Report No. 20885-MOR Kingdom of Morocco Financial Sector Strategy Note September 26, 2000 Private and Financial Sector Development Department Middle East and North Africa Region Document of the World Bank CURRENCY EQUIVALENTS (as of July 22, 1999) Currency Unit = Dirham (DH) US$1.00 = 9.9730 DH ABBREVIATIONS AND ACRONYMS APSF Association Professionnelle des Sociétés de Financement (Association of finance companies) ASFIM Association des Sociétés de Bourse et des OPCVMs (Association of brokerage and mutual fund companies) BAM Banque Al-Maghrib (Central Bank of Morocco) BCM Banque Commerciale du Maroc BCP Banque Centrale Populaire BMCE Banque Marocaine du Commerce Extérieur BMCI Banque Marocaine du Commerce Intérieur BNDE Banque Nationale pour le Développement Economique (National Economic Development Bank) BNP Banque Nationale de Paris BSF Bons des Sociétés Financières (Debt instrument issued by financial institutions) BT Bons du Trésor (Treasury securities) CDG Caisse de Dépôt et de Gestion CDEC Commission de Discipline des Etablissements de Crédit CDM Crédit du Maroc CDVM Conseil Déontologique des Valeurs Mobilières (the regulatory body for investment dealers) CEC Conseil des Etablissements de Crédit (the lending institutions committee) CIH Crédit Immobilier et Hôtelier (real estate and hotel sector credit) CIMR Caisse Interprofessionnelle Marocaine des Retraites (a pension fund) CNC Conseil de la Comptabilité (accounting regulatory body) CNCA Caisse Nationale de Crédit Agricole (a farm credit agency) CNME Conseil National de la Monnaie et de L'Epargne CNP Conseil National des Moyens de Paiement (National Payments Council) CPM Crédit Populaire du Maroc FCP Fonds Commun de Placement (mutual funds operating under a partnership) FEC Banque Nationale pour le Développement Economique (National Economic Development Bank) GPBM Groupe Professionnel des Banques du Maroc (Morocco Bankers' Association) IMF International Monetary Fund IVT Intermédiaires Agréés en Valeurs du Trésor (registered Treasury securities dealers) MRE Marocains Résidant à l'Etranger (Moroccans living abroad) OFS Organismes Financiers Spécialisés (specialized finance agencies) OPCVM Organismes de Placement Collectifs des Valeurs Mobilières (mutual fund companies) OICV Organisation Internationale des Commissions de Valeurs PEP Plancher d'Effets Publics (mand atory holdings of Governiment securities) PIB Produit Intérieur Brut (Gross Domestic Product) SBVC Société de Bourse des Valeurs de Casablanca (Casablanca Stock Exchange Company) SGMB Société Générale Marocaine de Banque SIMT Moroccan Interbank Teleclearing System TCN Titres de Créance Négociables (marketable securities) FISCAL YEAR July 1 - June 30 Vice President: Jean-Louis Sarbib Country Director: Christian Delvoie Sector Director: Wafik Grais Task Team Leader: Denis Chaput KINGDOM OF MOROCCO FINANCIAL SECTOR STRATEGY NOTE' TABLE OF CONTENTS EXECUTIVE SUMMARY................ ................................... ....... i I. Introduction - Overview of Financial Sector Reforms...................................... 1 II. The Banking System - Performance And Regulatory Framework.............................. 3 A. The Institutional Framework..................................................... 3 B. Performance of the Banking Sector................................................ 7 C. Banking Regulation And Supervision.............................................. 17 D. Conclusion And Recommendations.. ............................................... 19 III. The Market for Government Securities............................................... 23 A. The Primary (Auction) Market ................................................... 24 B. The Secondary Market........................ ................................. 25 C. Recommendations............................................................ 26 IV. The Payments System............................................................. 27 A. The Payments System.......................................................... 27 B. Recommendations............................................................. 28 V. Mutual Funds and the Stock Exchange................................................ 29 A. Mutual Funds (SICAVs) ........................................................ 29 B. The Stock Market....................................................... ....... 30 VI. The Foreign Exchange Market...................................................... 32 'This strategy note is based on work performed during missions to Morocco by: Denis Chaput (Head of Mission), Lorenzo Savorelli, Joumana Cobein, Leila El Hafi, Ebru Engin (MNSPF); Andrew Hook, Charlie Garrigues, Alain Laurin (FSD); Dimitri Vittas (DECGR); Ulrich Ernst, Paul Guy, and Pierre Cailleteau (external consultants). It draws on interviews and information gathered from the regulatory and supervisory authorities, in particular the Ministry of Economy and Finance, the Bank Al-Maghrib, and the Conseil Dontologique des Valeurs Mobilires (CDVM), as well as the major participants in the banking sector and the capital market. Most of the data presented on the banking sector were furnished by the Supervisory Directorate for Banking Institutions in the Bank Al- Maghrib. List of Fi2ures Figure 1 - Structure of Banking System......................................... 1 Figure 2 - Savings and Investment as a % of GDP, 1998...... ....................... 2 Figure 3 - Credit to the private Sector as a % of GDP, 1998...... .................... 2 Figure 4 - M2 Less Currency in Circulation/GDP.. ............................... 2 Figure 5 - Assets, Deposits and Loans in Terms of GDP........ ...................... 5 Figure 6 - Interest Rate Structure of Treasury Securities Issued by Auction............. 14 Figure 7 - Bank Prime Lending Rate and Rate offered by Government Securities........... 15 Figure 8 - Inflation and Return on Treasury Bonds.................................. 15 List of Tables Table 1 - Structure of the Banking System's Balance Sheet..... .................... 7 Table 2 - Maturity Structure of Lending by the Banking System........................ 8 Table 3 - Banking System Deposits, 1993-1998. ..................................... 8 Table 4 - Overdue Loans in the Banking System, 1992-1998.......................... 10 Table 5 - Average Interest Rate Margins, 1993-1998................................ 12 Table 6 - Main Profitability Indicators, 1993-1998 ................................. 13 Table 7 - Capital Adequacy Ratio of the Banking System, 1992-1998.................... 16 Table 8 - Institutional Attribution.............................................. 17 Table 9 - Government Domestic Borrowing Instruments in 1999 (in DH Billion)............ 23 Table 10 - Treasury Auctions - Amount and Maturity of T-bills bought by Primary dealers in 1998............................................................ 25 List of Annexes Annex 1 - Overview of the Financial System Annex 2 - Financial Assets of Non Financial Agents Annex 3 - Assets, Credits and Deposits by Bank Annex 4 - Performance Indicators for the Banking System Annex 5 - Major Prudential Rules Applied to Banks Annex 6 - Treasury Securities Market Indicators Annex 7 - Taxation of Securities Annex 8 - Mutual Funds FOREwoRD At the request of the Moroccan authorities, the preliminary version of this report was drafted in French, so they could comment on the various sections. This final version is an English translation of the original French version. KINGDOM OF MOROCCO FINANCIAL SECTOR STRATEGY NOTE EXECUTIVE SUMMARY 1. Over the last ten years, the Moroccan Government, with the assistance of the World Bank, has supported the development of Morocco's financial system through a series of operations covering the banking sector, the capital market, and more recently, institutional savings mechanisms such as pension funds and insurance companies. This note briefly analyzes the financial system and identifies areas likely to contribute to its continued development, based on observations from 1998. More recent noteworthy developments are addressed after the recommendations in each section. 1990-1998 Reforms 2. The financial sector in Morocco has undergone a period of liberalization, reflected in reforms backed by a series of World Bank initiatives that began in the early 1990s. These reforms targeted the banking sector (1991-1995), development of the capital market, and liberalization of the financial sector (1996). More recently, reform efforts have focused on savings institutions (insurance and pension funds), as part of a Bank-financed project concluded in 1998. 3. The main reforms implemented during this period include elimination of credit ceilings, interest rate liberalization, overhaul of the legislative framework governing lending institutions (adoption of a new Banking Law in 1993), gradual elimination of mandatory holdings of government securities, and strengthening of prudential regulation of banks in accordance with international standards. In addition, to promote the capital market, a number of measures were introduced, including increasing the access of institutional investors to Treasury securities auctions, establishing a legal and regulatory framework governing stock market operations and mutual funds, and adoption of a law on marketable securities (titres de cr6ance n6gociables, TCN). 4. As a result of these reforms, the financial sector is increasingly operating in accordance with market rules, and financial intermediation activity has intensified. The M2 ratio net of bank notes in circulation rose from about 41 to 55 percent of GDP between 1992 and 1998. However, this level of financial sector development remains below that achieved by, for example, Egypt and Jordan, where this ratio stood at about 68 and 86 percent of GDP, respectively, in 1998. Furthermore, the impact of this progress on the real economy has not yet been felt in a meaningful way. Overview and Assessment of Financial System Performance 5. Bank loans and assets represented, respectively, about 48 and 86 percent of GDP at the end of 1998. Banks also control about 80 percent of the leasing companies, manage 70 percent of mutual fund assets, and own 10 of the country's 15 securities firms, while bank shares account for about 30 percent of the Casablanca stock exchange. Bank financial intermediation in Morocco has grown in relation to the size of the economy, but not at a pace that threatens to destabilize the financial equilibrium of the major commercial banks. The pace of market penetration of bank services in the economy, including the size of domestic savings mobilized by the banking system, has been slow. 6. Recent banking activity in Morocco has been marked by a gradual but sustained liberalization, mainly through the nearly complete elimination of mandatory investments, which had reached about 46 percent of bank assets in 1991. Liberalization has been accompanied by new prudential regulations in line with international standards, which was also extended to other credit institutions such as leasing and consumer i finance companies. Outstanding loans by finance companies are currently equivalent to about 12 percent of total bank credit. 7. As the State's presence in the banking sector decreased to 30 percent of total bank assets, credit to the private sector expanded significantly, from about 25 to 48 percent of GDP between 1993 and 1998. Government financing, accounting for 23 percent of bank assets, continues to absorb a large part of medium and long-term loanable funds from the commercial banking system. Thus, the abolition of mandatory holdings of Government securities (plancher d'effets publics, PEP) still has not led to a significant asset reallocation in favor of medium and long-term lending to the private sector. The supply of investment credit remains relatively scarce, and the strong demand for housing finance still represents the greatest potential for expanding the banking market. 8. Overall, the financial situation of commercial banks is healthy and has clearly improved since 1993. Based on the accounting rules in effect before the new accounting plan took effect in January 2000, net earnings of the country's banking system are well above international levels, and returns on assets and equity compare very favorably with those of banks elsewhere. Specialized banks, and in particular the Caisse nationale de cr9dit agricole (CNCA), represent the weakest segment of the banking sector, accounting for 50 percent of total loans in arrears, and have failed to keep pace with the sector as a whole in terms of earnings and asset quality. Bank liquidity is currently comfortable despite the relatively long maturity of bank holdings of Government securities. The overall decline in interest rates since 1993 should, under normal circumstances, have led to lower earnings than those actually generated during this period. The negative impact of declining rates on net interest spreads was more than offset by higher investment income from the gradual replacement of mandatory holdings of Government bonds by higher- yield instruments. In view of the fact that this replacement process has been completed, it can no longer protect banks from their high interest rate sensitivity while the downward trend in interest rates continues. Moroccan banks are nevertheless protecting themselves from the decline in rates by maintaining relatively high spreads with respect to credit, in view of the fact that they do not reflect, to the same degree, the decline in the cost of resources. 9. The banks' foreign exchange risk exposure is currently limited and well below prudential limits, and foreign exchange transactions in the domestic market seem to be adequately supervised. However, prudential regulation with regard to foreign currency exposure is not applied on a consolidated basis, which would include the currency exposure of Moroccan banks' foreign subsidiaries. 10. The management of credit risk should be improved. In 1998, more than 12 percent of outstanding loans were overdue, and a large proportion (about 67 percent) was classified as non-recoverable.2 However, the classification rules governing overdue loans seem to be properly enforced, and the tax treatment of loan provisions seems to favor the timely recognition of non-performing loans. Overall, the quality of loan portfolios net of provisions does not currently threaten the capital adequacy of commercial banks. The banking system has a relatively adequate capital base, consisting of tier 1 capital and yielding an average capital adequacy ratio in excess of 12 percent. 11. However, some institutions have lower capital asset ratios and may even be undercapitalized. Until now, notwithstanding the immediate need for a large-scale restructuring of the CNCA or Cr6dit immobilier et h6telier (former specialized bank, which provides real estate and hotel sector credit), crisis resolution mechanisms have not been put to the test. 12. The satisfactory return on equity of Moroccan banks has been achieved despite the relatively high level of tier 1 capital, large loan provision requirements, and the high proportion of low-yield riskless assets, which drive up intermediation costs. The adequate soundness and profitability of the Moroccan banking system has therefore a cost which is reflected on bank lending and deposit rates. To some extent, Ten percent of loans in the non-recoverable category are, in fact, recovered after several years. ii limited competition and the relative lack of dynamism in expanding the market for bank services allow the main commercial banks to achieve a satisfactory level of financial performance on a cost-plus basis. 13. Bank lending rates, and short-term rates in particular, do not respond quickly to market conditions. This is in part due to the fact that yields on Government securities do not adequately reflect the liquidity of the financial system, while they usually serve as benchmarks for pricing loans and deposits. The current auction mechanism has, for a long time, given rise to a segmented allocation of Treasury securities, while rates of return, particularly short-term rates, are not validated by an adequate volume of secondary market activity. Secondary market activity and the promotional role assigned to specialized dealers was reflected, until 1997, in the proliferation of non-homogeneous instruments caused mainly by the primary market auction rules. Since 1998, the Government has systematically used assimilation (selling of additional amounts of an outstanding security), in an effort to reduce the proliferation of instruments. 14. Risk to the payments system is low because up to 40 percent of all checks cashed are intrabank checks. Furthermore, commercial banks keep mandatory reserves, set at 10 percent of demand deposits of less than three months, as well as substantial portfolios of treasury securities to cover possible debit positions resulting from interbank payments to the Central Bank. 15. Domestic debt management in Morocco has, for a long time, emphasized the placement of new Treasury securities to meet Treasury financing requirements as opposed to minimizing borrowing costs. Unlike in the most developed markets, the thinnest segment of the market in Morocco was short-term Treasury instruments, in spite of generally declining interest rates since 1993, and a rate structure leading to higher borrowing costs for longer-term securities. Recently, the Government strategy has evolved toward minimizing costs, and this has become one of its leading objectives. The Treasury's difficulty in finding short-term buyers explains the dominance of long-term securities. In 1997, short-term issues accounted for 27 percent of subscriptions, and increased to 38 percent in 1999. 16. Overall, relatively favorable macroeconomic conditions in recent years have not been accompanied by a marked improvement in the capital market. Expansion of the stock exchange has resulted largely from privatization initiatives. In spite of highly favorable stock market conditions since 1993, there have been almost no initial public offerings by private non-financial enterprises, aside from five transactions in 1998/99. Furthermore, the total amount of new securities issues, mostly debt instruments, has been dropping since 1996. The stock market has a rather modern infrastructure, complemented by the recent introduction of a central depository system for securities. However, compared to the dominant practice in more developed markets, securities and stock market regulation in Morocco, which properly emphasizes investor protection, gives political authorities a large degree of discretionary power over the operations of the capital market. 17. Lack of development of the capital market seems to be due more to weak supply than to weak demand. Fueled by the performance of the stock market, the demand for investment in securities was reflected in a sharp increase in transactions by mutual fund companies, which accumulated assets of DH 38 billion from the time of their establishment in 1995 to the end of June 1999. Owing in part to the lack of new share issues, which limits the diversification of portfolios, mutual funds are dominated by bond funds and balanced bond/equity funds. The regulatory framework for mutual fund companies contains a number of modern features. If concerns persist, they have to do with the quality of the supervision, proper asset valuation, enforcement of auditing rules, and investor protector measures. iii Main Reconunendations a) Reduce bank intermediation costs while preserving financial soundness: i. Gradually increase the bank capital adequacy ratio while allowing access to second tier capital, defined in a manner concordant with the directives of the Basle Committee.3 ii. Gradually reduce mandatory non-interest bearing bank reserves. iii. Continue modernization of the payments system, including an electronic interbank clearing and settlement system, in order to reduce payment delays and the cash balances held for payment purposes. b) Improve bank prudential regulation and financial disclosure: i. Adopt and implement new bank accounting standards in line with international standards, including consolidated financial statements. In parallel, introduce clear rules on loan write-offs, based on sound accounting principles, as recommended by the International Settlement Bank. ii. Revise the risk diversification ratio in relation to bank capital to reduce discretionary waivers, and permit waivers only on the basis of clear principles or rules. iii. Monitor and enforce prudential regulation on a consolidated basis for both domestic and overseas transactions. iv. Disallow ownership by the Central Bank of shares in banks over which it has regulatory authority. v. Provide the Central Bank's division charged with bank regulation and oversight of lending institutions with the human and material resources needed to upgrade its information systems; and introduce revised bank reporting requirements in line with the new accounting standards. vi. Strengthen bank reporting on the foreign exchange risk exposure related to private foreign borrowings. c) Increase competition in bank lending and savings mobilization: i. Remove the restriction on interest payments on household checking accounts. 3 The point of view of the Ministry of Finance is that "access to second-tier capital is unlikely to help enhance the financial soundness of credit institutions because it is due for payment." 4 The new bank accounting plan was implemented in January 2000. iv ii. Although the administered interest rates on passbook savings accounts have been replaced with an indexed rate, this rate is not conducive to competition and must therefore be liberalized.5 iii. Revise the scope of application and the commission rate (currently 0.2 percent) on foreign exchange transactions, to deepen the domestic foreign exchange market and increase competition in the provision offoreign exchange financing facilities. iv. Minimize conflicts of interest linked to the powers delegated to the Bankers' Association (GPBM) and the Association of Finance Companies (APSF), as members of the Comit6 des etablissements de cr6dit, to investigate and assess new applicants and renewals for bank or financial company licenses. d) Promote the formation of market-based interest rates and reform of the Government securities market: i. Improve the programming of Treasury securities issues, and introduce firm commitments by the Treasury to sell minimum amounts of securities with different . .6 maturities at each auction. ii. Minimize borrowing costs on Government debt, increase the supply of instruments for bank liquidity management, and considerably enlarge the use of short-term Treasury securities with maturities of one year and less.7 iii. Revise the auction mechanism with a view to limiting the proliferation of multiple securities and permitting greater balance between supply and demand with respect to securities awarded. iv. Develop a stock of homogeneous securities by issuing additional amounts of benchmark securities. v. To accelerate the consolidation of existing securities, consider market-based proposals by institutional market participants to convert current holdings of multiple securities into a limited number of existing or new Treasury securities.9 vi. Ensure proper supervisory authority by the Central Bank over the operations of the new central depository for the registration and clearing of Government securities. vii. Support repo transactions with respect to Treasury securities by using standard contracts to cover, inter alia, the transfer of property, the cost of trading securities, the retrocession agreement, and the conditions governing credit operations. 5 The Bank's recommendation to seek closer correlation between market rates and administered rates with respect to savings accounts has been implemented by the authorities, insofar as interest on passbook savings is in line with returns on Treasury securities issued in the auction market. 6 Commitments have been posted quarterly since June 1999 and follow half-yearly postings. 7 This recommendation has been implemented gradually, with an increasing number of short-term subscriptions; in the last three years (1997, 1998, and 1999), 27, 32, and 38 percent of subscriptions were short term. The homogenization of securities is under way. Since late 1997, the Treasury has been issuing additional securities on a specific line until its stock reaches approximately DH 1 billion. 9 The Government has made this proposal to investors, and a regrouping of lines should take place in the near future. V e) Accelerate Capital Market Development: i. Improve mutual fund regulation regarding, in particular, the fiduciary responsibilities and duties of fund managers, non arms'-length transactions, and asset valuation. ii. In keeping with Organisation Internationale des Commissions de Valeurs (OICV) principles, vest the Securities Commission with the requisite authority to enforce compliance with prudential rules and investor protection measures, and to issue appropriate directives. iii. Introduce a real-time gross settlement system for high-value assets to complement the payments system, in particular clearance of transactions involving securities. The Central Bank should reserve the right to oversee the operations of such a system. iv. Examine the appropriateness of providing, for a limited period, tax incentives aimed at attracting new enterprises to the stock market, and of increasing the proportion of companies' share capital that can be traded on the stock exchange. Recent Developments 18. Many current initiatives are aimed at improving financial system performance, and are essentially in line with the recommendations presented in this note. In regard to the banking sector, a Ministry of Finance decree implemented in 1998 stipulated the conditions under which banks are authorized to provide social housing credit. To that end, they have been vested with prompt foreclosure powers once held only by the CIH. Banks should soon submit their consolidated financial statements, on the basis of which bank supervision reports will be adjusted. In addition, the Central Bank and the Bankers' Association (Groupement professionnel des banques) have embarked on a project to modernize the payments system, with the aim of reducing payment delays and cash balances held for payment purposes. 19. Continuing the effort to achieve greater standardization of Treasury securities and attract dealers that specialize in them, the Ministry of Finance recently proposed a comprehensive and clearly defined program of action for completing modernization of the Treasury securities market. This program covers, in particular, auction transactions, the use of the assimilation technique, the consolidation of securities in circulation, and secondary market transactions. It also recommends greater use by the Treasury of short- term securities. The proposed measures target all market weaknesses pointed out in this note, and will contribute to the significant improvement of market efficiency and the streamlined management of the Government's domestic debt. 20. In the case of the capital market, a draft law on third-party portfolio management is being finalized. Its aim is to better define the operating conditions of portfolio managers, strengthen the autonomy of company managers, and enhance investor protection. Also, the specifications applicable to the Casablanca stock exchange management company (Socigti de bourse des valeurs de casablanca, SBVC) were recently revised, and its commissions structure altered to reduce entry barriers resulting from the requirement that brokerage firms be a shareholder, in equal proportion, of the Casablanca stock exchange. However, this change is accompanied by limits on the use of stock exchange earnings, a move that significantly limits the management autonomy of the SBVC. vi KINGDOM OF MOROCCO FINANCIAL SECTOR STRATEGY NOTE I. INTRODUCTION: OVERVIEW OF FINANCIAL SECTOR REFORMS 1. In keeping with the Bank's concerns about improved financial sector performance in its member countries, this strategy note assesses the impact of financial system reforms over the last ten years. It also identifies some strategic guidelines for developing that system in the context of increasing integration with world financial markets. 2. Since the early 1990s, Morocco's financial sector has undergone a process of liberalization, marked by two sets of reforms supported by the World Bank. The first, launched in 1991, was directed essentially at the banking sector. The second, in the mid-1990s, focused on the development of capital markets and liberalization of the financial sector. More recent reform efforts have concentrated on developing institutional savings mechanisms (insurance and pension funds) as part of a Bank-financed project concluded in 1998.10 3. Some of the important measures implemented during this period were the removal of credit ceilings, liberalization of interest rates, adoption of a new Banking Law in 1993, gradual elimination of mandatory investment requirements, and the strengthening of prudential bank regulation in line with international standards. In addition, important measures were adopted to develop the capital market. These included increasing the access of institutional investors to Treasury securities auctions, establishing a legal and regulatory framework governing stock market operations and mutual funds, and adopting the law on marketable securities (TCN). 4. As a result of these reforms, the financial sector is increasingly operating in accordance with market rules, and financial intermediation activity has intensified. The M2 ratio net of bank notes in circulation, for example, rose from about 41 to 55 percent of GDP between 1992 and 1998. Yet the financial sector remains underdeveloped in comparison to countries such as Egypt and Jordan, where this ratio stands at more than 65 percent of GDP. Moreover, this change has had little impact on the real economy. Aggregate data on savings and on domestic financing of the Moroccan economy reveal the following features: Figure 1: Structure of banking system deposits-1998 100% 80% 60o - WTerm deposits and savings 40% - accounts 20%- MSight deposits 0% - Egypt Jordan Romania Poland Turkey M oroc 10 The Contractual Savings Development Loan was signed on June 1998. 1 Figure 2: Savings and Investment as a % of GDP- 1998 50 40 - - - 30 MGross D omestic Fixed Investment -0-r M G ro ss N ational 10 Savings 10 - 0 - - - Figure 3: Credit to the Private Sector as a % of GDP - 1998 120% + Egypt 100% Jordan 80% Turkey 60% Mo1cco 40% Tunisia 20% - " Lban o% Malaysia 1992 1993 1994 1995 1996 1997 1998 1999 120% Hgure 4: M2 less Currency in Circulation /GDP 100% Egypt - Jordan Turkey NI0rOcco S° ---- Tunisia 20% -+- Thailand 0% -+- Poland 1992 1993 1994 1995 1996 1997 1998 1999 2 Credit is primarily short term. Despite the rise in bank credit from 30 percent of GDP in 1992 to 57 percent in 1998, the level remains low compared to more advanced emerging markets, such as Hong Kong (172 percent) and Singapore (110 percent). Moreover, not only are bank lending resources predominantly short term, but nearly half of all bank loans have a maturity of less than one year, while long-term loans represent only 11 percent of banking system credit. As to direct financing, the growth of the stock market and mutual funds points to the growing availability of private capital for long-term investment. In addition, significant private capital mobilization has bolstered recent Government efforts at privatization. Nevertheless, for many years, there has been no initial public offering (IPO) by private non-financial firms on the Moroccan market, in the form of Financial savings consist for the most part of liquid assets. There has been very little change in the composition of financial savings over the last several years: nearly 65 percent of financial assets held by non-financial agents in 1998 were in the form of demand deposits or term deposits of less than one year. Roughly half of bank deposits are of the demand type, a much higher proportion than in neighboring countries such as Jordan (15 percent) or Egypt (11 percent). Assets in the form of medium-term investments or institutional savings rose slightly, from 23 to 29 percent of total investments between 1992 and 1998 (see Annex 2). The banking system seems to have made little headway in market penetration in recent years. According to the Central Bank, market penetration by banks with respect to the working population amounted to 37 percent in 1997. A stagnant savings rate. Gross national savings stood at 17.7 percent of GDP in 1998 and has stagnated for the past 15 years. This rate, like the domestic investment rate, estimated at 22.5 percent of GDP, is low compared to that of countries in the region (see Figure 2). The Treasury continues to absorb a major portion of the financial system's loanable funds. Almost 29 percent of the funds provided by non-financial agents were for Treasury financing in 1998 (43 percent in 1992). At the same time that the Government's external debt has been shrinking in relative terms, its domestic debt rose from 27.7 percent of GDP to 38.4 percent between 1992 and 1998. Moreover, nearly half of this domestic Government debt is long term (more than 7 years), although the State is moving toward short-term debt, with the proportion of short-term auctions standing at 32 and 38 percent in 1998 and 1999. 5. This study consists of five sections: (a) the first section considers the performance of the banking sector and its regulatory framework; (b) the second examines the market for Treasury securities; (c) the third looks at the payments system; (d) the fourth analyzes the operations of mutual funds and the stock market; and (e) the final section deals with the foreign exchange market. II. THE BANKING SYSTEM: PERFORMANCE AND REGULATORY FRAMEWORK A. THE INSTITUTIONAL FRAMEWORK 6. The country's credit institutions comprise 21 banks" (12 commercial banks, 4 specialized banks, 4 subsidiaries and 1 branch of a foreign bank) and 70 finance companies. The commercial banks account for 78 percent of the non-consolidated assets of the banking system, while the specialized banks have 22 percent, respectively, of these assets. The credit institution sector is governed by the Banking Law of July 11 The Banque centrale populaire is one of these 21 banks. This figure considers the 20 banks (the Banque centrale populaire and the 19 Banques populaires rigionales) that belong to the Crdit populaire du Maroc group as one entity. 3 1993, which eliminated the distinction between commercial banks and specialized financial agencies.2 That law also unified the legal framework and supervisory regime for all credit institutions. Three licenses were withdrawn recently from finance companies for failure to adhere to prudential regulation. Ownership structure 7. State presence. One of the landmark events in the development of the banking sector over the period 1990-1996 was the privatization in 1995 of the BMCE (Banque Marocaine du commerce extrieur), one of the largest banks in Morocco. The State presence in the BNDE (Banque nationale pour le d9veloppement economique), CIH, CNCA, and BCP (Banque centrale populaire) has been reduced and at the end of 1998 represented only 27 percent of the capital and 30 percent of the assets of the sector.'3 The State role is characterized by: (a) control of the three specialized banks, among them the CNCA, which is entirely State funded; and (b) strong participation in the capital of the BCP, the central organ of the CPM (Cr9dit populaire du Maroc) group. The CPM consists of a network of 19 cooperative banks that operate under the umbrella of the BCP; it is Morocco's largest banking structure, and holds nearly 29 percent of all bank deposits (end 1998). 8. Stock market listing. The seven banks quoted on the Casablanca stock exchangel4 represented a capitalization of DH 38.5 billion at the end of March 2000, or 30 percent of total stock market capitalization. In most instances, small shareholders are thought to account for between 10 and 20 percent of the capital of the financial institutions quoted on the stock exchange. In addition, 9 finance companies have issued shares traded on the stock exchange, accounting for 3 percent of stock market capitalization. 9. Foreign capital plays a significant role in Moroccan banks; at the end of 1998 it accounted for 21 percent of banking sector assets. Over the last three years, a number of international banks have increased their stakes in the capital of the major Moroccan banks.'5 France became the majority shareholder in Moroccan banks in 1999: BMCI (56 percent owned by Banque Nationale de Paris, BNP), Crdit du Maroc (51 percent owned by CrJdit Lyonnais), and SGMB (51 percent owned by Socigtj ginirale). Size of the banking system and market shares 10. As in many countries, the banking sector in Morocco dominates the financial system. It employs nearly 24,000 people and at the end of 1998 had total assets of DH 301 billion, or about 88 percent of GDP. Banks also control 80 percent of leasing companies, manage 70 percent of the assets of mutual funds, and own 10 of the 15 brokerage firms. Nevertheless, the size of the banking system and its market penetration remain relatively modest by regional and international standards.'6 A recent survey shows that less than 16 percent of the adult population has a bank account. Use of banks by the active population was estimated at about 37 percent at the end of 1997. Between 1992 and 1998, the growth rate of lending 12 The specialized financial institutions were BNDE (Banque nationale pour le diveloppement economique), which engaged in industrial lending; CIH (Cridit immobilier et h6telier), which provided housing and hotel sector finance; and CNCA (Caisse nationale de cr6dit agricole), which provided farm credit. In addition, FEC (Banque nationale pour le d9veloppement economique), which recently gained the status of a bank, is devoted to local community finance. 13 State presence in the banking system was calculated by prorating its shares of assets and capital in banks relative to the total assets and capital of the banking system. 14 Namely, BCM (Banque commerciale du Maroc), BMCE, BMCI (Banque Marocaine du commerce intgrieur), CDM and WafaBank, plus two specialized banks, BNDE and CIH. '5 Foreign shareholders of BCM, BCME, and WafaBank accounted, respectively, for 25.2, 14.5, and 16.6 percent of the capital of these institutions at the end of 1999, compared with 24, 13, and 14 percent at the end of 1992. 1 Regionally, the 3 largest Moroccan banks rank thirteenth, nineteenth, and twenty-first among the 50 biggest banks on the African continent. Moreover, the size of the banking system (about US$29 billion) implies a banking asset per capita ratio of about DH 9,700, or the equivalent of US$900, compared with nearly US$2,000 in Tunisia. 4 remained in line with the growth in deposits, and is well below any level that might be thought excessive in terms of the system's financial equilibrium. 1sa reposits, ant ioans in terkt of GDP 60%- 40% 20% 0% 1992 1995 1994S 1995 1996 1997 N Credits GDP 39% 419% 40%; 44% 43% ,- OJ Deposits GDP 146% 4910 48% 52% 49. Assets GDP 760, IB0O8O.8%" Source: Bank Al-Maghrib, Direction du Trisor, Ministry of Economy and Finance. 11. Market shares and market concentration. Apart from the decline in the market share of the specialized banks, banking activities (making loans and taking deposits) have been distributed among the same players since 1990, and there has been little change in the market shares of the major commercial banks. In 1998, the commercial banks accounted for about 93 percent of deposits and two- thirds of lending volume. The banking sector is, in fact, relatively concentrated: the five largest banks represent two-thirds of the assets, and one bank (CPM) alone holds 29 percent of the deposits in the banking system. The finance companies, which arrived on the scene in the mid-1990s, may change this situation over time. 12. The branch banking network has developed rapidly over the last few years: the number of branches rose from 976 in 1990 to 1,356 at the end of 1998, while the average value of assets per branch rose from DH 174 million to DH 222 million. Most branches are located in urban areas: the six largest cities in Morocco account for more than 53 percent of the banking network. The density of the banking network is low for the country as a whole, with nearly 20,000 inhabitants per branch in 1998, although there has been a clear improvement over 1990, when the ratio stood at 25,000 per branch. 13. The development of banking subsidiaries. Toward the mid-1990s, banks stepped up their lending business through their affiliates, largely companies that provide consumer credit and lease financing. Banks have also moved into the capital market by establishing stock brokerages and sponsoring mutual funds (Soci&ts d'investissement & capital variable, SICAVs). Bank-affiliated finance company loans amount to DH 6.6 billion, or the equivalent of 4.8 percent of the volume of credit provided by the banks directly. As to Moroccan bank affiliates in foreign countries, these are limited essentially to the provision of banking services to Moroccans living abroad (MREs), especially in France and Belgium. 17 The specialized banks have seen their share in the lending market fall from 35 percent in 1992 to about 33 percent in 1998. 5 CHART I: MOROCCAN FINANCIAL SYSTEM - INSTITUTIONAL FRAMEWORK Regulatory and Supervisory Authoritiess OPERATORS hCentral Bank Centra BankBanks (21) Finance Comp. (70) BankAl-Mghri Commercial banks (9) - Consumer loans (35) -Specialized banks (7) - Lease financing (8) Foreign subs (4) - Other (27) SForeian branch (1) Banking industry associations: GPBM* APSF, ASFIM Ministry of Finance Treasury branches (small savings accounts) - Postal checking accounts (CCP) - National Savings Bank, CEN Savings institutions - Caisse de Dip6ts et Gestion (1) - Insurance comp. (19), pension and retirement funds (4)* 1 Offshore banks (3) CDVM Capital markets Casablanca Stock Exchange Brokerages (13) SICAVs (52) * The Moroccan Bankers' Association (GPBM) is the banking industry's professional group. It communicates the industry's common decisions and positions regarding the bank operating environment, and regularly publishes recommendations on the prime rate of banks. Other financial industry groups include the finance companies' association (APSF) and the stockbrokers and investment dealers' association (ASFIM). 14. Finance companies. Outstanding loans by finance companies stood at about DH 20.1 billion at the end of 1998, or the equivalent of 12 percent of total bank loans. Companies controlled by banking groups account for nearly all of the lease financing market, with four companies representing more than 80 percent of this sector. Bank subsidiaries captured only one-third of the consumer lending business, with the remainder divided essentially between two companies, Cridit eqdom (31 percent) and Cridor (14 percent). Interest rates charged by these companies are the maximum for conventional rates - currently set by the regulation of September 31, 1999 at 17.83 percent, compared with rates charged for bank loans, averaging about 10.05 percent. These companies fund themselves by issuing finance company debentures (BSF) which amounted to DH 3.6 billion at the end of June 1999. The banks subscribe to a large proportion of the debentures issued by their subsidiaries. '8 See the section on banking regulation and supervision for the distribution of powers among the various regulatory bodies. 6 B. PERFORMANCE OF THE BANKING SECTOR Structure of banks' balance sheets 15. Banking activity has been liberalized since the early 1990s mainly by gradually reducing mandatory investments, which today account for only 2 percent of bank assets, compared to 46 percent in 1991. This change has not yet led to large shifts in the main components of banks' balance sheets (Table 1), but it has appreciably enhanced the banks' earnings performance. The trend in commercial bank balances'9 from 1993 to 1998 shows: (a) a decline in the holdings of Treasury securities (Bons du trisor, BTs) from 27 percent of assets in 1993 to 23 percent at the end of 1998 (still high in comparison to other banking systems), (b) a reallocation of assets previously dedicated to Treasury securities in favor of loans, which increased from 43 to 48 percent of assets between 1993 and the end of 1998, and (c) larger provisions against non-performing loans. If lending by commercial banks to the private sector is compared to GDP, the ratio rises from about 25 percent in 1993 to approximately 48 percent of total lending by the end of 1998. The latter development is in part due to the privatizations since 1993. Table 1: Structure of the Banking System's Balance Sheet (As a percentage of total End 1993 End 1997 End 1998 balance sheet) Bank ASSETS Comm Spec. Banking Comm Spec. BankSyst. Comm Spec. Banks Banks System Banks Banks Banks Banks Syst. Treasury and fin. Intermeds 9.3 3.1 7.8 9.5 1.8 7.8 10.2 1.6 8.3 BTs 27.4 0.2 21.1 24.6 2.5 20.1 22.8 2.8 18.3 Loans to customers 42.7 76.3 50.6 1 46.9 80.2 53.8 1 48.2 82.0 55.7 Securities and shares 7.2 3.7 6.4 7.4 2.5 6.4 7.6 2.8 6.6 Other assets 13.4 16.7 14.1 11.6 13.0 11.9 11.2 10.6 11.1 LIABILITIES 3.8 6.4 4.4 3.6 31.9 9.3 4.7 28.6 10.0 Treasury and fin. Intemeds. Customer accounts 74.8 13.2 60.5 74.1 23.8 63.7 73.0 18.6 60.9 Other liabilities 11.2 66.3 23.3 10.5 30.6 14.8 7.6 35.6 13.9 Provision for bad debts 1.4 6.1 3.2 2.9 7.7 3.9 3.3 7.8 4.3 Own funds 8.8 8.0 8.6 8.9 6.0 8.3 11.4 9.4 11.0 - Of which capital 4.2 4.4 4.3 4.5 4.6 4.5 4.2 5.8 4.6 TOTAL BALANCE 154.6 46.7 201.3 216.3 56.4 272.7 234.1 66.8 301.0 SHEET (DH billion) Memo item: Ratio* 0.57 - - 0.64 - - 0.66 - - Source: Bank Al-Maghrib. Notes: (*) The loan1deposit ratio is not significant for specialized banks. 1 With respect to off-balance sheet operations of the commercial banks, these related primarily to commitments (guarantees, endorsements, and documentary credits) issued in favor of clients in the non-financial sector. The importance of such operations in relation to actual lending operations declined sharply between 1993 and 1998: the total value of commitments stood at DH 37.9 billion at the end of 1998, as opposed to DH 55.6 billion in 1992, and represented the equivalent of 11 percent of total commercial bank liabilities in 1998, compared to 39 percent in 1992. 7 Risk exposure: liquidity, interest rate, and exchange rate 16. The liquidity risk. The current liquidity risk exposure of Moroccan banks is relatively limited, and credit expansion in recent years has been moderate. Banks are subject to a minimum liquidity ratio of 60 percent of short-term liquid assets to demand liabilities. Commercial banks must also maintain a monetary reserve in the form of non interest-bearing deposits with Banque Al-Maghrib (Central Bank of Morocco, BAM), equal to 10 percent of their demand deposits. The commercial banks are currently in a position of excess liquidity, with liquid assets at more than 41 percent of their total balance sheet. Table 2: Maturity Structure of Lending by the Banking System20 End of period 1993 1998 Comm. Spec. Banking Comm. Banks Spec. Banking Banks Banks System Banks System Total (%) 100.0 100.0 100.0 100.0 100.0 100.0 Short-term loans21 65.0 11.9 46.4 60.6 13.5 45.2 Medium- and long-term loans 23.7 72.4 40.8 28.2 57.1 37.7 Overdue loans* 9.6 10.2 9.8 9.4 19.2 12.6 Unclassified loans 1.7 5.5 3.0 1.8 10.2 4.5 Memo: Total in DH millions 66.1 33.6 101.7 112.8 54.8 167.6 Source: Bank Al-Maghrib. Note(*): The maturity structure of overdue and unclassified loans is not available. Table 3: Banking system deposits, 1993 to 1998 End of period 1993 1994 1995 1996 1997 1998 Total (as % of total deposits) 100.0 100.0 100.0 100.0 100.0 100.0 - Non-interest bearing demand deposits 47.5 48.4 48.4 46.4 45.8 47.1 - Interest-bearing demand deposits (passbook accounts)22 11.3 11.8 12.1 12.8 12.8 13.4 - Interest-bearing term deposits (a) 37.9 36.9 37.1 37.8 38.4 36.4 - Other deposits 3.3 2.9 2.4 3.0 3.0 3.1 Memo: Deposits/Balance 60.5% 59.9% 61.4% 61.3% 63.8% 59.9% Source: GPBM. Note: Nearly 98 percent of term deposits are for less than 1 year. 17. Treasury securities (BTs) held by Moroccan banks are not an important and constant source of liquidity. The secondary market for Treasury securities is still developing, and banks hold negligible quantities of BTs of less than one year. More than 80 percent of their holdings of Treasury securities have a maturity term of more than 5 years. On the other hand, they obtain liquidity through repurchase agreements on Treasury instruments, by offering their customers a form of short-term interest-bearing deposit secured by BTs. These repo transactions comprise the greatest share of the volume of transactions on the secondary market, where there are very few firm trades. 18. The ratio of outstanding loans to deposits reached 66 percent in 1998, against 57 percent in 1993. If we exclude CPM, which holds a high proportion of BTs, this ratio rises to more than 78 percent for commercial banks by end 1998. The bulk of bank deposits are for less than one year. Banks, however, enjoy a fair degree of stability in their demand deposits, and are not highly dependent on large-scale 20 It is difficult to provide a detailed analysis of maturity structure trends for banking sector lending because there are no data available on the original maturity of overdue loans and unclassified loans. 22 Loans classified as under 2 years relate essentially to Treasury loans, the average maturity of which is less than I 'ear. Because of the interest paid, passbook accounts (currently at 6 percent, with a ceiling of DH 150,000 per depositor) have grown significantly, rising from DH 11 billion in 1991 to 24.2 billion in 1998. 8 institutional or commercial term depositors. Besides the high proportion of demand deposits, the other important feature of commercial bank deposits in Morocco is that nearly a third of them come from MREs. Two-thirds of these deposits are held by CPM. The liquidity risk associated with these deposits has been low over the last few years, as the share of MRE deposits in overall bank deposits has remained relative stable at around 28 to 30 percent. Nonetheless, since these deposits are free to move in and out of the country, they represent a major source of liquidity risk to the country's banking system. 19. The BAM responds to banks' liquidity needs through three types of money market interventions. It can: (a) rediscount certain types of loans through weekly auctions (pensions sur appels d'offres a 7 jours), at its initiative; (b) lend five-day funds at the initiative of the banks (pensions a 5 jours); (c) provide overnight funds (pensions a 24 heures), at its initiative or that of the banks, when their current account with the BAM is overdrawn; (d) pursue an open market policy; and (e) absorb liquidity when the liquidity of banks becomes excessive.23 The weekly rediscount facility accounts for nearly all of the BAM's interventions in this market. During 1998, the average daily outstandings under this window were DH 2.1 billion, with peaks as high as DH 4 billion or more. Interbank lending activity has remained modest, with average outstandings of DH 3.9 billion, and a monthly lending volume of DH 9.7 billion at the end of 1999. Interbank transactions in Morocco generally do not involve collateral. 20. Interest rate risk. The maturity and yield structure of the components of the aggregate commercial bank balance sheet, as shown in Chart 2, provides a rough estimate of the overall sensitivity of commercial banks to interest rate fluctuations. It does not, however, allow a quantitative measurement of interest rate risk. Overall, commercial banks have a very small short-term interest risk exposure. On the other hand, given the importance of demand deposits whose implicit returns rise with interest rates, it is clear that the banks' net spread between their cost of funds and return on loans will decline significantly in periods of declining interest rates, and will increase in the opposite situation. Chart 2: Commercial Bank Balance Sheet at the End of 1998 - Maturity and Yield Structure Assets Liabilities ST interest-bearing applications (5 1 year) 39% ST interest-bearing funds 5% MT and LT interest-bearing apps. 42% ST non-interest bearing funds 37% (incl. Govt. securities) 23% Other (non-interest bearing) 19% MT and LT interest-bearing 36% Other (non-interest bearing) 22% 21. Exchange rate risk. The exposure of Moroccan banks to exchange rate risks is limited, with less than one percent of loans and bank deposits denominated in foreign currencies. The banks have foreign exchange positions well below prudential limits, both overall and by currency.24 Yet a major portion of foreign exchange transactions are handled by Moroccan bank affiliates abroad, and these are subject to the limits set not by the BAM, but by the host country. Moreover, the consolidated foreign exchange position of banking groups is not monitored by the supervisory authorities. Nevertheless, the banks report the financial statements of the foreign subsidiaries to the BAM on a regular basis. 23 The BAM intervened in the summer of 1999 to absorb the liquidity of banks, when Government auctions were suspended following the approval of the second GSM license, which provided a significant source of Government financing (DH 1.1 billion). 24 See section on foreign exchange markets. 9 Credit risk 22. The level of overdue loans in the banking system is relatively high, representing about 12.6 percent of bank loans at the end of 1998 (equal to 5 percent of GDP), compared to 7.6 percent in 1992 (Table 4). It seems likely that this level will reach 14.17 percent of loans in 1999, as a result of overdue loans held by the former specialized banks (CIH, BNDE, CNCA) reaching a projected 25.8 percent in late 1999, as compared to 9.3 percent in 1992. In 1998, approximately 90 percent of overdue loans were considered unrecoverable, according to classification rules introduced in 1993.25 The average age of overdue loans is estimated to be more than 5 years. The tax treatment of bad loans favors the timely downgrading of loans in arrears, since only provisions on loans in the lowest category are tax deductible. 23. The higher level of overdue loans on the banks' balance sheets is not due entirely to a decline in the quality of bank assets. It reflects in part the tightening of the classification rules, which banks were required to implement before the end of 1996. Moreover, the former specialized banks, in particular the CIH and CNCA, are seeing an increase in their overdue loans and are in the process of complying with classification procedures. Furthermore, many banks do not write off non-recoverable loans even when they have been fully provisioned. This tends to increase the volume of non-performing loans on banks' balance sheets. Regulation and accounting practices on loan write-off are ambiguous.2 24. To comply with the new overdue loan provisioning rules introduced in 1993, the commercial banks had to sharply increase their provisions: the percentage of provisions to overdue loans rose from 42 percent at the end of 1992 to 73 percent by the end of 1998. The current level of provisioning by the commercial banks appears to be adequate and consistent with the regulations. However, specialized banks do not seem to be in full compliance with the new provisioning rules. This insufficient provisioning implies that their net worth is less than the book value shown on their balance sheets. Table 4: Overdue Loans in the Banking System, 1992 to 1998 1992 1993 1994 1995 1996 1997 1998 Year end (as a%) Overdue loans/total loans 7.6 10.0 11.3 10.5 10.9 11.3 12.6 Commercial banks 6.7 9.6 10.2 9.3 8.5 9.7 9.4 Specialized banks 9.3 10.9 13.4 13.3 14.2 14.8 19.2 Provisions/overdue loans 55.9 49.4 54.0 58.6 61.9 63.6 61.1 Commercial banks 41.8 34.9 42.9 52.4 60.9 62.6 72.6 Specialized banks 74.6 73.0 71.1 67.9 63.3 65.1 49.5 Overdue loans/total balance sheet 3.9 5.1 5.6 5.5 6.0 6.0 7.0 Commercial banks 2.9 4.1 4.3 4.2 4.5 4.5 4.5 Specialized banks 7.4 8.6 10.1 10.4 11.4 11.7 15.7 Memo items: Overdue loans/GDP 3.0 4.1 4.5 4.7 4.7 5.2 6.1 Overdue loans of specialized banks/total overdue loans 43.2 38.0 39.6 40.2 40.8 40.0 49.8 Source: Bank Al-Maghrib. 25 "Unrecoverable" or "criances compromises" is the category that comprises overdue amounts of more than 6 months, and that has therefore the lowest probability of being recovered. Collection of overdue loans amounted to DH 1.4 billion in 1998 for commercial banks, which led to a net provisions-to-average loan ratio of 1.1 percent, down from 1.7 percent in 1993. 26 The practice of some banks is to show unrecoverable debts as a loss, while keeping them on the balance sheet at a symbolic value of one dirham against possible subsequent recovery. 10 25. The sectoral distribution of overdue loans, as determined by a sample representing more than 86 percent of such loans, shows that the agriculture and manufacturing sectors in particular pose significantly higher credit risks than other sectors. CNCA absorbs most of the financial shock arising from the Moroccan economy's vulnerability to agricultural output. 26. Overdue loans by size of loan. In 1998, overdue loans larger than DH 500,000 accounted for 90 percent of the total of loans in arrears, compared to 86 percent in 1996. Nearly 60 percent of their total value is accounted for by 394 loans larger than DH 10 million, compared to 49 percent of total value and 249 loans in 1996. Among these loans, 53 percent were for more than DH 50 million in 1998. These figures show that much of the credit risk carried by the banks is attributable to large customers, rather than to small and medium-sized businesses. 27. Loans to related companies and individuals.7 Such lending has increased sharply, rising from 2 to 5.5 percent of outstanding commercial bank loans between the end of 1992 and 1998. This increase has been caused in part by the more stringent disclosure requirements introduced in the new Banking Law of 1993. Bank profitability 28. The profitability of commercial banks improved and then leveled off in the 1993-1998 period, while that of the specialized banks, and CNCA in particular, deteriorated sharply. The enhanced profitability of commercial banks arises, first, from a widening of net interest spreads despite the general decline in interest rates. This contradictory behavior of bank spreads is due essentially to the abolition of the plancher d'effets publics (PEP, mandatory holdings of Government securities), under which banks had to hold low-interest Treasury securities, and the subsequent replacement of those securities by debt instruments at market interest rates. Thus, for commercial banks, bank earnings from Treasury securities increased by 44 percent between 1993 and 1998, even though the amount of those earnings relative to net banking earnings fell slightly, from 45 percent in 1993 to 41 percent in 1998. Moreover, the relative weight of loans in the banks' balance sheets has increased, while that of BTs, which provide lower yields, has declined. 29. As a percentage of assets, the net interest spread of 4.9 percent earned by Moroccan banks in 1998 was two to three times higher than that earned by Euroland banks in 1998 (2.3 percent), and slightly exceeds the spread of large American banks (4.8 percent). The large spreads allowed banks to increase loan provisions in line with the higher volume of overdue loans. As a proportion of assets, net provisions amounted to nearly 0.5 percent in 1998, as opposed to 0.07 percent for large American banks. However, in comparison with the major banks in industrialized countries, Moroccan banks' operating income shows a much lower level of fee income from off-balance sheet transactions.28 27 The definition of "related" is fairly broad, and covers (a) principal shareholders who own (directly or indirectly) 5 percent or more of capital stock; (b) companies in which the bank holds an interest of 10 percent or more; (c) companies within the group; and (d) directors and senior officers of the banks, and their immediate family members. 28 Moreover, commissions earned by stock exchange companies are not included in Moroccan banks' operating income, since financial statements are not consolidated. 11 Table 5: Average Interest Rate Margins, 1993 to 1998 (percentage) 1993 1994 1995 1996 1997 1998 Banking system Average yield on main uses of funds 11.4 10.9 10.5 10.3 10.2 9.5 Average cost of main funding sources 5.6 4.9 4.5 4.7 5.1 4.6 Average spread 5.8 6.0 6.0 5.6 5.1 4.9 Commercial banks Average yield on main uses of funds 11.5 10.5 10.0 10.1 9.9 9.5 Average cost of main funding sources 5.6 4.9 4.2 4.2 4.3 3.8 Average spread 5.9 5.6 5.8 5.9 5.6 5.7 Specialized banks Average yield on main uses of funds 11.7 12.2 12.0 11.0 11.4 9.5 Average cost of main funding sources 5.4 5.0 5.7 7.2 8.4 7.3 Average spread 6.3 7.2 6.3 3.8 3.0 2.2 Source: Bank Al-Maghrib. 30. Operating costs relative to net bank earnings declined but remained stable as a proportion of assets over the 1993-1998 period. These costs amounted to 2.2 percent in 1998, comparable to those observed among major European banks.29 Compared to net bank earnings, the personnel costs of Moroccan banks stood at 28 percent in 1998, a figure well below that of European banks.0 31. Despite the low proportion of fee income, and even if more than 20 percent of earnings before provisions are allocated to loan provisions in the case of commercial banks, the 1.8 percent net return on assets before tax earned in 1998 was well above the level achieved by the Euroland banks in 1998, which stood at 0.75 percent, or even the earnings of the large American banks, which averaged 1.14 percent. 32. Similarly, the average pretax return on equity of American banks was 13.4 percent in 1998, compared to 19.7 percent for Moroccan banks. According to the financial statements of the commercial banks, their profitability - to the extent that the same degree of strictness is applied in classifying and provisioning their debt - compares very favorably with that of major banks in industrialized countries, in terms of both return on assets and return on equity. 29 In 1997 and 1998, the Euroland commercial banks had a ratio of personnel costs to average asset value of 2.4 and 3.1 percent, respectively. 3o Spain: 38 percent, Germany: 39 percent, Belgium: 40 percent, Italy: 42 percent, and France: 43 percent. Source: "The Coming Transformation of Continental European Banking," BIS, Basle, June 1998. 12 Table 6: Main Profitability Indicators, 1993 to 1998 1993 1994 1995 1996 1997 199831 Return on average assets 1.2% 1.5% 1.5% 1.5% 1.8% 1.8% Commercial banks (pretax earnings) 0.8% 1.0% 1.0% 0.9% 1.2% 1.2% Conunercial banks (after-tax earnings) 0.6% 0.8% 0.4% 0.1% 0.2% -0.2% Specialized banks (after-tax earnings) Return on equity 14.5% 16.2% 16.5% 16.1% 19.5% 19.7% Commercial banks (pretax earnings) 9.1% 11.0% 10.9% 10.0% 12.5% 12.5% Commercial banks (after-tax earnings) 7.6% 9.1% 5.9% 1.3% 2.9% -2.7% Specialized banks (after-tax earnings) Other profitability indicators*: 49.1% 49.3% 47.0% 45.1% 45.3% 44.2% Operating costs/GNP 2.3% 2.3% 2.3% 2.3% 2.3% 2.2% Operating costs/average assets 4.7% 4.6% 4.8% 5.1% 5.0% 4.9% Net spread/average assets 1.7% 1.6% 1.4% 2.0% 0.9% 1.1% Net annual provisions/average of outstanding loans 0.8% 0.7% 0.6% 0.9% 0.4% 0.5% Net annual provisions/average of outstanding assets 37.9% 31.7% 29.3% 38.2% 19.0% 22.9% Net annual provisions/earnings before provisions and taxes *excluding specialized banks. The determination of bank interest rates 33. The behavior of yields on 52-week BTs indicates that short-term Government bond yields fell along with the inflation rate from 1993 to 1995 (Figure 8), but did not follow the decline in inflation in 1996 and 1997, thereby giving rise to particularly high real interest rates of more than 6 percent in spite of increasing bank liquidity. High interest rates are generally caused by: a high and unstable rate of inflation, an overvaluation of the exchange rate, big Government deficits, a high percentage of overdue bank loans, bank intermediation costs inflated by mandatory reserves and significant assets in the form of Treasury securities, high bank spreads resulting from insufficient competition, low rates of national savings, high foreign debt, and a persistent flight of capital. 34. Several factors apply, to varying degrees, to the Moroccan situation. The most important are the Government deficit and foreign debt, the high cost of banking intermediation, insufficient competition among banks, and a low national savings rate. Trends in the inflation and foreign exchange rates in recent years have not been conducive to adverse market expectations. The inflation rate has been declining since 1993, while the exchange rate has fallen by less than 1 percent in relation to the US dollar. 35. High Government financing requirements generally contribute to high interest rates. In recent years, the Government has been meeting an increasing share of its financing requirements in the domestic market. In view of the fact that one-third of all bank deposits - almost DH 50 billioni32 - Comes from Moroccans living abroad, and about half of the Government's domestic debt is held by banks, this inflow of bank deposits can serve as a mechanism for integrating the domestic and external markets with respect to Government financing. Uncovered nominal rates in Europe as well as in the United States are lower than in Morocco. Thus arbitrage between domestic and foreign rates would not be conducive to high domestic rates if the Moroccan inflation and foreign exchange rates were stable. If higher rates are needed to attract funds from Moroccans living abroad, such funds could be channeled into special deposit accounts, or earmarked for Government bonds, with little impact on the overall level of domestic interest rates. Also, adverse expectations as to inflation and foreign exchange rates from foreign portfolio investors would have little influence on domestic rates in current circumstances, where there is still no 31 1998 earnings are not final. 32 Nearly two-thirds of these deposits are held by CPM, and 50 percent of CPM assets consists of Treasury securities. 13 open capital account and the proportion of Government debt in local currency held directly by non- resident foreigners appears to be negligible. In light of all of these factors, risk-free interest rates that would serve as a benchmark for interest rates charged by banks, and in particular yields on short-term Government bonds, have for a long time seemed high despite the importance of Government financing needs, and do not seem to reflect market conditions. 36. However, there has been a sustained downward trend in rates since 1998 (see Figure 7). This decline was more pronounced during the second half of 1999, following the absence of Treasury auctions in August and September. The cancellation of auctions during this period was due largely to excessive Treasury liquidity, resulting from the revenue generated by the second GSM license. Registered Treasury securities dealers failed to anticipate cancellation of the auctions and therefore had to place their surplus in the BAM, at lower than expected interest rates. This suggests that the Treasury needs to improve the quality of its postings on the auction market and thus its liquidity forecasting.33 37. Prime lending rate and loan pricing. The spread between the prime rate on medium and long- term bank credit relative to the return on Government bonds is usually indicative of the credit risk premium charged to low-risk borrowers. This premium has declined significantly since 1993, and reached very low levels in 1998 (Figure 7). This was caused mainly by a lower demand for credit, rather than a decline in the credit risk. Based on the composition of loans in arrears, a major portion of the banks' credit risk is attributable to large borrowers, since nearly 60 percent of the value of loans in arrears comes from loans that individually exceed DH 10 million. The adverse loan loss experience on large loans would indicate that credit risk premiums were clearly insufficient, if such loans were granted at rates close to the prime rates. If this is the case, loan pricing on smaller loans may be biased so as to compensate for the loan loss experience on large loans. The available data do not make it possible to verify conclusively whether the pricing of loans by size is commensurate with their credit risk. 38. Based on the overall loan loss experience in the banking system, it seems that current prime rates on medium and long-term bank loans cannot decline further without a concomitant drop in the return on Government securities, if irrational loan pricing that would constrain the supply of credit to private borrowers is to be avoided. As noted previously, this does not mean that all bank lending rates are currently too low, since the prime rates mentioned are posted rates as opposed to actual rates, and maximum lending rates posted by banks during the first quarter of 1999 exceeded returns on Government securities by more than 500 basis points. Figure 6: Interest Rate Structure of Treasury Securities Issued by Auction 1994 13 12 9 199 S10 1997 1998 I ITreasury 1998 3 13 veeks 26weeks 521weks 5yecrs 10yeas 15yers993 Maturities 3 In this regard, see the section on the market for BTs. 14 Figure 7: Bank Prime Lending Rate and Rate offered by 15 - Government securities 14 Prime lending rate 13 12 ' * ._Ten-year auction 1 ' rate for treasury 10. .. . - .. ' "* * bonds S10 S9 - 8 Auction rates for - 7 1-year treasury V bills 6 1993 1994 1995 1996 1997 1998 Figure 8: Inflation and Return on 'lreasury Bonds 12,00 1 actio n rate one year 12,00 10,00 8,00 6 o nth aid 1-year term 8,00t rates 6,00 4,00 Jnflationrate(CPD 2,00 0,00 1993 1994 1995 1996 1997 1998 Source: Annual reports, Bank Al-Maghrib; Bloomberg Business News (US rates). Bank capital adequacy 39. The risk-weighted capital asset ratio of the banking system stood at 12.6 percent at the end of 1998, increasing from 9.1 percent in 1992 and exceeding the Basle Committee's minimum ratio of 8 percent. The larger Moroccan banks (the CPM and the publicly traded banks) have solvency ratios close to those of international banks. For banks listed on the stock exchange, solvency ratios reached between 9.1 and 13 percent, which is a clear improvement over 1992, when they were between 7 and 8 percent. Despite this favorable trend for the sector as a whole, the CNCA has seen a sharp deterioration in its capital base, with a capital asset ratio falling from 13.3 percent in 1992 to 2.1 percent in June 1997 and then rising to 8.2 percent at the end of 1998. These ratios must, however, be viewed with caution, taking into account the reorganization under way of the overdue loans of the CNCA, CIH, and BNDE. At the end of 1999, the CNCA and BNDE ratios may fall once more to below 8 percent. 15 Table 7: Capital Adequacy Ratio of the Banking System, 1992 to 1998 End of period 1992 1993 1994 1995 1996 1997 1998 Number of banks below the minimum 6 4 3 4 2 3 0 solvency ratio of 8% Banking system's solvency ratio 9.20% 10,60% 11.70% 11.4% 11.30% 11.50% 12.60% Memo Item: Net capital (in DH billions)34 10.4 16.1 19.0 19.7 21.6 22.7 26.2 Source: Bank Al-Maghrib Figure 9: Evolution of equity by bank category 0,1 a 1992 0 1993 0,09 01994 01995 0,08- 1996 g 1997 0,07 .- 31998 0,06 0,05 0,04 0,03 Commercd banks Specdized bmks 40. The 1,000 largest international banks currently have a 4.6 percent ratio of tier 1 capital to assets.35 With a similar level of tier 1 capital, Moroccan banks could have earned the same return on equity with a return on assets of a little over 1.2 percent, as opposed to the 1.8 percent achieved in 1998, which would correspond to lending and borrowing rates that are significantly lower than those currently charged. This enhanced soundness of the balance sheets of Moroccan banks is generally due to the fact that bank capital is made up entirely of tier 1 capital, the cost of which is borne by all banking system users. This cost comes on top of the great need for loan provisions caused by the high proportion of overdue loans. This high tier 1 capital standard also limits the asset growth rate that Moroccan banks could sustain through retained earnings, in compliance with the minimum capital adequacy ratio. Stock market evaluation of banks 41. In recent years, stock market performance has been uneven. The performance of the Casablanca stock exchange was satisfactory until the end of 1998, with steadily rising capitalization (DH 145 billion at the end of 1998) and increasing volumes of transactions. In 1999, the stock market declined for the first time since the 1993 reform. Accounting for almost 30 percent of stock market capitalization,36 publicly traded banks saw the value of their shares appreciate by 29 percent between 1993 and 1998, which is slightly higher than the 26 percent average annual appreciation recorded by the stock market index. A number of events in 1999 reversed the trend: lower than expected net earnings in 1998 because of the additional costs generated by the fiscal amnesty, profit-taking by small holders, negative GDP expectations affected once more by the agricultural crisis, and loss of confidence on the part of institutional investors. These factors led to an extremely low volume of trading, the impact of which was 34 Net capital is calculated using the Basle Committee formula, and consists essentially of tier 1 capital. 35 The Banker, July 1997. 36 With capitalization exceeding DH 9 billion, 12 billion, and 6 billion, respectively, the BMCE, BCM, and Wafabank had some of the biggest quoted values on the Casablanca stock exchange at the end of March 1999. 16 strongly felt by banks, with stock exchange capitalization falling from DH 45 to 38 billion between December 1998 and March 2000. Prices have therefore fallen sharply since the end of 1998; for example: BMCI (-187.5 percent), BNDE (-28.6 percent), CIH (-37.6 percent). C. BANKING REGULATION AND SUPERVISION 42. The review of banking regulation and supervision in Morocco was based on the 25 principles proposed by the Basle Committee. These principles were put forward in late 1997 in an effort to enhance the quality of banking regulation and supervision; but, as the Committee has stressed, they have yet to be complied with comprehensively in many countries, including some members of the BIS itself. Table 8: Institutional Attribution Subjects Advice/Consultation Decision/Adoption Application License granting and withdrawal CEC, CDEC M. Finance BAM Lending and funding instruments; distribution of CNME, CEC M. Finance BAM assets/liabilities Prudential regulation CNME M. Finance BAM Financial information CNC (advice on the M. Finance BAM accounting plan only) Supervision BAM BAM Sanctions and enforcement CEC, BAM, CDEC M. Finance/BAM M. Finance/BAM Rescue of banks in difficulty and crisis situations CEC, CDEC M. Finance/BAM M. Finance/BAM 43. While the Finance Ministry is not involved in the day-to-day supervision of lending institutions, which it has delegated exclusively to the BAM, the Government still plays an important role in several key areas. In particular, the Finance Ministry plays a key role when it comes to banking regulation, the granting and withdrawal of bank licenses, the imposition of disciplinary sanctions, and the resolution of bank crises. It also has the power to order the closing of a lending institution. Bank licensing 44. Current licensing rules seem to be essentially consistent with international standards. The Finance Ministry makes decisions on licensing after receiving authorization from the Comitj des etablissements de cridit. The Banking Law vests this Committee with the authority to determine whether the applicant meets licensing requirements and to request any documents relevant to review of the licensing application. It also renders an opinion on license renewals as required, following, a significant change in ownership or control of an establishment, among other things. The monetary authorities (Ministry of Finance, BAM) cast a majority vote on the Committee. The Groupement professionnel des banques and the Association professionel des soci9t9s de financement are members of this Committee. Although they cast a minority vote, these main representatives of the banking industry participate in decisions relating to the entry of new participants and bank mergers and acquisitions. These decisions concern not only the integrity of the banking system but also its structure, degree of competition, and rate of growth. Prudential regulation 45. In recent years, the BAM has undertaken a major overhaul of the regulatory framework, by moving to internationally recognized rules and procedures. A summary of prudential regulation is found in the annex. Overall, the regulatory framework appears consistent with international standards with respect to quantitative indicators on capital adequacy and risk diversification. The definition and measurement of these ratios are rather conservative. Nevertheless, the risk diversification ratio, which limits single large credit exposures to 10 percent of capital, is restrictive, and gives rise to occasional waivers by the Central Bank. On the other hand, there is no limit on the total exposure to large loans. 17 Also, while the risk weighting factors are relatively strict, the capital adequacy ratio of 8 percent applied in Moroccan regulation is set at the minimum level initially proposed for the G1O countries in well- developed economic and legal environments, where control over banking risks, including credit risk, is generally better. 46. The current rules governing the provisioning of doubtful bank assets lead to an adequate representation of asset quality. Net required loan provisions are based on a conservative approach to the weighted value of loan collateral. For instance, loan provisions on real estate credit can only be reduced by a maximum of 35 percent of the market value of the collateral. Moreover, rules for classifying nonperforming loans take into account not only debt service payments in arrears, but also the borrower's the timely disclosure of financial statements. Financial information 47. As part of off-site supervision, the Central Bank requests information from banks, including financial statements, monetary statistics, and supplementary reports designed by the Central Bank, on a monthly, semiannual, and annual basis. 48. Bank accounting standards - particularly rules governing loan write-off - must be updated in accordance with Basle Committee principles. The matter of standardized reporting of changes in outstanding loans provisions should be resolved with the implementation of the new accounting framework in January 2000. In the past, while the banks were progressively extending their activities through subsidiaries, prudential regulation was not enforced on a consolidated basis. This, too, should change with the introduction of a new accounting framework in January 2000 that recommends the provision of consolidated financial statements. Supervision 49. Banking supervision is the responsibility of the D6partement du contr6le de cridit at the BAM, a unit with a 60-person staff. Off-site supervision relies primarily on the analysis of financial information supplied by banks, and on audit reports prepared by independent external auditors approved by the Central Bank. In addition, the Banking Law gives the Central Bank broad powers to request any information required for supervising lending institutions. 50. External auditors will soon be called upon to play a more important role in the supervisory process, which will include not only monitoring lending institutions' adherence to prudential rules, but also assessing their risk management, the effectiveness of their internal controls, and the reliability of their information systems. Terms of reference for external auditors will be introduced very soon. 51. Onsite inspection, which is carried out at irregular intervals by a small team of three experienced mission leaders and about fifteen assistants, is not currently sufficient to monitor all institutions or all banking risks. The focus of such supervision is either on all banking activities (internal auditing, auditing of balances, client and provisioning risks, securities portfolios, etc.), or on a particular aspect of this activity. The BAM must obtain the human and material resources for the simultaneous performance of its supervisory function and the modernization of its operations. It plans to assess its staff needs once computerization of the services of the Direction du contr6le des etablissements de cridit has been completed. Moreover, the Central Bank's ability to attract skilled human resources could be compromised by its compensation policy, which is not competitive with the commercial banking sector. 18 Sanctions and enforcement powers 52. The Central Bank has the authority to apply sanctions for violations of the Banking Law. Sanctions include fines, formal warnings to bank managers, injunctions requiring a lending institution to remedy any irregular or deficient situation, and the removal of bank managers. The Central Bank has undertaken a review of all such penalties and will issue new directives if necessary. Resolution of crisis situations 53. To date, none of the crisis resolution mechanisms provided for in the Banking Law, including the deposit insurance system, has been tested. The BAM may, as needed, require a bank restructuring plan and may call upon the institution's principal shareholders to correct any financial imbalance. In addition, the Finance Minister has the power to appoint a provisional administrator. If a bank fails to meet its financial obligations, the bankruptcy and compulsory liquidation provisions of the Commercial Code come into play. The Banking Law itself does not contain any specific procedures on the bankruptcy and liquidation of banks. The law also does not contain preventive signals, such as financial indicators, that would trigger the Central Bank's or the Ministry of Finance's intervention for banks facing financial difficulties. D. CONCLUSIONS AND RECOMMENDATIONS Conclusions 54. The recent evolution of banking regulation in Morocco has been marked by a gradual but sustained liberalization, including the nearly complete elimination of mandatory investments and the introduction of new prudential rules in line with international best practices. 55. Financial intermediation has grown in relation to the size of the economy, but not at an unchecked pace that could destabilize the financial equilibrium of the major lending institutions- Despite this progress, the degree of market penetration of bank services in the economy, including the size of savings mobilized, remains low in comparison with other countries of similar economic dimension. The savings instruments offered by banking institutions have changed very little in recent years, while the wealthier segment of the population increasingly invests in capital market instruments. 56. As the State's presence in the banking sector has decreased, credit to the private sector has expanded significantly. Nonetheless, the relative increase in medium and long-term loans and the growth rate of term bank deposits have not noticeably improved. Treasury financing continues to absorb a significant part of loanable banking sector funds (23 percent of the assets of commercial banks), and represents a substantial part of medium and long-term banking funds, crowding out investment credit, given the maturity structure of the Government's domestic debt, which is made up of a low proportion of short-term Treasury bills despite the general decline in interest rates since 1993. Thus, the abolition of the plancher d'effets publics, the mandatory holdings of Government securities, still has not led to a significant reallocation of bank assets in favor of medium and long-term lending to the private sector. This is true even though the supply of investment credit is relatively scarce and the need for housing finance represents great potential for expanding the banking market. 57. Following the deregulation of lending rates, bank lending and deposit rates have been relaxed to some degree, leading to a greater level of competition among banks with respect to big clients. However, this level is still insufficient insofar as other client categories are concerned. Increased banking competition with respect to the major industrial clients also explains the low use by non-financial enterprises of capital market direct financing instruments. Lending rates, particularly short-term rates, are 19 not tied to market-determined returns on Government securities. It should be noted, however, that bank prime rates have fallen steadily, reaching 7.5 to 8 percent at the end of 1998, compared to approximately 11.5 percent in 1995. This is to be viewed in conjunction with issuing rates for Government securities, which have fallen steadily since the end of 1995, reaching rates of close to 6.9 percent at the end of 1998 (one-year Treasury bills) and 7.6 percent (five-year Government securities), compared to 10.0 percent and 11.0 percent, respectively, in 1995. This does not mean that bank lending rates are too low, since these are posted prime rates as opposed to actual rates, or that the maximum lending rates posted by banks in late 1998/early 1999 exceed the rates of return on Government securities by more than 500 basis points. 58. Overall, the financial situation of commercial banks is healthy, whereas specialized banks continue to represent the weakest segment of the banking sector, accounting for 50 percent of total loans in arrears in 1998. Aggregate net earnings of the banking system are well above average international levels, and returns on assets and equity compare favorably with those of banks elsewhere. For the large privately owned commercial banks, this performance has been fully recognized by the stock market, which has provided shareholders with capital gains of more than 25 percent a year, on average, between 1993 and 1998. As in any market, however, some institutions - mainly the specialized banks - have failed to keep pace with the sector as a whole in terms of earnings and asset quality. Their weak profit performance is constraining their ability to expand, and unless corrective steps are taken, their market share will inevitably continue to shrink. 59. The liquidity of banks is currently comfortable despite the abnormally long average maturity of their Treasury holdings. Their liquid assets include a relatively high portion of non-interest-bearing deposits at the Central Bank. As to their interest rate risk exposure, the banks' large positive interest rate sensitivity, which would have produced much lower earnings with the decline in interest rates since 1993, has been more than offset by higher investment income from the gradual replacement of mandatory holdings of low-yield Government bonds by higher-yield Government instruments. The banks' asset- liability structure shows a low earnings sensitivity to short-term interest rate movements, but that structure would certainly lead to a decline in earnings following a prolonged drop in interest rates. Finally, the banks' foreign exchange risk exposure is currently limited, and their foreign exchange transactions seem to be adequately supervised. 60. However, the quality of bank loan portfolios is deficient. More than 10 percent of all outstanding loans are overdue, and a large proportion of these are classified as non-recoverable. Recovery of overdue loans amounted to DH 1.4 billion in 1998, compared to 967 million in 1996. This has helped produce a slight decline in the net provisions to average loan ratio. Overall, loan classification rules seem to be properly enforced and the tax treatment of bad loans seems to favor the timely recognition of non- performing loans. However, the banks' financial statements, including those from banks quoted on the stock exchange, do not clearly identify actual loan losses or the recovery rate on overdue loans. In nearly all cases, loan provisioning for overdue loans is consistent with the relatively conservative prudential rules applied by the regulatory authorities, and as a result, these loans, provisioned in this manner, are presently unlikely to threaten the capital adequacy of the banking system. The portfolios include substantial amounts of non-performing loans that have been sufficiently provisioned for a long time, but these loans, in accordance with internationally accepted accounting principles, should have been written off long ago. 61. The banking system has a relatively adequate capital base consisting of tier-I capital and yielding a capital adequacy ratio in excess of 11 percent. Once again, some institutions have lower capital asset ratios and are even undercapitalized. Even when loan classification and provisioning rules are strictly applied, the regulatory policy of relying entirely on tier-1 capital provides greater protection against the risk of insolvency and certainly enhances the soundness of the Moroccan banking system. Nevertheless, 37 Collection of overdue loans amounted to DH 1.4 billion in 1998 for commercial banks, which led to a net provisions to average loan ratio of 1.1%, representing a slight decline compared to 1993 (1.7%). 20 since the return on the banks' equity is normally higher than the rates on other bank deposits, this policy carries a cost which is reflected in the banks' lending and deposit rates. 62. The relatively sound financial health of the Moroccan banking sector is due in part to the lack of expansion of the banking market. In general, the banks are much more concerned with their market share than with expanding financial services. One can hope that for the benefit of the Moroccan economy, at least one or two banks will adopt a wider perspective by taking the initiative of moving away from the banking system's oligopolistic inclinations and introducing healthy competition. Recommendations 63. The following recommendations relate to the banking system as a whole. In line with the underlying analysis, these recommendations do not address the management, operations, or financial situation of individual banks, nor the particular problems of the specialized banks. Moreover, important dimensions of banking activities, namely the payments system, the foreign exchange market, and the market for Government securities, are analyzed in subsequent sections. Loan and deposit pricing 64. If the determination of loan and deposit rates is to become more rational, there will first have to be a restructuring of the market for Treasury securities, and the Treasury will have to adopt a rates policy more attuned to market conditions. This observation relates, in particular, to the auction mechanism used, the characteristics of the instruments offered, and the status of the secondary market. 65. To reduce the cost of banking intermediation, it is recommended that the mandatory bank reserve, currently set at 10 percent, be gradually reduced to allow for the gradual adjustment of monetary policy. The lowering of the mandatory bank reserve could be accompanied by the introduction of a liquidity ratio to be met largely by short-term Treasury securities, which would simultaneously permit the stimulation of this market segment, which lacks depth. 66. As to bank deposits, it would be advisable to review the practice of administered rates on passbook savings accounts, to encourage greater competition in savings mobilization and allow rates to adjust more quickly to market conditions. The monetary authorities have been careful to offer an attractive rate of return on this instrument, which is largely geared toward the mobilization of small-scale savings. However, given the gap between administered rates and market rates, banks are not likely to promote these accounts in a context of low rates, while, for the same reason, small-scale savers are not able to benefit as quickly from rising interest rates. If a minimum rate is to be established, it should be indexed or revised at specific intervals.38 67. Similarly, the ban on interest payments on household checking accounts should be removed, and banks given the latitude to set a range of rates based on account balances and activity levels. Together, these measures would induce greater competition in lending rates and encourage greater innovation in the design of financial products aimed at mobilizing savings. 68. With respect to lending rates, it would be appropriate for the Groupement professionnel des banques du Maroc to stop publishing its recommendations, which are interpreted as directives issued under the influence of the major banks. The financial press could take over the job of compiling and reporting bank lending and deposit rates, as is the usual practice in most financial markets. 3 These rates, while remaining administered, have been indexed since July 1, 1999. The minimum rate on passbook savings is indexed and is equal to the average weighted return on 52-week Treasury securities auctioned during the preceding six-month period, reduced by 100 basis points. 21 Loan collection 69. There is room for significant improvement in judicial procedures, which are constraining loan collection by credit institutions. Banks could also be provided with dedicated procedures to expedite the recovery of certain types of loans. In the case of housing credit, a 1998 decree issued by the Finance Ministry stipulated the conditions for banks to grant housing credit, and vested them with prompt foreclosure powers that had been held only by CIH. This should increase the banks' interest in housing finance and their ability to mobilize household savings. Prudential regulation 70. With respect to prudential regulation, the risk division ratio could be revised upward while spelling out the Central Bank's conditions for granting waivers. It would also be appropriate to review the current rules governing bank capital adequacy. More precisely, it would be appropriate to consider raising the capital adequacy ratio of banks from 8 to 10 percent, while allowing the inclusion of tier 2 capital in order to gradually decrease tier 1 capital from 8 to 6 percent. Most of the larger international banks have total capital in excess of the minimum 8 percent ratio, including tier 1 capital of at least 4 percent, while the loss experience on their lending operations is, on the whole, significantly better than that of Moroccan banks. Tier 2 capital should be more precisely defined and limited to instruments that are most comparable to long-term capital. 71. This measure would increase leverage and help reduce the need for banks to increase their net equity earnings in order to achieve their objective of equity earnings and preserve their capacity to attract new capital. For prudential reasons, the group of eligible financial instruments in tier-2 capital could be more restrictive than that permitted by international regulation. Moreover, only those banks that are fully compliant with the current capital adequacy ratio rules should have access to tier 2 capital. Thus, banks could meet their future capital requirements through tier 2 capital as long as their tier 1 capital represents 60 percent or more of total capital. This higher capital requirement, which would strengthen the total capital structure of the banks, should be linked to the introduction of consolidated financial statements. 72. There are two potential areas of conflict of interest that need to be addressed. The first is that the Central Bank is itself a shareholder in banks over which it has regulatory authority. The second has to do with the presence of the Groupement professionnel des banques and the Association professionelle des soci9t9s de financement on the Comit, des etablissements de cr9dit, which have been delegated, under the Banking Law, the responsibility of examining banking license applications, including the power to request any relevant information from applicants. While it is entirely appropriate to seek the advice of banks on license applications, their direct participation in the examination and investigation of license applications gives them a disproportionate influence over the entry of new competitors into the banking market. 73. With regard to crisis situations and banks in difficulty, the Central Bank should establish explicit and quantitative indicators of financial soundness that would trigger stepped-up or preventive surveillance of banks in weak financial condition. Financial information 74. A new accounting plan was implemented in January 2000, and requires lending institutions to submit consolidated financial statements in line with internationally accepted accounting principles. Following this consolidation, which will concern mainly bank-controlled finance companies and securities firms, some banks may have to increase their capital to comply with prudential regulation. 39 See Regulatory Decision No. 65 of the Banque Al Maghrib. 22 With this in mind, allowing a reasonable proportion of tier 2 capital could make it easier for banks to increase their capital to the required level. 75. There is also a need for greater transparency to improve the ability of financial markets and regulatory authorities to assess bank risks. To this end, it would be helpful to be able to compare actual loan losses on overdue loans with loan loss provisions. Similarly, regulators should be able to assess the banks' collection rates in each category of overdue loans designated in the regulation, so as to allow validation of loan classification criteria by the regulatory authority. 76. Finally, the adoption of clear accounting rules for loan write-off and loan loss recognition should not be constrained by legal or tax considerations. Such considerations were not designed to serve as accounting standards leading to accurate and complete financial statements. III. THE MARKET FOR GOVERNMENT SECURITIES 77. The level of outstanding Government domestic debt reached DH 131 billion in 1998, or 38 percent of GDP. This debt represents more than half of the total direct public debt, the external component of which was reduced by DH 5 billion between 1997 and 1998. Domestic borrowing in 1998 supported a budget deficit of 2.3 percent of GDP and absorbed close to 27 percent of the total domestic financing of the economy. The reform of Treasury securities introduced in 1995 led to a significant rationalization of the Government's financing instruments. The largest part of domestic borrowing - approximately 55 percent in 1998 and 70 percent in 1999 - now comes from Trmasury bills with a range of maturities similar to that of T-bills and bonds in many countries (13, 26, and 52 weeks; 2, 5, 10, and 15 years).4 In 1999, Government domestic debt amounted to DH 136.7 billion (see Table 9). Table 9: Government Domestic Borrowing Instruments in 1999 (in DH billion) Instruments BTs Bons a 6 Emprunt 'Fmprunt Emprunts Forner Others Total mois sur national conventionnel obligataires mandatory formule investments Net flows 22.3 -0.7 -2.8 -7.2 0.02 -1.8 -4.2 5.6 Outstanding 94.6 7.0 9.5 19.6 0.95 4.3 0.72 136.7 (end 1999) ,... 78. The other Government financing instruments recorded negative flows in 1999, illustrating the increasing weight of auctioned Treasury securities in Government domestic debt and the sustained decline in the Government's use of emprunts conventionnels41 and emprunts nationaux.42 The PEP, abolished in June 1998, now represents a residual amount of low-yield securities that banks were required to hold. Advances from the BAM include DH 8 billion in the form of an interest-free drawing facility. This section will focus on the market for Treasury bills, since they are the predominant Government financing instruments. The Moroccan terminology does not distinguish between Treasury bonds and Treasury notes. 41 Privately negotiated loan contracts with financial institutions covering Government debt consolidation with respect to some institutions and 10, 7, 5 year securities issued within the context of monetary reserve profiling and PEP consolidation. 42 Obligations nationales are marketable and listed securities normally dedicated to private buyers. 23 A. THE PRIMARY (AUCTION) MARKET Auction mechanism 79. Prior to implementation of the recommendations contained in the technical report that forms the basis of this summary report, the following mechanism was in place: Supply, that is, the amount to be auctioned for each maturity, was not disclosed and was only determined after the demand had been revealed by the participants' bids. The Treasury did not specify either the amount sought or the maturities of securities to be sold at each auction, except in cases where it chose to sell additional amounts of an outstanding security (assimilation). Furthermore, it had the option of refusing all bids for a single maturity, while for any given maturity it accepted bids on the basis of the lowest rates, up to a total amount undisclosed to participants prior to the auction. Each successful bidder was served at its own bid rate and the securities were normally issued at par. Beginning in 1997, the Treasury has been issuing securities on the basis of assimilation exclusively, until the line in question reaches approximately DH 1 billion, at which time it is abandoned and replaced with a new line. When this new line is issued, the Treasury posts the coupon and the desired price. In addition, since 1999, the Treasury has also been posting its quarterly needs to be financed through medium and long-term debt. 80. The mechanism that existed prior to 1998 involved discriminatory pricing for Treasury securities issued at par. The result was that at each auction, several securities were issued with different coupons for the same maturity. Since the new Treasury bills were introduced in 1995, the cumulative effect of this mechanism translated into more than 300 Treasury bills in circulation by 1997. This issuance technique was abandoned with the advance posting of the coupon. Now, at the time of a new issue, although investors make bids at different prices, the coupon is the same for all subscribers. Participants 81. BTs are sold at periodic auctions conducted by the Central Bank, acting as agent for the Ministry of Finance. Auctions are held each week for maturities of one year and less, while BTs of two years and longer maturities are sold every two weeks. There are 19 financial institutions authorized to submit bids for their own account, or on behalf of their clients; a few other institutions are allowed to participate for their own account only. Seven of the participating institutions (six commercial banks and the Caisse de dipt et de gestion, CDG) have been designated as interm6diaires agregs en valeurs du trisor (IVTs), or licensed primary dealers; they are expected to participate actively in the auctions and to post buy and sell prices on the secondary market for a minimum volume of Treasury securities. 82. The IVTs accounted for more than 85 percent of total BT purchases in 1999. Three primary dealers -BCP, CDG, and Banque commerciale du Maroc (BCM) - together accounted for nearly 73 percent of gross volume sold in 1999. Holdings of bills with 10-year maturities or more are divided roughly evenly among CDG (26 percent), banks (26 percent), and insurance companies and pension funds (31 percent), with organismes de placement collectifs des valeurs mobilires (OPCVMs, mutual fund companies) significantly increasing their share (17 percent). It should be noted that OPCVM subscriptions have been increasing over the past two years, and amounted to 27.5 percent of subscribed volume in 1999. Yield curve and maturity structure 83. The results of the 1999 auction and the maturity profile of outstanding BTs at the end of 1999 show that almost 44 percent of Treasury bills have a maturity of 5 years or more, and that 40 percent have a maturity of more than one year. Historically, Treasury financing has been characterized by its very strong concentration in medium and long-term maturities, and thus by its absorption of a significant part 24 of the banking system's stable and long-term resources, crowding out investment credit. Since 1997, the Government has been issuing more short-term instruments, and auctions of securities with a maturity of less than one year accounted for 38 percent of volume sold in 1999. 84. The small amount of outstanding short-term BTs can be explained either by the Treasury's failure to accept bids for specific maturities or by the lack of bids by participants. Given the fact that short-term rates are typically lower than long-term rates, domestic borrowing costs in the form of BTs should generally lead to the issuing of BTs of one year or shorter maturities, thereby providing the banks with a useful financial instrument for liquidity management. Table 10: Treasury Auctions - Amount and Maturity of T-bills Bought by Primary Dealers in 1998 (in millions of dirhams) Maturities Banks CDG Insur. OPCVMs Other Total BTs % by Cos. & and stock auctioned maturity Pension exchange Funds Cos. 13 weeks 350 350 2% 26 weeks 75 75 52 weeks 3,060 575 439 2,159 197 6,855 3% 2 years 402 402 2% 5 years 5,236 680 1,182 909 66 8,073 37% 10 years 2,539 1,075 1,510 682 27 5,833 27% 15 years 110 45 154 41 350 2% Total 11,370 2,375 3,687 3,791 290 21,513 100% % of all BTs 53% 11% 17% 18% 1% 100% 85. In more developed financial markets, yields to maturity on a small number of highly capitalized Treasury securities serve as interest rate benchmarks for short, medium, and long-term financial instruments. In Morocco, however, the yield curve has little depth, since it is not validated by a sufficiently competitive auction mechanism combined with an adequate volume of market activity in representative securities. The auction rules in effect prior to 1998 led to a proliferation of instruments that prevented primary dealers from developing an active secondary market and contributing to the formation of market rates, since each instrument was most often held by a single buyer. The recent Treasury initiative to seek new funds through the additional amounts of outstanding securities as an alternative to new issues is a positive step toward deepening the secondary market. The technique of advance posting of a coupon has been used since 1998 to avoid the creation of as many lines as prices auctioned. The Treasury also plans to buy up or exchange illiquid lines, most with a residual duration of 5 to 10 years, to help further this process. B. THE SECONDARY MARKET Transaction volume 86. Since March 1996, a secondary market for BTs has emerged, following the Central Bank's introduction of a clearance and settlement system in Casablanca. The volume of transactions stood at about DH 489 billion in 1999, compared to DH 7.4 billion in 1996, and thus represented more than five times the volume of BTs in circulation. This sound performance of the secondary market is due largely to repo and rediscount operations on BTs conducted among financial institutions, and between the banks and their clients, for periods of two days to one year, at either a fixed rate or a variable overnight rate. The share of these temporary transactions amounted to approximately DH 413 billion, or 84 percent of the total volume of transactions in 1999. Contrary to market practices in more developed markets, these 25 transactions are not based on formal contracts, even though they require a transfer of securities between parties for the settlement of firm sales and purchase of securities. Consequently, since repos are recorded as secondary market transactions in the clearing system, the secondary market is significantly less active than the total volume of transactions would suggest;43 it still does not play an adequate role in determining market-based rates that could be used as price references for the primary market or for interest rate arbitrage across maturities. Participants 87. Since the banks are the largest players in the repo market, they also dominate the secondary market for BTs, with more than 50 percent of the transaction volume. By comparison, CDG, insurance companies, and pension funds, which together hold a similar proportion of BTs as the banks, are relatively inactive. The SICAVs (mutual funds) are the second most active participants, with 40 percent of the trading volume, although they hold only 20 percent of the BTs in circulation. Unlike other institutions, the SICAVs purchase their BTs primarily through the banks with which they are affiliated, and do not buy them directly on the auction market. Clearance and settlement 88. All transactions are cleared and settled through current accounts at the BAM. These transactions are settled on the same day (T+0), whereas auction sales are settled at T+6. The BAM covers any shortage of funds with a 24-hour advance. According to the BAM, it takes about 15 minutes to clear a transaction. In the most active month in 1997, there were, on average, 15 transactions per day. Two full- time employees should be able to handle a four-fold increase in transactions, or some 1,500 a month, compared to the 330 trades that took place in December 1997. The central depository, Maroclear, is responsible for the custody and settlement of Government securities. The delivery versus payment system for the conclusion of transactions involving Treasury securities was put in place in July 1999. C. RECOMMENDATIONS 89. There should be a commitment on the part of the Treasury to offer for sale at each auction a minimum volume of BTs for each maturity, as part of a quarterly or semi-annual auction program. The Treasury could also indicate whether it is interested in offering for sale a minimum guaranteed quantity of various maturities. For each maturity, this offer could be accompanied by a floor price or ceiling rate provided in advance to the Central Bank. This price or rate should be disclosed after each auction when the process has not permitted the auctioning of the volume expected. 90. Adherence to the issue schedule is a key factor in terms of the credibility of an issuer, the liquidity of its securities, and financing at lower costs. In the case of the Moroccan Treasury, the unexpected two-month interruption of auctions in the summer of 1999, following the liquidity amassed as a result of the second GSM line, led to extremely volatile interest rates. The Treasury must therefore improve its liquidity forecasting and postings, especially in light of the imminent privatizations. 91. To curb the proliferation of instruments in circulation and create holdings of homogenous securities among a large number of market participants, the auction mechanism should be revised. For all successful bids, BTs should be allocated at a single rate for each maturity, or on a price basis for each homogenous security for a given coupon and maturity. 43 Measures were taken in January 1998 to differentiate the clearing of repo transactions from secondary market final purchases and sales of Government securities. " This recommendation was implemented in 1998, with the systematic posting of the coupon by the Treasury when a new line was established. 26 92. In addition to reopening outstanding issues more frequently, the Treasury should also accept bids from participants who wish to exchange a group of securities for a single security with an equivalent yield and maturity.45 The transfer of BTs to the central depository, which will result in the codification of each security, should be preceded by a significant effort to reduce the number of outstanding Treasury securities. 93. Once the BTs have been sufficiently consolidated, the primary dealers should be encouraged to post buy and sell prices on a selected grouping of highly capitalized securities, and the data of each of these instruments, i.e., the volume and price, should be publicly disclosed on a monthly or, preferably, weekly basis. Since settlement of Treasury security transactions will continue to be performed through banks' current accounts with the Central Bank, the BAM should be given the authority to exert adequate control over the operations of Maroclear with respect to Government securities transactions, as is the case for large value payment systems in many countries. IV. THE PAYMENTS SYSTEM A. THE PAYMENTS SYSTEM Current situation 94. In Morocco, payments are predominantly settled in cash, and the use of noncash payments instruments has made only modest progress over the past ten years. Clearance and settlement operations within the same clearinghouse take place fairly quickly, and depositors have access to their funds within two working days, while clearance of checks between different cities may take a week or more. 95. In 1987, gross amounts cleared totaled only 1.42 times GDP, and while this ratio increased slightly over the intervening period, it still stood at only 1.52 in 1996. In addition to interbank clearing, intrabank checks, consisting to a large extent of cash withdrawals, make up about 40 percent of all checks cleared. Interbank clearing operations are handled by the 18 (soon to be 20) clearinghouses operated by the BAM. If a bank finds itself in an overdraft position at the end of the day, it can secure an advance from the BAM to cover the shortfall. Mainly because of the high level of reserves required at the Central Bank (10 percent of demand deposits), the frequency and size of bank debit positions have been small, and according to the Central Bank, no debit positions have occurred after 1996, following the change in the measurement of bank reserves. Banks are required to maintain a positive balance in each of their accounts with the different branches of the Central Bank. Banks tend to centralize their excess cash balances in Casablanca because bank reserve requirements are measured on the banks' account balances at the Casablanca branch of the Central Bank. 96. The return rate on checks has declined since 1987, and stood at a little over 2 percent in 1996. The return rate in terms of payment orders rejected in 1991 was 1.92 percent, and has risen since then to just under 3 percent. While these rates are not particularly high compared to other countries, it is apparent that rates below 2 percent, and even as low as 1 percent, could be achieved. 97. There are currently four different bank card networks operating in Morocco and two other automatic teller machine (ATM) networks operated by the Treasury agencies and the postal check systems. They are not linked to each other, nor are they interoperable. No statistics are available covering the entire bank card market, but it is estimated that some 400,000 cards are in circulation throughout the country. There are about 400 ATMs, but not all are online. 45 This has been proposed to investors by the Treasury. The first consolidation should take place soon. 27 98. International payments, particularly for foreign exchange transactions and foreign trade financing, are consistent with current practices, and several banks are members of the SWIFT network. Transfers of funds from Moroccans abroad represent a major portion of international transfers, and amounted to some DH 2 billion in 1996. Recent developments 99. The GPBM is currently promoting the introduction of a new payments system, the SIMT or Moroccan Interbank Teleclearing System, which will manage the clearing of checks, credit orders, bills of exchange, and other payment instruments. The project is being launched and will take over the clearing operations of the Casablanca Clearing House, which represents more than 50 percent of all clearing transactions. The key features of the new system are the use of telecommunications for transmitting data and the automation of data capture from checks and other paper-based payment instruments. Clearing operations will take place, depending on the choice of each bank, at any bankable location. Risk assessment 100. In the current clearing system, the technical risks relate primarily to delays in processing and/or transmitting information and documents, and the manual nature of the operations. Fraud-related risks do not seem to pose a major problem at the present time. 101. With respect to settlement risk, there is currently little risk of large overdrafts in the banks' current accounts at the Central Bank, and the Central Bank stands ready to ensure final settlement through advances as long as clearing members can provide Treasury bills as collateral for daily advances. The banks do not know their account balances during the course of the day, and are not in a position to draw up their end-of-day statements with any degree of precision. In practice, however, given current volumes and values of checks and other paper-based payment items, it does not appear that settlement risk is a serious problem. 102. The major factors underlying the systemic risk are: concentrations of large exposures; limited access to liquidity; linkages among banks and other financial institutions; and linkages between securities markets and payment systems. The systemic risk in Morocco does not appear to be a major problem. At present, there is no separate system for large value transfers, as these seem to be processed along with other payments through the existing system, whether via clearing houses or across the books at the Central Bank. B. RECOMMENDATIONS 103. While the technological aspects of the current project for the Casablanca urban area have been settled, its organizational, financial, and commercial aspects have not been sufficiently addressed from the viewpoint of an overall strategy for payments modernization. 104. To encourage development and modernization of the payments system on a countrywide basis, a National Payments Council (Conseil national des moyens de paiement, CNP) should be created under the Central Bank. As a first step, the CNP should address a number of urgent issues: the new interbank payment system (SIMT); the legal framework for electronic payments; interconnection of the four bank card networks; and better implementation of payment standards. 28 V. MUTUAL FUNDS AND THE STOCK EXCHANGE A. MUTUAL FUNDS (SICAVs)46 Composition and size of the industry 105. The first mutual funds, or SICAVs, were launched at the end of 1995. At the end of June 1998, there were 65 authorized funds, and 48 of these were in operation, with assets amounting to DH 25.5 billion, or 7.5 percent of GDP. They have 19,500 shareholders, 18,885 of whom are national investors, representing less than one percent of the adult population of Morocco. This steady growth has continued and is reflected in the fact that as of the end of June 1999, there were 90 mutual funds in operation, with assets valued at DH 37.2 billion. 106. The sector is dominated by the bank-managed mutual funds, although some are offered by independent brokerage firms. At the end of April 1999, 53 of the 90 mutual funds were linked to banks, and represented 70 percent of total mutual fund assets. These funds are operated by 17 sponsoring groups from the financial sector. Eight of these groups belong to the banking sector, and two of them are linked to independent brokerage houses. The presence of two long-term financial institutions (the CDG and the Caisse interprofessionnelle Marocaine des retraites, CIMR), as well as five insurance companies, should be noted. Concentration in the sector is quite high. Three sponsoring groups operated a total of 29 funds and accounted for just over 45 percent of total assets at the end of April 1999. Investment policies 107. In terms of investment policies, the SICAVs are dominated by bond funds and balanced bond- equity funds. While no SICAV has been authorized explicitly as a money market fund, certain bond funds specialize in short-term debt instruments and act, in effect, as money market funds. In terms of total assets, bond and money market funds represented DH 26.9 billion in June 1999, or 72 percent of total assets, while the balanced and equity funds had holdings of DH 6.9 and 3.4 billion, respectively. Regulation 108. Prior authorization from the Finance Ministry, after consultation with the securities commission, the CDVM, is required to set up a mutual fund. Licensing conditions include submission of a prospectus containing information on investment policies, method of asset valuation, frequency and method of calculating net asset value per share, schedule of commissions and fees for subscriptions and redemptions, and management fees. A summary of this prospectus, in standardized format, must be sent to all subscribers. 109. The assets of both the SICAVs (investment companies with variable capital) and the Fonds commun de placement (FCPs, group investment funds) must be placed with a single depository institution approved by the Minister of Finance. However, the law does not require the use of an independent depository, so the majority of mutual funds use the bank with which they are associated as their depository. The depository institutions act as transfer agents; i.e., they receive and execute orders for subscriptions and redemptions, carry out purchase or sale orders for securities, and draw up a statement of assets at least once each quarter. 46 Open-end mutual funds in Morocco may operate under joint stock company (SICAV) or partnership (FCP). Unless specified, SICAV is used as a generic term for all open-end mutual funds, regardless of their legal form. 29 110. According to the 1993 law, SICAVs are required to invest 85 percent of their assets in marketable securities, while nonmarketable liquid instruments (such as cash and short-term bank deposits) may not exceed 15 percent of total assets. Securities of any single issuer may not exceed 10 percent of the fund's portfolio, except in the case of securities issued or guaranteed by the State, to which no ceiling applies. Recommendations 111. The regulatory framework contains a number of modern regulatory features with respect to mutual funds. If concerns persist, they have to do with the quality of supervision. Many market participants suspect that the valuation of assets may be deficient or misleading, and that compliance with custodial and auditing rules may also be inadequate. The main problem with supervision may be the lack of human resources and the fact that the CDVM does not impose penalties as often as it should. This entity is vested with powers for oversight and enforcement of prudential rules and investor protection measures. 112. Furthermore, a clearer definition of licensing criteria, especially with regard to the "fit and proper" test, may be useful in ensuring that sponsoring institutions are financially sound and hire qualified professionals as fund managers. In addition, the law should establish independence criteria with respect to boards of directors, custodians, and external auditors. It should also provide precise rules governing the responsibilities and fiduciary duties of fund managers. Moreover, the law should either prohibit all transactions with related parties, or require that such transactions be transparent and conducted at market terms and conditions. 113. A draft law pertaining to third party portfolio management is being completed. Its aim is to more clearly define the conditions governing the exercise of this activity, thereby making portfolio managers more accountable to investors and enhancing their independence with respect to the boards of directors of custodial banks. B. THE STOCK MARKET Size and performance of the stock market 114. The Casablanca stock market experienced unprecedented growth in the 1990s, with a sharp increase in traded volume, which rose from DH 512 million in 1990 to DH 13.298 billion in 1998, and stock market capitalization climbing from DH 7.8 billion in 1990 to DH 145.1 billion in 1998, representing approximately 42 percent of GDP. This is still low in comparison with Jordan (79 percent) or Malaysia (285 percent). There were 55 companies listed at the end of March 2000, a figure that reflects a decline since 1990, when more than 70 companies were listed. The price-earnings ratio was 21.2 and the market-to-book-value multiple stood at 3.6 percent at the end of 1998. The increase in stock market capitalization was due largely to the increase in prices and the privatizations that took place, mainly in 1997, through the stock exchange. 115. The Casablanca stock exchange index was up by 20.4 percent in 1998 compared to the preceding year. However, this index declined for the first time, by 3.31 percent, in 1999, reflecting the economic gloom that started in the final quarter of 1998. Until then, the Moroccan stock exchange had appeared to be insulated from the financial crises that had plagued international stock exchanges and the stock exchanges of the Middle East and North Africa. This trend was reversed mainly by domestic factors, including: a corrective decline in securities, which had been considered overvalued, began in late 1998; the announcement of lower-than-expected earnings in 1998 because of the additional costs generated by the general amnesty; negative growth expectations in 1998/99 as the effects of the drought were felt once again; and an insufficient number of new stock market entrants. Added to this was the effect of the restructuring of companies such as the ONA, which accounted for 16 percent of total stock market capitalization in March 2000. 30 116. Despite falling interest rates and the favorable performance of the stock markets, the annual amount of new issues (excluding Treasury issues) has stagnated since 1995, and totaled DH 6.6 billion in 1998. This amount consisted of DH 4.2 billion in marketable debt instruments,1.2 billion in bonds, and 0.7 billion of share issues in cash and asset inflows. In recent years, there have been very few initial public offerings (IPOs) by private nonfinancial firms on the Moroccan market, either in the form of marketable debt instruments or as an increase in share capital. Five enterprises from the following sectors: packing (1), energy (2), metallurgy (1), and automobile (1), entered the Casablanca stock exchange in 1998 and 1999. 117. The total volume of secondary market transactions amounted to DH 58.2 billion in 1998, of which 50 percent came from the ten largest listed companies. The proportion of trades handled on the official market has risen steadily since 1995. The block-trading market47 accounted for 72 percent of the volume of trading in 1998, compared to an off-floor trade volume of 89 percent in 1995. At the end of 1998, settlement and delivery took place in T+5 for all bearer securities. For registered securities, settlement took place in T+5, and delivery in T+12. There are 15 brokerage houses, of which 8 are bank subsidiaries; their 1998 turnover was DH 170 million and their net earnings 65 million, compared to DH 69 and 23.6 million, respectively, in 1996. Four of these brokerages conduct nearly 60 percent of the total business in the securities industry, and two of these brokerages are bank subsidiaries. The exchange has modernized its stock trading system by introducing electronic quotes and allowing the most active securities to be traded on a continuous basis. The changeover from open outcry to electronic quotes was completed in 1998. Regulation of the securities market 118. Morocco has adopted four laws since 1993 to establish the institutional structure for regulating the securities market. This structure consists of a oversight entity; the CDVM; a stock exchange; the Bourse de Casablanca (SBVC); and a central depository, Maroclear. These laws also create a professional association, to which the stock exchange companies must belong. From the investor protection viewpoint, even if these laws contain some inconsistencies and legal shortcomings that should be addressed at some point, they do, as a whole, represent a satisfactory regulatory framework, given the current degree of development of the Moroccan securities market. 119. One shortcoming is that, compared with the dominant practice in more developed markets, the Executive is responsible for the regulation of the capital market in Morocco. However, the CDVM is directly involved in establishing regulations, making recommendations to the Ministry of Finance in this area. In addition, the CDVM can autonomously impose an adequate range of penalties. With regard to the functioning of the stock exchange and the regulation and licensing of securities firms, important decisions are either taken by the Minister of Finance or must be approved by him, most often by issuing a decree. Another shortcoming is that many provisions of the laws can only be amended by the political process, whereas they should be part of a body of rules that regulatory authorities can adapt more readily in reaction to market developments. 120. The requirement that each securities firm be an equal shareholder of the Casablanca stock exchange management company was on the verge of becoming an entry barrier which would have hampered the formation of new securities firms, and in particular of new securities firms that are independent of commercial banks. The capitalization of profits of the SBVC, which had accumulated DH 150 million in reserves from fees collected, based on schedules set by the Government, resulted in a significant increase in the entry price for new shareholders. The Government resolved this situation by 4 Block trading was introduced in November 1998. It replaced off-floor trading for operations that cannot take place on the central market because of their volume and because they are subject to private trading. Trade prices on the block market are determined on the basis of central market prices. 31 restructuring the fee schedule, but the positive effect of this action was offset by the explicit restriction on the use of earnings generated by the stock exchange. Recommendations 121. Several measures needed to correct these regulatory weaknesses would require changes in the legislation. The CDVM and the stock exchange management company (SBVC) should be given more autonomy to introduce regulatory measures and impose penalties. Other legislative changes should include adapting the content of the relevant laws. Thus, provisions on the ownership control of securities firms should normally belong to the law governing the securities commission (CDVM), while they are now part of the stock exchange law. Legislative changes are also needed to repeal various legal provisions and replace them with a set of rules. For example, listing requirements on the exchange and licensing requirements for new securities firms should be defined by a set of rules and not in the law itself. In addition, the board of directors should include independent members that do not belong to stock exchange companies. 122. As to off-floor trading, the policy recently adopted by the stock exchange to transform off-floor trades into block trades is a step in the right direction but still falls short of a consolidation of trades on the official market, especially for shares to be traded on a continuous basis. As in most stock exchanges, the minimum size of block trades for groups of securities sharing the same listing requirements should be the same for all stocks. In addition, for shares traded on a continuous basis, block trades should always require prior clearing of market orders and limit orders at the same price on the official market (pass- through rules). Finally, the bid and ask spreads allowed for trading block transactions are unusually large - they may be as much as 10 percent - and make it difficult to enforce the priority rule in favor of public orders and preserve the fairness of the market for smaller investors. To favor the development of continuous trading, block trading should, as much as possible, accommodate fragmentation so that the greatest number of orders can be processed on the official market. VI. THE FOREIGN EXCHANGE MARKET Foreign exchange control 123. Since January 1993, the Moroccan dirham has been convertible for all current transactions as defined under IMF Article 8. In addition, there are no official restrictions for some capital transactions, such as repatriation of capital, and capital gains by foreign investors and foreigners residing in Morocco. Moroccan firms are allowed to borrow abroad without prior approval, provided that the loan obtained is used for investment in Morocco. Moroccan banks are free to accept deposits in foreign currencies from foreigners, including foreign banks. The most notable restrictions are the prohibition on bank lending overseas for Treasury operations, lending to nonresidents in local currency, and the prohibition on Moroccan banks placing foreign currency obtained abroad against foreign currency transactions. Foreign exchange market operations 124. The foreign exchange market was established in May 1996. As licensed currency dealers on the foreign exchange market, banks are permitted to conduct spot, forward, and cash transactions among themselves and with the Central Bank, for their own account or on behalf of their customers. Since January 24, 1997, banks are also allowed to trade with foreign banks for spot transactions. The exchange rate of the dirham is set by the Central Bank against a basket of foreign currencies representing Morocco's major trading partners. The Central Bank quotes selling and buying prices for currencies with a spread of 0.6 percent. Banks are permitted to buy and sell foreign currency with their customers at prices equal to or better than the buy and sell rates set by the Central Bank, adjusted for the payment of a 0.2 percent commission to the Foreign Exchange Office. The commission does not apply to bank 32 transactions on the foreign exchange interbank market, but is collected on the sale and purchase of dirhams between Moroccan and foreign banks and between a foreign bank and the Central Bank. The introduction of the foreign exchange market has significantly reduced the volume of direct sales of dirhams by the Central Bank to foreign banks, from DH 735 million in May 1996 to DH 7 million in May 1998. The forward exchange market is an important development. Outstanding forward exchange contracts, mostly forward purchases, amounted to about DH 50 million in May 1998. At the end of June 1999, the forward purchases amounted to DH 495 million, compared to forward sales of DH 89 million. Market size 125. Most of the foreign exchange operations are related to commercial transactions, while the volume of sales and purchases of foreign currency in the interbank market remains rather small. The volume of trading in foreign currencies against other foreign currencies is rising sharply; it amounted to less than DH 4 billion in 1997 compared to DH 17 billion in September 1998. The level of market competition is still limited, as three market participants account for the predominant share of the foreign exchange market. Bank income statements indicate that operations in the foreign exchange market are profitable. Nevertheless, owing to the small size of the market, Central Bank intervention is occasionally needed to absorb large transactions. The volume of foreign exchange operations against the dirham conducted outside Morocco, mainly in Tunis, Bahrain, Paris, and Frankfurt, is estimated by many observers to be larger than the domestic market. Transactions completed abroad are not subject to the 0.2 percent commission, which may explain why a significant part of the currency conversion of foreign funds sent to Morocco from nonresident Moroccans takes place abroad, mainly through foreign subsidiaries of Moroccan banks. Fund transfers from nonresidents was estimated at about US$2 billion in 1999. Foreign exchange risk and prudential regulation 126. The aggregate foreign currency exposure of banks is limited by regulation to 20 percent of bank capital, which is significantly higher than the 8 percent limit proposed by the Basle Committee. Each individual foreign currency exposure is restricted to 10 percent of bank capital. Banks are required to report their currency exposure on a daily basis. Moroccan banks' foreign exchange risk exposure is well below prudential limits, with aggregate long and short positions accounting for less than 4 percent of bank capital. The largest total currency exposure among banks is equal to 13 percent of capital. However, bank prudential regulation is not currently enforced on a consolidated basis and thus does not include the currency exposure of Moroccan banks' subsidiaries abroad. Foreign exchange risk exposure of bank borrowers 127. At the end of November 1997, private debt in foreign currency for maturities exceeding 6 months was estimated at DH 3.5 billion, or less than 10 percent of Morocco's foreign exchange reserve reported in the IMF data. The monitoring of foreign private borrowings is done by banks, which are required to issue monthly reports to the Ministry of Finance. The quality of this newly introduced reporting system has not yet been demonstrated. Some market observers believe that private foreign debt is significantly higher than the figure mentioned above. Also, private borrowers in Morocco may be more exposed to foreign currency risk because of their unfamiliarity with hedging techniques and instruments. Recommendations 128. The 0.2 percent commission represented revenues of about 500 million DH in 1996 and funded mainly the cost to the Government of providing foreign exchange risk protection on foreign currency loans to former specialized entities. As the Government is moving away from providing such guarantees, this source of revenue is no longer needed for this purpose. The commission rate and its application to transactions with foreign banks should be revised, with the view of promoting a larger volume of foreign exchange transactions on the domestic market. 33 129. Also, in view of the large inflow of foreign funds from Moroccans living abroad, which transit through foreign subsidiaries of Moroccan banks, bank prudential regulation on foreign currency exposure should be enforced on a consolidated basis and should also take into account the consolidated net bank liabilities from deposits denominated in convertible dirhams. In the current context, bank deposit accounts denominated in convertible dirhams, which accounted for less than 2 percent of total domestic bank deposits at the end of 1999, represent an obsolete deposit instrument and should be eliminated, at least in the case of Moroccans living abroad. However, the convertible dirham continues to provide conversion insurance for foreign banks and travel agencies. The monitoring system on private foreign borrowings should be tightened to improve credit risk assessment of bank customers with foreign liabilities. 34 Morocco: Overview of the financial system, 1992/1998 ANNEX 1 BANKING SYSTEM Total assets Total credits Total deposits Fin 1998 Fin 1992 Fin 1998 Fin 1992 Fin 1998 Fin 1992 Total (in billions of dirhams) 301.0 185.6 167.6 95.9 183.3 111.4 Commercial banks' share 78% 77% 67% 65% 93% 95% Specialized banks' share (exI. FEC) 22% 23% 33% 36% 7% 5% Total assets/GDP 86% 76% 48% 39% 52% 46% (Outstanding balance, OTHER FINANCIAL INSTITUTIONS year-end) 1998 1995 Treasury network and postal accounts (Deposits) in billions of DH 6.3 6.8 National Savings Institution (Deposits) in billions of DH 5.3 3.3 Non Bank deposits/GDP 3.9% 3.7% Consumer loan and leasing companies (loans) in billions of DH 20.1 10.0 (Outstanding balance, CONTACTUL SAINGSStock market mapitalization CONTRACTUAL SAVINGS year-end) 10_ 0 INSTITUTIONS 1998 1995 Insurance cies. Technical reserves (in billions of DH) 36.0 27.5 Pension and retirement funds (in billions of DH) 48.7 29.5 Total/GDP 25% 20% 4 Caisse de Ddp6ts de Gestion (Deposits exc. CEN) (in billions of DH) 20.2 16.3 OPCVMs (Net assets) (in billions of DH) 25.2 2.7 1998 199 1993 Market capitalization (in billions of DH) CAPITAL MARKET -4-Total capitalization/GDP Casablanca Stock Exchange 1998 1996 1993 Market capitalization (in billions of DH) 145.1 75.6 26.0 Of which: bank capitalization (in billions of DH) 38.5 26.9 2.7 Trading volume ** (in billions of DH) 58.0 20.4 4.9 Number of listed companies 53 47 65 Total capitalization/GDP 43% 24% 10% of which: Official Over-the- Total Official Over-the- Total market counter market counter Shares (Annual flow, end 1998) (Annual flow, end 1995) Trading volume (in billions of DH) 13.3 34.8 48.1 2.4 18.3 20.7 Trading volume/market capitalization 23% 61% 84% 10% 79% 89% Treasury securities, bonds Trading volume (in billions of DH) 2.9 6.2 9.1 0.1 2.4 2.5 Trading volumetmarket capitalization 5% 11% 16% 0% 10% 11% MONEY MARKET (Outstanding balance, year-end) 1998 1996 Private Negotiable Debt instruments* (in billions of DH) 8 1.8 Interbank lending (interest rate) 6.57 6.85 (Outstanding balance, year-end) GOVT DOMESTIC DEBT 1998 1992 Domestic debt (in billions of DH) 131 67.2 % held by banks 46% 59% % held by other than banking institutions 54% 41% Domestic debt/GDP 38% 28% Most of which are issued by banks and finance companies. * Each trade is counted twice (purchase/sale) Financial assets of non-financial agents (In millions of Dirhams and %) 1992 1993 1994 1995 1996 1997 1998 Outstanding balance as at year-end Liquidassels 101,666 47.9% 106,337 46.0% 117,141 45.3% 126,481 45.2% 133,337 43.9% 143,591 43.5% 153,789 42.7% Currency and coins 35,745 16.8% 37,202 16.1% 41,107 15.9% 43,261 15.4% 46,447 15.3% 48,640 14.7% 50,644 14.1% Demand deposits 65,921 31.0% 69,135 29.9% 76,034 29.4% 83,220 29.7% 86,890 28.6% 94,951 28.7% 103,145 28.6% Short-term investments 61,702 29.1% 68,850 29.8% 76,582 29.6% 84,563 30.2% 91,072 30.0% 98,303 29.8% 101,975 28.3% Passbook savings 14,912 7.0% 15,959 6.9% 18,684 7.2% 21,279 7.6% 23,281 7.7% 25,983 7.9% 29,523 8.2% of which CEN 2,150 1.0% 2,342 1.0% 2,754 1.1% 3,292 1.2% 3,866 1.3% 4,553 J.4% 5,330 1.5% Terms deposits 37,467 17.6% 43,986 19.0% 46,672 18.0% 51,488 18.4% 56,144 18.5% 63,035 19.1% 64,012 17.8% Short-terni BTs 5,513 2.6% 7,571 3.3% 11,098 4.3% 11,734 4.2% 11,638 3.8% 9,195 2.8% 8,368 2.3% Short-term marketable securities 3,810 1.8% 1,334 0.6% 128 0.0% 62 0.0% 9 0.0% 90 0.0% 72 0.0% OPCVMs (Mutual funds) shares 1,915 0.6% 5,765 1.7% 15,744 4.4% Medium-terminvestments 7,719 3.6% 9,241 4.0% 11,756 45% 12,117 4.3% 13,374 4.4% 11,620 3.5% 11,093 3.1% Medium-term BTs 7,719 3.6% 9,241 4.0% 11,756 4.5% 12,117 4.3% 12,764 42% 10,908 3.3% 10,329 2.9% Of which 3-5 year national bonds 6,182 2.9% 7,893 3.4% 10,623 4.1% 11,196 4.0% 10,759 3.5% 9,357 2.8% 9,299 2.6% Medium-terms marketable securities 610 0.2% 712 0.2% 764 0.2% Institutional savings (1) 41,309 19,4% 46,877 20.3% 53,307 20.6% 56,962 20.3% 64,248 21.1% 71,123 21.5% 77,452 21.5% Pension and retirement funds 20,660 9.7% 23,521 10.2% 25,952 10.0% 29,479 10.5% 33,525 11.0% 36,249 11.0% 38,393 10.7% Insurance (technical reserves) 20,649 9.7% 23,356 10.1% 27,355 10.6% 27,483 9.8% 30,723 10.1% 34,874 10.6% 39,059 10.8% Total (2) 212,396 100.0% 231,305 100.0% 258,786 100.0% 280,123 100.0% 303,946 100.0% 330,402 100.0% 360,053 100.0% Memos. Total/GDP 87.4 92.8 92.6 99.6 95.1 103.8 105,5 Source: Bank AJ-Maghrib Assets, deposits, and credits by bank: 1992 to 1997 (In millions of Dirhams) 1992 1993 1994 1995 1996 1997 Amount (%) Amount (%) Amount (%) Amount (%) Amount (%) Amount (%) Moroccan commercial banks 1 136,052 73.3% 147,401 73.5% 168,054 74.5% 178,859 74.8% 190,647 74.9% 210,105 76.7% Bank Al-Amal 458 0.2% 0 0.0% 592 0.3% 615 0.3% 657 0.3% 664 0.2% BCM - Banque Commerciale du Maroc 21,717 11.7% 23,555 11.8% 27,664 12.3% 29,771 12.4% 32,387 12.7% 36,059 13.2% BMAO 1,922 1.0% 2,251 1.1% 2,526 1.1% 2,623 1.1% 2,579 1.0% 2,884 1.1% BMCE - Banque Marocaine du Commerce Exterieus 23,170 12.5% 25,175 12.6% 30,303 13.4% 30,495 12.8% 31,704 12.5% 34,700 12.7% BMCI 8,867 4.8% 9,441 4.7% 10,047 4.5% 11,211 4.7% 12,335 4.8% 13,846 5.1% CDM - Credit du Maroc 9,417 5.1% 10,271 5.1% 11,107 4.9% 12,214 5.1% 12,422 4.9% 14,130 5.2% CPM - Credit Populaire du Maroc 42,069 22.7% 45,336 22.6% 50,851 22.5% 54,920 23.0% 57,301 22.5% 60,146 21.9% Mediafinance 0 0.0% 0 0.0% 0 0.0% . 0 0.0% 153 0.1% 270 0.1% SGMB 10,326 5.6% 11,290 5.6% 12,763 5.7% 14,059 5.9% 15,084 5.9% 16,706 6.1% SMDC 3,791 2.0% 4,251 2.1% 4,597 2.0% 4,539 1.9% 4,591 1.8% 4,852 1.8% UMB 635 0.3% 669 0.3% 659 0.3% 710 03% 627 0.2% 707 0.3% Wafabank 13,680 7.4% 15,162 7.6% 16,945 7.5% 17,702 7.4% 20,807 8.2% 25,141 9.2% Foreign commercial banks II 6,875 3.7% 7,792 3.9% 8,168 3.6% 8,988 3.8% 9,443 3.7% 7,215 2.6% ABN Amro 2,319 1.2% 2,773 1.4% 2,837 1.3% 3,130 1.3% 3,205 1,3%6 3,668 1.3% Arab Bank Maroc 1,234 0.7% 1,240 0.6% 1,387 0.6% 1,633 0.7% 2,073 0.8% 2,115 0.8% Bex Maroc-Argentaria 0 0.0% 0 0.0% 129 0.1% 229 0.1% 198 0.1% 286 0.1% Citibank 578 0.3% 724 0.4% 639 0.3% 708 0.3% 770 0.3% 1,146 0.4% UNIBAN 2,744 1.5% 3,055 1.5% 3,176 1.4% 3,288 1.4% 3,197 1.3% Specialized banks III 42,675 23.0% 45,270 22.6% 49,449 21.9% 51,306 21.5% 54,39% 21.4% 56,771 20.7% BNDE - Banque Nationale pour le Dveloppement Economique 8,493 4.6% 9,069 4.5% 8,901 3.9% 9,117 3.8% 9,333 3.7% 9,653 3.5% ClH - Cr6dit Immobilier et H6teliet 17,962 9.7% 19,037 9.5% 20,988 9.3% 22,074 9.2% 23,980 9.4% 26,450 9.7% CNCA - Caisse Nationale de Cr6dit Agricok 16,220 8.7% 17,164 8.6% 19,560 8.7% 20,115 8.4% 21,083 8.3% 20,668 7.5% Total 1+11+111 185,602 100.0% 200,463 100.0% 225,671 100.0% 239,153 100.0% 254,486 100.0% 274,091 100.0% Source : Bank Al-Maghrib. Direction du ContrOle des Etablissements de Cridit. Assets, deposits, and credits by bank: 1992 to 1997 (In millions of Dirhams) DEPOSITS* 1992 1993 1994 1995 1996 1997 Amount (%) Amount (%) Amount (%) Amount (%) Amount (%) Amount (%) Moroccan commercial banks 1 100,655 90.3% 109,391 89.9% 121,663 90.1% 131,905 89.8% 139,724 89.5% 152,899 89.7% Bank Al-Amal 0 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% BCM - Banque Commerciale du Maroc 15,519 13.9% 16,788 13.8% 19,649 14.5% 21,567 14.7% 23,478 15.0% 26,486 15.5% BMAO 1,382 1.2% 1,589 1.3% 1,870 1.4% 1,925 1.3% 1,933 1.2% 2,247 1.3% BMCE - Banque Marocaine du Commerce Exterieur 17,187 15.4% 18,567 15.3% 20,414 15.1% 22,031 15.0% 23,355 15.0% 22,901 13.4% BMCI 6,729 6.0% 7,330 6.0% 7,325 5.4% 8,371 5.7% 9,093 5.8% 10,168 6.0% CDM - Credit du Maroc 6,462 5.8% 7,567 6.2% 8,097 6.0% 8,993 6.1% 9,114 5.8% 9,957 5.8% CPM - Credit Populaire du Maroc 34,990 31.4% 37,334 30.7% 41,470 30.7% 44,278 30.1% 45,753 29.3% 49,058 28.8% Mediafinance 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% SGMB 6,295 5.6% 7,314 6.0% 8,397 6.2% 9,248 6.3% 9,728 6.2% 10,999 6.5% SMDC 2,393 2.1% 2,381 2.0% 2,678 2.0% 2,725 1.9% 2,750 1.8% 3,038 1.8% UMB 504 0.5% 547 0.4% 531 0.4% 557 0.4% 499 0.3% 559 0.3% Wafabank 9,194 8.3% 9,974 8.2% 11,232 8.3% 12,210 8.3% 14,021 9.0% 17,486 10.3% Foreign commercial banks II 5,247 4.7% 6,060 5.0% 6,178 4.6% 6,617 4.5% 6,288 4.0% 4,423 2.6% ABN Amro 1,721 1.5% 2,173 1.8% 2,220 1.6% 2,341 1.6% 1,726 1.1% 2,008 1.2% Arab Bank Maroc 972 0.9% 975 0.8% 1,102 0.8% 1,278 0.9% 1,698 1.1% 1,787 1.0% Bex Maroc-Argentaria 0 0.0% 0 0.0% 14 0.0% 61 0.0% 24 0.0% 102 0.1% Citibank 483 0.4% 558 , 0.5% 407 0.3% 410 0.3% 502 0.3% 526 0.3% UNIBAN 2,071 1.9% 2,354 1.9% 2,435 1.8% 2,527 1.7% 2,338 1.5% 0.0% Specialized banks III 5,515 4.9% 6,171 5.1% 7,224 5.3% 8,339 5.7% 10,114 6.5% 13,131 7.7% BNDE - Banque Nationale pour le D6veloppement Economique 466 0.4% 385 0.3% 180 0.1% 413 0.3% 571 0.4% 1,544 0.9% CIH - Cr6dit Immobilier et H6telier 2,196 2.0% 2,750 2.3% 3,387 2.5% 3,992 2.7% 5,267 3.4% 5,001 2.9% CNCA - Caisse Nationale de Cr6dit Agricole 2,853 2.6% 3,036 2.5% 3,657 2.7% 3,934 2.7% 4,276 2.7% 6,586 3.9% Total 1+11+111 111,417 100.0% 121,622 100.0% 135,065 100.0% 146,861 100.0% 156,126 100.0% 170,453 100.0% Source : Bank Al-Maghrib, Direction du Contr6le des Etablissenents de Crddit. Assets, deposits, and credits by bank: 1992 to 1997 (In millions of Dirhams) 1992 1993 1994 1995 1996 1997 Amount (%) Amount (%) Amount (%) Amount (%) Amount (%) Amount (%) Moroccan commercial banks 1 58,299 60.8% 62,185 61.2% 69,925 62.7% 80,911 64.7% 89,830 65.3% 96,975 66.6% Bank AI-Amal 15 0.0% 104 0.1% 238 0.2% 348 0.3% 414 0.3% 497 0.3% BCM - Banque Commerciale du Maroc 11,859 12.4% 12,383 12.2% 13,958 12.5% 15,691 12.6% 17,522 12.7% 19,041 13.1% BMAO 1,114 1.2% 1,342 1.3% 1,629 1.5% 1,707 1.4% 1,709 1.2% 1,800 1.2% BMCE - Banque Marocaine du Commerce Exterieur 9,637 10.0% 10,237 10.1% 12,775 11.4% 15,578 12.5% 16,128 11.7% 17,454 12.0% BMCI 4,581 4.8% 4,714 4.6% 5,291 4.7% 6,412 5.1% 7,756 5.6% 8,920 6.1% CDM - Credit du Maroc 5,081 5.3% 5,385 5.3% 5,489 4.9% 6,480 5.2% 6,959 5.1% 6,840 4.7% CPM - Credit Populaire du Maroc 11,213 11.7% 12,267 12.1% 12,928 11.6% 15,094 12.1% 17,171 12.5% 17,645 12.1% Mediafinance 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0.0% SGMB 5,649 5.9% 6,040 5.9% 6,418 5.8% 7,361 5.9% 8,322 6.1% 9,460 6.5% SMDC 1,906 2.0% 2,234 2.2% 2,403 2.2% 2,422 1.9% 2,561 1.9% 2,814 1.9% UMB 298 0.3% 281 0.3% 308 0.3% 342 0.3% 323 0.2% 385 0.3% Wafabank 6,946 7.2% 7,198 7.1% 8,488 7.6% 9,476 . 7.6% 10,965 8.0% 12,119 8.3% Foreign commercial banks II 3,550 3.7% 3,758 3.7% 4,036 3.6% 4,654 3.7% 4,821 3.5% 3,423 2.3% ABN Amro 1,225 1.3% 1,262 1.2% 1,472 1.3% 1,746 1.4% 1,634 1.2% 1,780 1.2% Arab Bank Maroc 604 0.6% 632 0.6% 721 0.6% 826 0.7% 1,082 0.8% 1,005 0.7% Bex Maroc-Argentaria 0 0.0% 0 0.0% 38 0.0% 79 0.1% 137 0.1% 141 0.1% Citibank 201 0.2% 262 0.3% 258 0.2% 293 0.2% 343 0.2% 497 0.3% UNIBAN 1,520 1.6% 1,602 1.6% 1,547 1.4% 1,710 1.4% 1,625 1.2% 0.0% Specialized banks 111 34,051 35.5% 35,684 35.1% 37,646 33.7% 39,451 31.6% 42,886 31.2% 45,268 31.1% BNDE - Banque Nationale pour le D6veloppement Economique 6,194 6.5% 6,542 6.4% 6,290 5.6% 6,279 5.0% 7,195 5.2% 6,869 4.7% CIH - Cr6dit Immobilier et H6telier 15,202 15.9% 15,986 15.7% 17,249 15.5% 18,360 14.7% 20,100 14.6% 22,381 15.4% CNCA - Caisse Nationale de Cr6dit Agricole 12,655 13.2% 13,156 12.9% 14,107 12.6% 14,812 11.8% 15,591 11.3% 16,018 11.0% Total 1+11+111 95,900 100.0% 101,627 100.0% 111,607 100.0% 125,016 100.0% 137,537 100.0% 145,666 100.0% Source : Bank Al-Maghrib, Direction du Contr6le des Etablissements de Cridit. ANNEX 4 Page 1 of 4 PERFORMANCE INDICATORS FOR THE BANKING SECTOR Table 1: Evolution of assets, credits and deposits in the banking system (Average growth rate) As a % 1992-1998 Assets (banking system) 8.4% Commercial banks 9.6% Specialized banks 5.2% Credits (banking system) 9.8% Commercial banks 10.4 % Specialized banks 8.7% Deposits (banking system) 8.7% Commercial banks 8.3% Specialized banks 15.2 % Source: Bank Al-Maghrib. Table 2 : Market share by bank category (End of period) 1992 1993 1994 1995 1996 1997 Assets (in billions of Dirhams) 185.6 200.5 225.7 239.2 254.5 273.0 Commercial banks (in %) 73.3 73.5 74.5 74.7 74.9 76.7 Foreign subs (in %) 3.7 3.9 3.6 3.8 3.7 2.6 Specialized banks (in %) 23.0 22.6 21.9 21.5 21.4 20.7 Credits (in billions of Dirhams) 95.9 101.6 111.6 125.0 137.5 145.7 Commercial banks (en %) 60.8 61.2 62.7 64.7 65.3 66.7 Foreign subs (in %) 3.7 3.7 3.6 3.7 3.5 2.3 Specialized banks (in %) 35.5 35.1 33.7 31.6 31.2 31.0 Deposits (in billion of Dirhams) 111.4 121.6 135.1 146.9 156.1 170.5 Commercial banks (in %) 90.3 89.9 90.1 89.8 89.5 89.7 Foreign subs (in %) 4.8 4.7 4.6 4.5 4.0 2.6 Specialized banks (in %) 4.9 5.4 5.3 5.7 6.5 7.7 Source : Bank AI-Maghrib. ANNEX 4 Page 2 of 4 PERFORMANCE INDICATORS FOR THE BANKING SECTOR Table 3: Market share by bank size (End of period) 1992 1993 1994 1995 1996 1997 Assets (in %) (End of period) Largest bank 22.7 22.6 22.5 23.0 22.5 21.9 3 largest banks 46.9 46.9 48.2 48.2 47.7 47.8 5 largest banks 65.3 65.0 65.2 65.8 65.4 66.6 Credits (in %) Largest bank 15.9 14.3 15.5 14.7 14.6 15.4 3 largest banks 41.1 37.2 40.6 39.7 39.8 40.6 5 largest banks 63.2 57.4 63.6 63.6 62.9 63.5 Deposits (in %) Largest bank 31.4 33.5 30.7 30.1 29.3 28.8 3 largest banks 60.8 65.2 60.4 59.8 59.3 57.8 5 largest banks 75.1 82.0 74.9 74.4 74.5 74.5 Source: Bank Al-Maghrib. Table 4: Number of bank branches by major city as at year-end 1997 City Casablanca Rabat Fs Marrakech Tanger Meknes Maroc Number of 418 94 74 57 52 46 1 450 branches Source : Bank Al-Maghrib. Table 5 : Number of branches by size of bank in 1990 and 1997 End of period 1990 1997 Largest bank 227 (23%) 312 (21%) 3 largest banks 470(48%) 677 (47%) 5 largest banks 620 (64%) 972 (67%) Memo. : Total 976 (100%) 1 450 (100%) Source: Bank Al-Maghrib. ANNEX 4 Page 3 of 4 PERFORMANCE INDICATORS FOR THE BANKING SECTOR Table 6 : Fi-nance companies activity as at year-end 1998 Credit type Total Total assets credits Leasing 6.5 6.1 Consumer credit 15.0 14.0 Other (*) ND 1.6 TOTAL 21.4 21.7 Source : Bank Al-Maghrib. *: Other companies includes mortgage companies, factoring companies, payments management companies, warrant companies and mutual guarantee companies. Table 7 Summary of banks' mandatory holdings Mandatory holdings * 1990-1997 Today Reduction phase Plancher d'effet public (b) (minimum portfolio of 35%(1990) Eliminated BTs, introduced in 1967) 33,5% (January 1991) (June 1998) 32% (July 1991) 25% (June 1993) 20% (May 1995) 10% (September 1996) 5% (December 1997) CNCA 1-year notes (introduced in 1980 to channel 3,5% (before) 2% funding to agricultural projects) 3 % (July 1991) 2 % (November 1992) Medium-term discountable loans (introduced in 1972 5,5 % (before) Eliminated to encourage investment finance) 5% (July 1991) (April 1994) 2,5 (July 1992) Housing finance ratio (medium- and long-term 6% (before) Eliminated lending for housing, introduced in 1982) 5% (July 1991) (April 1994) 3,75% (July 1992) 2.5 % (January 1993) Ratio of debts originating abroad (introduced in 1989) 5 % (before) Eliminated 3 % (March 1992) (April 1994) Mandatory holdings ratios are calculated as a % of bank liabilities, mainly deposits. ANNEX 4 Page 4 of 4 PERFORMANCE INDICATORS FOR THE BANKING SECTOR Table 8 : Interbank transactions and bank recourse to the BAM End of year 1993 1994 1995 1996 1997 1998 Bank recourse to BAM Outstanding end of year (in billions DH) (a) 1.2 1.4 1.8 2.6 1.2 3.4 As % of total balance sheet (a) 0.8% 0.6% 0.8% 1.1% 0.4% 1.1% Interbank lending/borrowing Volume of monthly transactions (in billions of DH) 1.1 1.4 5.7 6.0 7.8 9.6 Outstanding at end of year (in billions of DH) NA NA 2.2 1.6 2.5 3.0 Interest rate (daily average over year) 7.0% 5.6% 7.7% 7.3% 6.7% 6.3% Source: Bank Al-Maghrib. Note: (a) For 1993, the figure shown excludes the 3 specialized banks. ANNEX 5 Page 1 of 1 MAJOR PRUDENTIAL RULES APPLIED TO BANKS 1. Bank capital (arrtd No.934-89, 8 June 1989). The minimum amount of bank capital is set at 100 million DH. 2. Liquidity ratio (arr8t6 No.369-82, 16 June 1982). The banks must at all times observe a 60% ratio between their liquid short-term assets and their short-term demand liabilities. 3. Solvency ratio (arr& No.175-97, 22 January 1997 pursuant to law 1-93-147). The minimum solvency ratio is set at 8 percent. This is the minimum ratio between own funds and assets and signed commitments, weighted by risk. 4. Concentration of risks and large exposures (arr&6 No. 174-97, 22 January 1997 pursuant to law 1-93-147). The maximum ratio is set at 10%. Banks exposures are calculated for one beneficiary, and these exposures are weighted by a risk factor. These limits are expressed in terms of a percentage of net capital. The notion of beneficiary includes all individuals or companies that are legally or financially related. Banks are also required to list all risks that exceed 5% of their capital. 5. Foreign exchange risk exposure ratio (arr& Minist6re des Finances No.585-96, 29 March 1996). Banks must observe a maximum ratio of 20% between their overall foreign exchange position and their net capital, and a maximum ratio of 10% between their foreign exchange position in each currency and their net capital. 6. Rules for classification and provisioning of overdue loans. Overdue loans are classified under 3 categories: pre-doubtful, doubtful and unrecoverable. Several factors affect classification in each category: (a) length of arrears (generally set at 4, 6 and 9 months) ; (b) existence of updated financial statements on the client; (d) financial situation of the client and; (e) nature and amount of outstanding debt. Provisioning rates for each category are set at a minimum of 20%, 50% and 100% respectively. The amount of the provision is determined in light of the guarantee, weighted as to its nature and quality (e.g. a public guarantee may be deducted 100% from the amount of the overdue loan, while other guarantees are weighted at 80%, 50%, and 35%). 7. The Finance companies are subject to the same prudential ratios applied to banks ; they observe the minimum solvency ratio of 8 percent a priori, but they do not systematically apply the concentration of risks and large exposure limits, nor the rules for classifying and provisioning overdue loans. They will however become subject to the new bank accounting plan to be applied as of January 1999, and will have to comply with the other prudential rules. ANNEX 6 TREASURY SECURITIES MARKET INDICATORS Table 1 : Auction rates by maturity, 1998 Maturity 13 w. 26w 52w. 2 yr 5 yr 10 yr 15 yr 1998 6.0 6.35 6.92 7.0 7.48 8.01 8.05 Table 2 : Holders of Treasury securities in 1998 13 w 26 w 52 w. 2 yr 5 yr 10 yr 15 yr Total % Caisse de D6p6t et de 245 3 848 5912 5023 15028 21% Gestion Banks 50 75 3 198 317 16113 6256 3030 29039 40% Insurance companies 462 423 4 510 5 690 6393 17 478 24% and pension funds Mutual funds 2256 241 4757 2264 139 9657 13% Others 269 57 634 108 % Total 50 75 6430 1038 29862 20230 14585 72270 100% Percent 0% 0% 9% 2% 41% 28% 20% 100% In millions ofDirhams Table 3: Secondary market: Transactions among participants, 1997 Insurance companies Non- and pension financial Seller \ Buyer CDG Banks funds OPCVM businesses Individu Total als Sales CDG 0 1 173 71 307 0 0 1551 Banks 886 5990 1 854 5 303 3 615 184 17832 Insurance/pension funds 50 1 376 113 0 0 0 1 539 OPCVM 196 3 570 0 163 37 0 3966 Non-financial businesses 38 3 178 11 281 7 0 3 5 15 Individuals 0 291 0 0 0 0 291 Total purchases 1 170 15578 2049 6054 3659 184 28694 Net purchases 510 2088 144 2 742 Net sales 381 2254 107 2742 Note: Transactions in millions ofDirhams, by nominal value of BTs traded. ANNEX 7 Page 1 of 1 TAXES ON FINANCIAL PRODUCTS Taxes on earnings from Taxes on capital gains Resident Interest bearing Dividends Bonds/stocks/mutual instruments funds Individuals 30% levy at source on 10% deducted at income tax(1) source 20% for individuals submitted to IGR Stock or stock funds: (bngfice net rel ou le bingfice net simplifid) 10%; Bonds and bond funds: 20%; Diversified mutual funds: 15% Companies 20% applied through Tax allowance of Allowance of 25% if company tax 100% held less than 4 years; 50 % if held less than 8 years; 75 % if held more than 8 years; 100% if reinvested lbefore 3 years Non resident 0% 10% levy at 0% source Source: Bourse de Casablanca, 2000 IGR: Imp6t G6n6ral sur le Revenu ANNEX 8 Page 1 of 6 Table 1 : Authorized and operational Mutual funds, by category 1995 1996 1997 1998 Auth. Oper. Auth. Oper. Auth. Oper. Auth. Oper. Equities 2 0 5 3 9 8 19 16 Bonds 3 0 11 4 22 18 42 30 Balanced 13 5 17 15 23 16 23 18 Total 18 5 33 25 54 42 84 64 Source: CDVM Table 2 : Evolution of Mutual funds' structure by category and their total assets 1995 1996 1997 1998 Total % Total % Total % Total % assets assets assets assets Equity funds 0 0 223 8 1668 16 4197 16 Bond funds 0 0 308 11 5591 52 16574 63 Balanced funds 15 100 2156 80 3379 32 5575 21 Total 15 100 2687 100 10638 100 26347 100 Source: CDVM Table 3 : Mutual funds by sponsoring group 1996* 1998 Number of Total % Number of Total % mutual funds assets mutual assets funds Banks 20 1945 71.5 49 21980 834 (WafaBank) (8) (955) (35.1) (14) (7408) (28.1) Exc Banks 6 774 28.5 15 4366 16.6 (CFG) (5) (613) (22.5) (7) (3 218 (12.2) Total 25 2719 100.0 64 26 347 100.0 * Data refer respectively to the weeks ending 3 January 1997 and 2 January 1998. Source: CDVM ANNEX 8 Page 2 of 6 TABLE 4 MUTUAL FUNDS PERFORMANCE AS OF MAY 2000 NET ASSET VALUE PERFORMANCE Name of the As of As of Highest in Lowest in Over the Since the Over the mutual fund 07/04/00 14/04/00 2000 2000 fast 3 beginning fast 12 months of the year months Diversified funds Tijari 2 295,29 2 261,05 2421,02 2261,05 -6,19% -6,61% -4,41% Croissance Patrimoine 109,11 107,71 115,03 107,71 -6,02% -6,36% -2,90% avenir CMKD 833,67 819,37 870,99 819,35 -5,57% -5,93% -3,80% Croissance Attijari 1 668,42 1 655,52 1 692,37 1 651,82 -2,13% -2,18% 3,31% Rendement Attijari Sicav 1 135,22 1 125,14 1 167,33 1125,14 -3,61% -3,58% 0,71% des Sicav Attijari 1 058,86 1 045,75 1 098,48 1 045,75 -4,80% -4,46% -1,45% Solidarité AI Istitmar 1 727,56 1 704,62 1 818,62 1 704,39 -6,10% -6,10% -6,11% Chaâbi Inmaa 1 508,80 1 488,05 1 565,02 1 489,52 -4,92% -4,62% -3,20% Patrimoine CDM Optimum 1 620,11 1 593,32 1 682,68 1 593,32 -5,18% -4,72% -2,68% Sicav Diaina 1 229,84 1 209,02 1 270,31 1 209,02 -4,82% -4,04% -1,34% Maroc 1 549,31 1 529,95 1 589,09 1 529,95 -3,72% -3,66% -0,38% Croissance Capital 1 055,83 1 041,85 1 079,13 1 039,78 -3,45% -3,24% - Balance Capital Imtiyaz 10 998,63 10967,60 11 056,92 10773,40 -0,81% -0,45% - Croissance Sicav 2 082,55 2.057,02 2 230,43 2 048,47 -3,96% -4,03% -2,88% Perspectives SICAV 1 161,50 1 144,89 1 202,13 1 144,89 -4,76% -4,76% -1,76% Selection Cap Equilibre 1 232,56 1 213,84 1 282,82 1 258,63 -5,31% -4,96% -3,04% Patrimoine 133,49 131,37 138,48 131,37 -4,99% -4,65% -3,34% Multivaleurs FCP Profil 100,13 99,19 102,45 99,19 -2,96% -3,18% 0,32% Harmonie Sicav Cap 1 023,81 1014,75 1 052,76 1011,51 -2,31% -3,61% - Tranquilité Sicav Epargne 994,99 985,23 1 002,78 991,44 -1,75% -1,40% - Croissance CDG lzdihar 1 154,51 1 139,46 1 187,24 1 139,46 -3,72% -4,02% 0,30% SCR Intégrale 1 018,34 1 018,59 1 018,59 1 000,00 - - - Horizon 11 190,30 11 013,60 11 700,46 11 013,60 -5,44% -5,20% -1,96% Expi nsion ANNEXE 8 Page 3 of 6 NET ASSET VALUE PERFORMANCE Name of the As of As of Highest in Lowest in Over the last 3 Since the Over the mutual fund 07/04/00 14/04/00 2000 2000 months beginning fast 12 Bond_fun__sjof the vear months Bond funds _____ ___ Attijari 1 415,97 1 416,29 1 416,29 1 392,73 1,69% 0,42% 10,27% Obligations Marocaine Vie 117 188,39 117 234,50 117 234,50 115 293,95 -0,32% 0,46% 8,82% Obligataire Attijari 115 466,31 115 530,72 115 530,72 113 644,75 1,66% 0,75% 10,37% Finances Corp Rendement CAA 1 058,83 1 058,67 1 058,83 1 041,56 1,64% 0,74% - Obligataire Assanad 1 478,38 1 476,70 1 495,45 1 462,22 0,85% -1,25% 7,73% Chaâbi AI Amal 1 330 1 329 1 330 337,00 1 313 419,65 1,21% 0,77% 9,32% 323,22 292,97 BMCI Epargne 1 997,37 1 998,46 1 998,46 1 985,05 0,58% 0,64% 9,92% Obligations WIAM 325 024,57 325 396,38 325 396,28 323 957,65 0,36% 0,39% 15,24% Croissance Atlanta 1 073 1 073 1 073 312,44 1 066 064,99 0,55% 0,61% - Obligations 094,66 312,44 FCP Sanad 554 019,90 554 418,01 554 418,01 550 190,67 0,60% 0,71% 7,83% Obligataire FCP Epargne 589 154,83 589 954,27 589 954,27 586 914,24 0,39% 0,46% 14,52% Trésor FCP AI 110771,93 110867,92 110867,92 109152,17 0,77% 1,51% - Ihssane CDM 1 370,59 1 370,38 1 370,79 1 356,80 0,85% 0,98% 11,91% Generation CDM Tresor 1 163,87 1 163,75 1 190,42 1 147,72 1,15% 1,22% 9,14% Plus CIMR 252 534,09 252 798,58 252 798,58 248 228,86 1,84% 0,95% - Attad.amoun CDG Secur 1 255,06 1 253,37 1 258,54 1 243,90 0,71% -0,41% 8,69% CDG 1 098,00 1 098,26 1 098,26 1 081,34 1,56% 1,12% - Prévoyance CDG Barid 1 179,20 1 178,21 1 179,20 1 167,38 0,93% 0,10% 10,15% CDG Tawfir 1 145,15 1 142,87 1 145,15 1 134,53 0,94% 0,15% 11,55% CDG 1 017,13 1 017,79 1 017,79 1 006,79 1,09% 1,02% - Trésorerie SCR 1 019,89 1 020,15 1 020,15 1 000,00 - - Obligations Avenir 13713,13 13714,43 13801,60 13497,87 1,60% -0,63% 11,65% Rendement CAA 13580,26 13582,07 13654,33 13362,40 1,64% -0,53% 11,32% Rendement CFG 158,53 158,35 159,65 157,25 0,70% -0,75% 9,46% Rendement _ ANNEXE 8 Page 4 of 6 NET ASSET VALUE PERFORMANCE Name of the As of As of Highest in Lowest in Over the last Since the Over the mutual fund 07/04/00 14/04/00 2000 2000 3 months beginning of last 12 the year months Avenir 12 371,10 12 375,69 12463,40 12 167:07 1,71% -0,70% 12,86% Obligation Oblig Plus 16 584,33 16 599,61 16779,58 15035,96 1,56% -0,31% 7,40% CIMR Iddikhar 252 340,61 252 616,37 252 616,37 248 798,90 1,53% 1,03% - Patrimoine 144,52 144,63 146,00 142,61 1,42% -0,94% 5,48% Obligations FCP 1 346,56 1 347,22 1 367,60 1-319,37 2,11% -1,49% 13,19% Oblipremière Sicav 330 234,67 330 438,75 330 438,75 326 281,82 1,21% 0,44% 10,67% Prévoyance Cap Régularité 1 697,32 1 698,36 1 698,36 1 676,94 1,28% 0,40% 9,88% CAT Valeurs 115 730,95 115 794,30 116 352,60 113 639,05 1,90% -0,48% 8,27% Cap Revenus 137,46 137,54 139,36 137,46 0,77% 0,74% 8,60% FCP Profil 111,72 111,66 112,51 110,92 0,64% -0,76% 9,38% Sérénité FCP Wafa 13317,19 13334,13 13613,23 12998,74 2,58% -2,05% 13,37% Assurance Securité Groupe 10838,73 10846,73 11 236,55 10607,12 2,26% -3,47% 7,44% MCMA/MAMD A Optimisation FCP 102,65 102,76 106,76 100,41 2,34% -3,75% - Oblidynamic FCP Oblifutur 108,42 108,49 108,49 107,18 1,22% 1,12% - FCP Maroc 1 231,66 1 227,81 1 232,52 1 221,58 0,33% -0,38% 13,07% Obligation Sicavenir 1 955,00 1956,07 1 996,51 1 936,60 1,01% -2,03% 10,29% Capital 1 095,09 1 095,55 1 143,50 0,02 -4,19% - - Rendement Capital Trésor 1 089,08 1 089,94 1 100,63 1 075,52 1,34% -0,97% - Capital 1 062,80 1 063,47 1 089,87 1 052.77 1,02% -2,42% - Institution Capital Imtiyaz 10736,49 10743,73 10743,73 10583,12 1,53% 1,27% - Sécurité Upline 1 118,29 1 119,67 1 147,65 1 101,37 -2,17% -2,06% - Rendement CIMR Ajial 256 783,73 257 034,86 257 034,86 253 525,65 1,28% 1,38% - Short term Bond funds CDM Cash 294 349,65 294 686,07 249 686,07 290 873,41 1,18% 1,26% 6,90% BMCI 1663 856,53 664 486,791 664 486,79 656 740,54 1,08% 1,13% 7,96% Trésorerie ANNEXE 8 Page 5 of 6 NET ASSET VALUE PERFORMANCE Name of the As of As of Highest in Lowest in Over the Since the Over the last mutual fund 07/04/00 14/04/00 2000 2000 last 3 beginning of 12 months mànths the year Irad 1 286,17 1 287,33 1 287,33 1 271,07 1,16% 1,24% 7,10% Capital 1 053,06 1 053,95 1 053,95 1 040,10 1,17% 1,28% - Dynamique CFG Liquidité 107,11 107,17 107,17 106,03 1,08% 1,00% 7,03% CFG Sécurité 1 250,13 1 251,00 1 251,00 1 235,71 1,11% 1,20% 6,32% FCP Cap 295 238,83 295 478,22 295 478,22 291 768,05 1,21% 1,27% 7,34% Institutions Cap Trésorerie 639 858,41 640 376,55 640 376,55 632 776,06 1,14% 1,20% 6,62% INMAA 277 397,95 277 645,91 277 645,91 273 845,14 1,36% 1,39% 6,84% Trésorerie UPLINE Cash 11 022,49 Il 034,84 11 034,84 10 887,56 0,38% 1,24% 7,02% Attijari 283 182,69 283 411,26 283 411,26 279 642,81 1,35% 1,01% 6,57% Trésorerie Attijari 10 661,39 10 669,32 10669,32 10521,97 1,40% 0,92% - Monétaire Plus Sicav SG 105826,40 105959,25 105959,25 100178,52 1,10% 1,16% 5,11% Valeurs AI Istitmar 280 764,95 280 996,33 280 996,33 276 912,00 1,46% 0,19% 10,21% chaâbi Trésorerie Stock Funds Attijari Actions 105,78 103,69 110,90 103,69 -6,50% -5,89% - Attijari 115,31 112,36 123,47 112,36 -9,00% -8,14% -2,68% Finances Corp Valeurs CAA 1 038,85 1 015,73 1 094,91 1 015,73 -7,23% -6,50% - Croissance Capital 104 470,98 102 045,89 112 688,61 102 045,89 -9,44% -8,44% -6,67% Performance Sicav SG 11 602,66 11 389,73 12448,51 10963,19 -5,42% -4,57% 1,67% Expansion AI lstitmar 10 719,05 10 485,04 11 731,51 10485,04 -10,62% -10,00% -13,50% Chaâbi Actions Maroc Valeurs 1 860,04 1 811,36 2007,66 1 811,36 -9,78% -8,97% -10,08% Capital Indice 917,01 896,15 987,12 896,15 -9,22% -8,69% - CapitaI.mtiyaz 10 284,74 10 077,09 10 542,94 9 959,53 -4,40% -4,01% - Expansion Capital 965,95 948,93 1 007,88 934,36 -5,47% -5,40% - Participation BMCI Epargne 1 864,15 1 815,13 2028,65 1 848,16 -10,18% -9,75% -9,29% Valeurs Inmaa 1 465,94 1 432,67 1 572,16 1432,67 -8,87% -8,07% -11,10% Croissance CFG 196,28 190,83 219,49 190,83 -12,80% -12,35% -17,34% Performance ANNEXE 8 Page 6 of 6 NET ASSET VALUE PERFORMANCE Name of the As of As of Highest in Lowest in Over the last Since the Over the last mutual fund 07/04/00 14/04/00 2000 2000 3 months beginning of 12 months the year Avenir 21 062,40 20 497,59 23 475,47 20 497,59 -12,69% -12,13% -17,56% performance Marocaine Vie 153,06 148,91 168,89 148,91 -11,83% -11,33% -14,89% Performance FCP Wafa 10 169,78 9 944,96 10755,18 9 944,96 -7,53% -6,82% -2,82% Assurance Optimisation Cap 1 797,18 1 749,12 1 961,15 1 749,12 -10,81% -10,25% -12,80% Opportunit6s Cap Al 1 510,42 1 480,01 1 620,26 1 480,01 -8,66% -8,39% -4,39% Moucharaka Patrimoine 182,47 177,72 197,90 177,72 -10,20% -9,62% -13,36% Actions FCP Profll 101,20 99,03 106,97 99,03 -7,42% -6,94% -4,86% Dynamique Sicav 9 112,65 8 889,69 9 637,32 8 889,69 -7,76% -7,32% -5,30% Palmarbs Financibres FCP Maroc 846,89 820,89 918,54 820,89 -10,63% -10,07% -15,12% Actions Faisal 829,67 812,80 881,23 812,80 -7,77% -7,32% -10,76% Investment Fund CDM 981,54 955,76 1 037,23 955,76 -7,85% -7,07% -8,80% Expansion I Upline Actions 827,83 805,76 899,39 805,76 -10,41% -9,42% -12,30% (1) Non commercialisd Source: L'Economiste Maroc.
Groupe de la Banque mondiale · Pre-2003 Economic or Sector Report
Morocco - Financial sector strategy note : Maroc - Note de stratégie du secteur financier
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Groupe de la Banque mondiale
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Pre-2003 Economic or Sector Report
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Maroc
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Banque mondiale