Morocco to introduce secondary market for non-performing loans

Morocco’s central bank has prepared a draft law that would set up a secondary market in which non-performing loans, currently at 9.8 billion dollars, can be sold, in a move that will boost banks’ liquidity.

The news was announced by director general of the central bank, Bank Al Maghrib, Abderrahim Bouazza, who said non-performing loans increased to represent 7% of GDP.

Non-performing loans (NPLs), also known as bad loans, are loans on which the borrower is not making interest payments or repaying any principal. These loans are considered “bad” because they are unlikely to be repaid in full, leading to potential losses for the lender.

By September, Moroccan banks had 98 billion dirhams ($9.8 billion) of bad loans, representing a ratio of 8.6% of total loans, one of the highest in the region.

These loans needed to be covered by 67 billion dirhams, which weighs on banks liquidity.

The volume of non-performing loans may worsen in the future due to the successive economic shocks of recent years, whose impacts have not yet appeared in bank balance sheets, and because of the increasing uncertainties in the international environment, Bouazza said.

Non-performing loans have affected the liquidity of banks, with a deficit bridged by the central bank at 120 billion dirhams, he said.

“The proposed bill aims to remove legal barriers hindering the direct transferability of non-performing loans (NPLs). It eliminates the requirement for debtor consent and simplifies the procedures for notifying recovery notices for these loans,” he said.

“This transfer would allow credit institutions to clean up their balance sheets, free up capital to strengthen their solvency, and provide new liquidity that can be reallocated to other financing activities,” he added.