requirements.

In a 7 October statement reaffirming Morocco's ratings at 'BBB-/A-3', Standard & Poor's (S&P) also cited the three big banks' 20 per cent outside lending as a potential risk.

"While we consider regulatory standards in Morocco to be generally conservative, Moroccan banks are still exposed to cyclical sectors [such as] steelworks, tourism, commercial real estate, and construction. Thus, we consider that economic risks for the Moroccan banking sector remain high in a global comparison. We also assess the system's risk appetite as aggressive, given the rapid expansion of Moroccan banks, including in higher risk African countries," S&P said in its report.

The ratings agency also noted agricultural volatility and the role it could play in future projections, not just for the economy but credit risk as well. Morocco is highly dependent on the agriculture sector, to the point that most of the drop in GDP growth this year (expected to be 1.6 per cent in 2016; averaged four per cent over the five previous years) can largely be attributed to weak cereal harvests this season.

However Morocco is quickly diversifying, most noticeably in the automotive sector, which has brought in consistent FDI. With rapid regional expansion, its large financial institutions are primed to capture the multinational business beginning to trickle through Morocco's door.

(c) 2016 CPI Financial. All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info)., source Middle East & North African Newspapers

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Financials ($)
Sales 2016 3 567 M
EBIT 2016 1 473 M
Net income 2016 914 M
Debt 2016 1 884 M
Yield 2016 1,42%
P/E ratio 2016 21,71
P/E ratio 2017 19,95
EV / Sales 2016 6,04x
EV / Sales 2017 5,72x
Capitalization 19 661 M
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Mean consensus OUTPERFORM
Number of Analysts 14
Average target price 110 $
Spread / Average Target 7,7%
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Raymond W. McDaniel President, Chief Executive Officer & Director
Henry K. McKinnell Chairman
Linda S. Huber Chief Financial Officer & Executive Vice President
Tony Stoupas Chief Information Officer & Senior Vice President
Basil L. Anderson Independent Director
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