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, as reflected in 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 two notches below
Government Support Rating: BOA's GSR of 'bb' 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 Operating Environment Outlook: We forecast
Solid Franchise in
Moderate Risk Profile: The risk profile has improved with a 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 increases, including rights issues. The bank's loan book is less concentrated than the peer average; the largest 20 exposures were 14.5% of total gross loans end-1H23.
Asset-Quality Weaknesses: BOA's Stage 3 loans ratio (end-1H23: 9.9%) 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 8.1% of gross loans, although roughly in line with the peer average of 9%. Reserve coverage of Stage 3 loans by total allowances (85%) is reasonable.
Healthy Profitability: BOA's operating profit improved to 2.0% of risk-weighted assets (RWAs) in 1H23 (2022: 1.6%) owing to strong fees and commissions income as well as net interest income, and is broadly in line with the sector average. BOA's cost efficiency has improved but remains weaker than peers' primarily due to its foreign operations. In 9M23, net income was up 17% yoy, primarily due to a solid 18% growth in net fees and commissions and 10% growth in net interest income.
Weak Capitalisation: BOA's common equity Tier 1 (CET1) ratio of 8.7% at end-1H23 was lower than the sector average (10%) and is managed tightly against its 8% minimum regulatory requirement. Its total capital adequacy ratio (CAR) of 12% at end-1H23 was just in line with its minimum regulatory requirement.
Good Funding and Liquidity: BOA is primarily funded by stable customer deposits (end-3Q23: 68% of non-equity funding) and deposit concentration is low by African standards. Liquidity is adequate, with a 92% loans/deposits ratio at end-3Q23 and a 135% liquidity coverage ratio at end-1H23.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
BOA's IDRs would be downgraded should the state's ability or propensity to support the bank diminish. A downgrade of the Moroccan sovereign rating would trigger a downgrade of the GSR and IDR.
BOA's VR could be downgraded if BOA's asset quality deteriorates markedly resulting in a significant weakening of the bank's profitability and capital position. In particular, the VR could be downgraded if the CET1 buffers over their minimum regulatory requirement fall below 50bp on a sustained basis or if capital encumbrance through unreserved Stage 3 loans increases materially.
The National Rating could be downgraded if 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 primarily be driven by an upgrade of the GSR; the latter would require an upgrade of the sovereign's Long-Term IDRs.
An upgrade of the VR is unlikely without a sustained improvement in the operating environment in
The National Rating could be upgraded if Fitch believes BOA's creditworthiness has improved relative to other rated Moroccan issuers'.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
BOA's Long-Term Foreign-Currency IDR (xgs) is at the level of the VR. Its Long-Term Local-Currency IDR (xgs) is in line with its Long-Term Foreign-Currency IDR (xgs).
Its Short-Term Foreign-Currency IDR (xgs) is in accordance with its Long-Term Foreign-Currency IDR (xgs) and Fitch's short-term rating mapping. Its Short-Term Local-Currency IDR (xgs) is in accordance with its Long-Term Local-Currency IDR (xgs) and Fitch's short-term rating mapping.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
BOA's Long-Term IDRs (xgs) could be downgraded if the VR is downgraded. Its Short-Term Foreign-Currency IDR (xgs) is primarily sensitive to changes in its Long-Term Foreign-Currency IDR (xgs) and could be downgraded if the latter is downgraded and the new Long-Term rating maps to a lower Short-Term rating in accordance with Fitch's criteria. Its Short-Term, Local-Currency IDR (xgs) is primarily sensitive to changes in its Long-Term Local-Currency IDR (xgs) and could be downgraded if the latter is downgraded and the new Long-Term rating maps to a lower Short-Term rating in accordance with Fitch's criteria.
An upgrade of BOA's Long-Term IDRs (xgs) would require a VR upgrade. Its Short-Term Foreign-Currency IDR (xgs) is primarily sensitive to changes in its Long-Term Foreign-Currency IDR (xgs) and could be upgraded if the latter is upgraded and the new Long-Term rating maps to a higher Short-Term rating in accordance with Fitch's criteria. Its Short-Term Local-Currency IDR (xgs) is primarily sensitive to changes in its Long-Term Local-Currency IDR (xgs) and could be upgraded if the latter is upgraded and the new Long-Term rating maps to a higher Short-Term rating in accordance with Fitch's criteria.
VR ADJUSTMENTS
The operating environment score of 'bb-' is above the 'b' category implied score, due the following adjustment reasons: 'macroeconomic stability' (positive), 'sovereign rating' (positive) and international operations (negative).
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 IDRs are linked to the Moroccan sovereign ratings.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores see www.fitchratings.com/esg.
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