Fitch Rating expects Moroccan banks profitability to improve in 2023

Fitch Rating highlighted the positive outlook for the seven largest Moroccan banks in 2023 whose profitability is set to improve on the back of a better risk management.

“We expect profitability will improve at a faster pace in 2023 as lower impairment charges (LICs) should continue to decline while higher rates will start to feed into loan rates,” Fitch Rating said in its most recent analysis.

Profitability improved marginally in 2022 with the average operating profit/risk-weighted assets ratio increasing 10bp to 1.8%, benefiting from lower impairment charges (LICs) while net interest margins were flat, it said.

The agency also expects Moroccan banks capitalization to improve slightly at the end of 2023, backed by healthy internal capital generation and modest growth, compared with a stable capitalization with the common equity tier 1 ratio at around 10%.

The surge in non-performing loans to 8.7% by end of 2022 deteriorated asset quality in the first quarter this year for most Moroccan banks, it said.

Overall, the agency expects moderate economic activity in 2023 to affect bank operations due to a fall in in credit by 1% due to higher interest rates and low demand from corporates and households.

This made banks more selective in their lending to reduce credit risk, Fitch Ratings said.

Morocco’s central bank has ended its monetary easing keeping its interest rate at 3% to curb inflation which dropped to 5.5% in June from 11% in February.