Fitch: Dirham Liberalisation Poses Little Risk to Moroccan Banks


(The following statement was released by the rating agency)
LONDON, June 19 (Fitch) The planned partial liberalisation of
Morocco’s
exchange-rate regime will have a limited impact on the country’s
banking sector,
Fitch Ratings says.
Banks are unlikely to face significantly higher currency-related
risks from
greater exchange-rate volatility as their foreign-currency (FC)
exposure is
minimal in their domestic activities, FC lending is almost
entirely trade
related, FC deposits are rare and use of international capital
markets is
minimal. Net open FC positions are small and typically amount to
less than 5% of
equity.
The liberalisation of the dirham is likely to have a limited
impact on
macroeconomic stability in the short and medium term. Fitch
expects the new
exchange-rate regime to be phased in gradually, leading to
little increase in
the volatility of the dirham against the currency basket
currently anchoring the
peg. The risks of a sharp adjustment of the dirham are low as
the exchange rate
is consistent with fundamentals, according to the IMF’s latest
assessment.
Public finances and market access should not be significantly
affected as public
debt is mostly denominated in dirhams and held domestically.
Morocco’s reserves
and the IMF’s precautionary and liquidity line would provide an
important buffer
in case of external stress, which is not Fitch’s base case.
Small- and medium-sized Moroccan importers would be most
affected in the event
of any weakening of the dirham, given their limited access to
currency hedging
tools. However, these companies’ forward purchase orders tend to
be short-term,
so they should soon be able to pass the rising import costs to
their customers.
We do not expect a surge in impairments in the largest banks’
SME loan
portfolios triggered by exchange-rate movements.
Larger Moroccan corporates already actively use currency
derivatives and banks
do not expect these borrowers to have problems servicing their
FC loans once the
currency regime changes.
Banks that are active in currency trading or able to offer
hedging instruments
to their customers may benefit from opportunities brought about
by greater
exchange-rate volatility. These include Attijariwafa Bank, one
of the largest
banks with the most developed corporate and investment banking
franchise, and
the subsidiaries of leading French banks, which can tap into
their parents’
derivative expertise. Demand for derivatives is likely to
increase among SME
borrowers, boosting business volumes for banks in a position to
offer such
products.
The dirham is currently tied to a basket of currencies
comprising the euro (60%)
and US dollar (40%). The Moroccan central bank can intervene to
limit
fluctuations and restricts bid-offer spreads to 0.6%, meaning
that all official
dirham exchange transactions are settled within this tight band.
Dirham
volatility has been low in recent years.
It is not clear how soon the new exchange regime will start. A
June 2017 date,
indicated by the authorities this year, now looks unlikely but
we expect the
reforms to begin in 2H17 with a long rollout period, which some
banks expect
could be as long as 15 years.
Contact:
Janine Dow
Senior Director, Financial Institutions
+44 20 3530 1464
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Mahmoud Harb
Director, Sovereigns
+852 2263 9917
David Prowse
Senior Analyst, Fitch Wire
+44 20 3530 1250
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530
1103, Email:
peter.fitzpatrick@fitchratings.com.
The above article originally appeared as a post on the Fitch
Wire credit market
commentary page. The original article can be accessed at
www.fitchratings.com.
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