Fitch Deems Morocco’s Capital Markets Well Developed

Capital markets are reasonably deep and well developed in Morocco wherein institutional investors buy long-term senior and subordinated bonds issued by Moroccan banks, says Fitch Ratings in its latest report on Moroccan retail housing finance market.

The introduction of a covered bonds market in Morocco would support continued strong growth of retail mortgage lending, adds the credit rating agency.

“Covered bonds could be an important new source of funding for banks, particularly if growing demand for credit outstrips deposit growth, as deposits provide about 70 pc of banks’ funding”, underlines Fitch Ratings, noting that retail mortgage loans by banks totaled MAD188 billion ($18 billion) at end-2016, with growth running at about 5 pc a year, reflecting strong demand. Deposit growth was 6 pc in 2016.

According to Fitch analysts, some Moroccan banks are looking into issuing their first covered bonds in first half of 2018 as they hope the necessary legislation will be in place by then, although progress with legislation has been slow, with asset valuation a sticking point due to data limitations.

They say covered bonds would lessen the maturity mismatches between banks’ assets and liabilities, reducing liquidity risk – a credit positive. Retail mortgages loans have maturities of 15 to 25 years but most deposits are contractually short-term, albeit with a high degree of stability.

Draft legislation for covered bonds in Morocco has not been published, but press reports indicate that eligible assets for mortgage covered bonds will include primary mortgage loans with a maximum loan-to-value ratio of 80 pc.

According to Fitch agency, growth prospects for Morocco’s retail housing finance market are positive, supported by strong housing demand, banks’ appetite for retail lending and relatively low interest rates.

Regulation of the mortgage market is becoming tighter, which is credit-positive for banks, and, although property prices can be volatile, there are no signs of a bubble, underlines the Fitch report

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