Morocco seeks to become a new financial centre as banks in Egypt, Libya and Tunisia try to recover from the impact of political instability.
North Africa remains the second regional financial powerhouse after Southern Africa. But within the region, change is afoot, largely driven by the North African uprisings.
The result leaves Morocco in the driving seat, as it seeks to move the financial centre of power away from Cairo and towards its new Casablanca Finance City.
The Bank for International Settlements reported that nearly $9bn left accounts in Egypt and Libya in the first three months of 2011, and much of that has not returned.
Ongoing turmoil in Cairo is unlikely to encourage depositors to trust the system, despite promises of financial aid from Saudi Arabia and Qatar.
Tunisia, which suffered less capital flight because of strict controls, nevertheless faces a challenge to recapitalise the country’s banks.
An International Monetary Fund (IMF) report on the banking sector suggests that financial institutions in Tunisia will need additional capital that could exceed 5% of gross domestic product.
Old regime legacy
The banks in Tunisia were in a bad state before the uprising. Former president Zine el Abidine Ben Ali and regime barons used them as a piggybank, with non-performing loan rates of 16% in 2011 and possibly more due to under-reporting.
Unpicking the thread of corporate malfeasance left by the previous regime could turn up nasty surprises down the road.
The three state-owned banks that dominate the sector are in the process of restructuring, with the IMF commending the regulator for its oversight.
There is now a glimmer of hope for medium-term profitability. However, the central bank is now exposed as a result of its liquidity support to banks, something that, among other things, has affected the sovereign rating.
In February, Standard & Poor’s lowered its rating on Tunisia from BB to BB-, citing political tensions. Its report included a negative outlook “reflecting the risk that the political situation could deteriorate further amid a worsening fiscal, external and economic outlook”.
It then downgraded Tunisia to B on 16 August, which prompted a downgrade of the three Tunisian banks rated by the organisation.
One of the principal ways out of the crisis would be for Tunisian banks to start lending again.
Though space is limited while the system processes its bad debts, experts such as the World Bank’s Laurent Gonnet argue that policy changes could help, such as lowering the amount of collateral needed to grant a loan.
The rate is currently 167% of the value of the loan, the highest rate in the region.
Morocco is leading the way with a credit penetration rate – the ratio of the credit banks extend and gross domestic product – of 90%, outstripping Tunisia’s 72%.
Part of that is down to the aggressive charge underway at all the major Moroccan banks, which are pushing banking services into previously under- serviced areas of the country.
Groupe BCP (#8), for example, is planning to open 100 new branches a year to add to its already large network of more than 1,000 branches.
It holds almost 30% of retail deposits in the country. Attijariwafa Bank (#7) added 395,000 customers in 2012 and boasts 2,269 branches across the country. There is now fierce competition between BCP and Attijariwa for retail deposits.
This ‘closer-to-the-customer’ approach has allowed Moroccan banks to benefit from the growth in Morocco’s emergent consumer classes.
Despite the current economic difficulties in Morocco linked to the slowdown in Europe, Attijariwafa’s profits for 2012 went up 1% to Dh4.5bn ($538m). Liquidity remains an issue, however.
Strong domestic performances are also helping to fund the expansion of Moroccan banks into Africa.
BMCE (#11), which bought a controlling stake in Bank of Africa in 2010, announced in June that it is ready to tap the international capital markets to the tune of $500m to fund its international expansion – a month after Attijariwafa said it was readying itself to ask for the same amount.
Groupe BCP sold 5% of its shares in Banque Centrale Populaire to French bank BPCE and 5% to the International Finance Corporation in late 2012 in order to raise the cash for its own expansion, including the June 2012 purchase of a 50% stake in Ivorian group Banque Atlantique to target West Africa.
Islamic banking
Islamic finance in North Africa remains less affected by political turbulence and global financial downturns. Morocco should have its first fully Islamic bank in 2013, after allowing banks to create sharia-compliant instruments in 2010.
Gulf-based banks are now looking at the region with interest, especially given the rise to power of Islamist governments.
Abu Dhabi Islamic Bank has been wanting to grow its retail base and is looking at the larger population base across North Africa. It has applied for bank licences in Algeria and Libya, and may try to enter Morocco and Tunisia.
Qatar’s Masraf Al Rayan bank announced in February that it would buy a Libyan financial institution to turn into an Islamic bank.
It follows the prolonged exit of French banks from Egypt – with Emirates NBD agreeing to buy BNP Paribas’s subsidiary last December and Qatar National Bank SAQ buying the Egyptian subsidiary of Société Générale in March 2013.
The stringent capital controls make investment in Algeria a tough sell. Political considerations count there too.
Though Attijariwafa Bank has been asking permission from the central bank to enter the market, the request has until now been denied.
The Banque Extérieure d’Algérie (#10) has tried to modernise, but it still largely relies on its links with the oil industry rather than on its customer deposit base, despite its universal banking facade.
*This article was published on 31 Oct 2013 by The Africa Report. Read the original article here.