Fitch Ratings has affirmed Morocco-based Banque Marocaine pour le Commerce et l'Industrie's (BVC:BMCI) National Long-Term Rating at 'AAA(mar)' with a Stable Outlook.
Fitch has withdrawn BMCI's Support Rating of '3' as it is no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on 12 November 2021.
Key Rating Drivers
BMCI's ratings are based on potential support from the bank's 66.7% shareholder BNP Paribas S.A. (BNPP; A+/Stable). Fitch's assessment captures BNPP's strong ability - as indicated by its Issuer Default Rating (IDR) - and willingness to provide support to BMCI.
Strategically Important Subsidiary: BMCI has a modest franchise in Morocco, controlling a 5% market share. Nevertheless, BMCI is BNPP's largest African subsidiary and supports the group's franchise in the broader Mediterranean region.
Easy to Support: BMCI is small relative to BNPP, representing less than 0.5% of consolidated assets at end-1H21, meaning that support would be manageable.
Strong Integration with BNPP: BMCI is highly integrated with BNPP, sharing branding, risk systems, internal processes and IT platforms. Its senior management is appointed by BNPP and BNPP controls BMCI's supervisory board and determines its strategy.
No Record of Extraordinary Support: BMCI has never required extraordinary support from BNPP. However, ordinary support is provided in the form of counter-guarantees, which allow BMCI to extend larger loans to Moroccan corporates without breaching its large exposure limit.
Modest Franchise: BMCI controls a 5%-6% domestic market share in loans. Although BMCI has no specific pricing power, BNPP's corporate-banking expertise in France, and Africa provides BMCI with a competitive advantage as it targets multinational customers. The bank's business model is weighted towards traditional banking activities with a presence in a variety of financial-services segments.
Conservative Risk Profile: BMCI's conservative risk profile is reflected in the bank's tight underwriting standards adopted from BNPP's own procedures and adjusted for the economic conditions of the Moroccan market. Risk controls at BMCI are good, limits are adhered to, as are procedures. BNPP group-wide controls are implemented, which underpin the robustness of BMCI's risk-control framework.
High Impaired Loans: BMCI's impaired loans/gross loans of 14.3% at end-1H21 was significantly above the 9.7% sector average. In our view, this reflects more stringent classification policies and the bank's conservative recognition of impaired loans. BMCI's reserve coverage of 88% at end-1H21 was reasonable and roughly in line with the sector average.
Profitability Below Sector Average: BMCI's core performance metrics have historically been weaker than the sector average, due to lower yields in line with the bank's focus on low-risk corporates. Operating profit recovered to 1.3% (annualised) of risk-weighted assets (RWA) in 1H21 from 0.6% in 2020, mainly owing to lower loan impairment charges.
Only Adequate Capitalisation: BMCI's common equity Tier 1 (CET1) ratio of 10.7% at end-1H21 compared well with peers'. However, we view capital buffers as only adequate, given its high stock of unreserved impaired loans (equivalent to 14% of CET1 at end-1H21) and high single-name concentrations (the 20-largest exposures represented 20% of total gross loans at end-1H21).
Adequate Funding and Liquidity: Similar to peers, BMCI is primarily funded by customer deposits; these are fully sourced in Morocco and accounted for 78% of total funding at end-1H21. Liquidity is strictly controlled by BNPP and is satisfactory.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of BMCI's National Ratings could result from a multi-notch downgrade of BNPP's IDR or from a reduced propensity of BNPP to support BMCI, both of which we view as unlikely at present.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
BMCI's National Ratings are at the top of the scale and therefore cannot be upgraded.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
BMCI's ratings are driven by potential support from BNP Paribas S.A. (A+/Stable).
