BANK OF AFRICA
Fitch Ratings has affirmed
Fitch has also affirmed BOA's Viability Rating (VR) at 'bb-' and National Long-Term Rating at 'AA-(mar)' with a Stable Outlook.
Key Rating Drivers
BOA's IDRs are driven by potential support from the Moroccan authorities, if required, as reflected by the bank's Government Support Rating (GSR) of 'bb'. The Stable Outlook mirrors that on the sovereign rating.
BOA's VR considers its solid franchise in
BOA's National Ratings are in line with its direct local peers but below the subsidiaries of large French banking groups as these benefit from potential support from their foreign shareholders.
'bb' GSR: BOA's 'bb' GSR considers the bank's systemic importance as the third-largest Moroccan bank, but also the limitations of the sovereign's financial flexibility. Fitch views BOA as a domestic systemically important bank (D-SIB) in
Stable Outlook for Operating Environment:
Adequate Franchise in
Strengthening Risk Profile: Evidence of an improved risk profile include greater harmonisation in risk controls across the group, a cautious approach to growth in recent years in a drive to preserve capital, as well as several rounds of capital enhancement, including issuance of eligible securities and rights issues.
Asset Quality Pressures: BOA's Stage 3 loans ratio (end-1H22: 10.2%) is higher than at other major Moroccan banks, which is partially driven by higher impairments at its African subsidiaries. Stage 2 loans are high at 8.7% of gross loans, although in line with the peer average of 9%. The reserve coverage of Stage 3 loans by total allowances (85%) is reasonable.
Acceptable Profitability: BOA's operating profit/risk-weighted assets ratio further improved to 1.8% in 1H22 (annualised) from 1.5% in 2021 (primarily owing to lower loan impairment charges) and is broadly in line with the sector. BOA's cost controls have been strengthened but remain weaker than peers, primarily due to the foreign operations.
Low Core Capitalisation: BOA's common equity Tier 1 (CET1) ratio of 8.4% at end-1H22 was lower than the sector average (10%) and is managed tightly against the minimum regulatory requirement (8% at end-2022). BOA carried out core capital-strengthening measures in 2020 and 2022 and has issued MAD1.5 billion of additional Tier 1 securities since 2021.
Good Funding and Liquidity: BOA is primarily funded by granular deposits. Liquidity is adequate with a sound 91% loans/deposits ratio and a 154% liquidity coverage ratio at end-1H22. BOA has continued shedding expensive deposits and replacing them with current accounts in order to preserve its cost of funding.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
BOA's IDRs and GSR would be downgraded if the Moroccan state's ability or propensity to support the bank weakened.
BOA's VR could be downgraded if asset quality deteriorates markedly, particularly if the stage 3 loans ratio exceeds 14% on a sustained basis, resulting in a significant weakening of the bank's profitability and capital position. A decrease in the CET1 buffers over the minimum regulatory requirements would also be rating-negative.
The National Rating could be downgraded if the bank's Long-Term Local-Currency IDR was downgraded and Fitch believes BOA's creditworthiness has weakened relative to other Moroccan issuers.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of BOA's Long-Term IDRs could be primarily driven by an upgrade of the GSR. However, the latter would require an upgrade of the sovereign's Long-Term IDRs, and this is not our base case given the Stable Outlook on
An upgrade of the VR is unlikely in the near term, although it could result from a sustained improvement in the operating environment in the medium term or from a sustained strengthening of the bank's earnings capacity and capital position.
The National Rating could be upgraded if Fitch believes BOA's creditworthiness has improved relative to other rated Moroccan issuers.
VR ADJUSTMENTS
The operating environment score of 'bb-' has been assigned above the 'b' category implied score, due the following adjustment reasons: 'macroeconomic stability' (positive), 'sovereign rating' (positive) and international operations (negative).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
BOA's IDR are driven by sovereign support and its IDR is linked to
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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