Fitch Affirms Morocco's Attijariwafa Bank at 'BB+'; Outlook Stable.
KEY RATING DRIVERS
IDRS, NATIONAL RATINGS, SUPPORT RATING AND SUPPORT RATING FLOOR
AWB's IDRs, National Ratings, Support Rating (SR) and Support Rating Floor (SRF) are driven by a moderate probability of support from the Moroccan sovereign (BBB-/Stable). AWB is a leading, privately owned Moroccan bank, with a 26% share of loans and deposits in the country. AWB also operates in several other African countries, which represented about 30% of consolidated risk-weighted assets at end-June 2017.
The Stable Outlook on the ratings mirrors that on the sovereign rating of Morocco.
AWB is classified as a domestic systemically important bank (D-SIB) in Morocco and Fitch believes the authorities would have a high propensity to support it, if required. However, the overall probability of support is moderate, given Morocco's financial strength. Fitch assigns the same SRF to all D-SIBs in Morocco.
AWB's risk appetite has a high influence on the VR. The bank's expansion into African countries supports profitability, but indicates above-average risk appetite, in our view. Following the acquisition of an Egyptian bank in May 2017, African subsidiaries contributed about 27% of net income in 1H17.
AWB is Morocco's leading corporate bank and is well established in retail banking, consumer finance and specialised financial services, such as insurance and leasing. The bank's robust franchise supports its VR, as does management's ability to meet its targets. Stable deposits provide the bulk of funding and African subsidiaries are self-funded, which supports overall liquidity management. Liquidity is well managed at the group level and liquid assets easily cover short-term market funding instruments.
Asset quality and capitalisation are weak, in our view. The bank's loan book is split roughly 50% to corporates, 30% to retail and 20% to SMEs, micro companies and other segments. Impaired loans have been stable at about 7% of gross loans since end-2014. This compares favourably with the average for the sector's largest banks (9.6% at end-1H17) and loan loss cover, at 73%, is in line with the sector average. However, we believe that non-performing loans may be understated in Morocco as restructured loans are rapidly reclassified as performing and levels of foreclosed assets can be on the high side, suggesting loan-quality weakness.
As is the case with many Moroccan banks, single-name concentrations are high, with the top 20 loans representing about a third of lending. Related-party lending is significant, partly explained by the fact that Societe Nationale d'Investissement (SNI), a leading conglomerate in Morocco with interests in a wide range of sectors, controls 48% of the bank. We have no indications that such lending is not extended on market terms.
AWB's Fitch Core Capital/weighted risks ratio (8.9% at end-1H17) is lower than the average for rated Moroccan peers (12%) and in our view, loss absorption capacity at AWB is moderate, considering the bank's risk profile. Management's projections show limited growth in core capital to end-2018, while it forecasts Tier 1 and total regulatory capital ratios will reach about 10% and 12.5%, respectively. Low capitalisation levels have a high influence on AWB's VR.
IDRS, NATIONAL RATINGS, SR AND SRF
The bank's IDRs, National Ratings, SR and SRF are sensitive to a change in Fitch's view of the Moroccan state's willingness or ability to support the bank. The ratings are also sensitive to a change in Fitch's assumptions regarding the availability of sovereign support for Moroccan financial institutions, but we do not envisage changes in these areas.
AWB's National Ratings would not necessarily be downgraded if the sovereign were downgraded because national scale ratings are an opinion of creditworthiness relative to the universe of issuers within a single country. A sovereign downgrade would not necessarily alter the relativities between the sovereign and the bank. If the Moroccan state's willingness to support AWB diminishes, due to loss of systemic importance, for example, the National Ratings could be downgraded but this scenario is unlikely.
The bank's VR would benefit from an improvement in capital ratios and reduced risk appetite. Evidence of heightened risk appetite or weaker asset quality could put negative pressure on the VR.
The rating actions are as follows:
Long-Term Foreign- and Local-Currency IDR affirmed at 'BB+'; Outlook Stable
Short-Term Foreign- and Local-Currency IDR affirmed at 'B'
National Long-Term Rating affirmed at 'AA-(mar)'; Outlook Stable
National Short-Term rating affirmed at 'F1+(mar)'
Support Rating affirmed at '3'
Support Rating Floor affirmed at 'BB+'
Viability Rating affirmed at 'bb-'
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||May 28, 2018|
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