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Rabat – The financial sector is showing impressive resilience in the face of the health crisis, according to Bank Al-Maghrib
Morocco’s central bank issued a report on the country’s financial stability amid the pandemic. The reports indicate that over the last two years, most sectors have caused economic jolts which have tested the nation’s financial system, but it has proven resilient.
The insurance, banking, and capital market sectors are functioning well and have contributed to economic recovery, the report says. This can be attributed in part to government fiscal and monetary policies that support economic recovery.
Within the insurance sector the volume of premiums reached MAD 45.1 billion, resulting in a growth of 1%, an obvious 8.6% increase from 2019.
This growth, in a time of crisis, was enabled by the implementation of the compulsory plan to cover catastrophic incidents resulting in premiums of MAD 476.7 million in the insurance sector.
In the wake of the health crisis, the insurance sector suffered greatly from the contraction of the stock market.
Despite the good performance of the operating margin, the cumulative net income of insurance companies dropped by 21% to MAD 2.9 billion, mainly due to the fall of the financial balance.
The return on equity (ROE) also decreased by 2.3% to 7.3%.
The ratio of unrealized capital gains on investments deteriorated from 18.5% in 2019 to 13% in 2020.
The solvency margin has also declined, but remains well above the regulatory threshold.
With the transition to a prudential, risk-based solvency regime, the margin surplus is expected to fall noticeably.
The regime covers a wider range of risks the insurance sector is exposed to. Stress tests carried out show that insurance companies are resilient to shocks to their equity and real estate portfolios, and to adverse macro-economic and technical conditions.
On the other hand, the banking sector was adversely affected by the pandemic, as the economic shock strongly impacted its profitability and asset quality.
The cumulative net income of banks on commercial services fell by 43.2% to MAD 6.8 billion in 2020, the largest decline observed in the last decade.
The evolution results from a strong increase in the risk cost, that of 74.1%, totaling MAD 12.5 billion. This brings its share in the gross operating income to 47% after 28% the year earlier.
In addition to the high risk cost, there are occasional costs related to contributions to the Covid-19 special fund.
Regarding the quality of the banks’ credit portfolio, its deterioration was reflected by the significant increase of almost 14% in the volume of exceptional loans, totaling nearly MAD 80 billion, in addition to the default rate having increased to 8.2%, as opposed to 7.5% in 2020.
In terms of solvency, banks have shown resilience and compliance with regulatory requirements throughout the crisis. On a parent company level, the average capital adequacy ratio was 15.7% in 2020, compared with 15.6% one year earlier and 14.7% in 2018.
The economic projections of Bank Al-Maghrib dating to June 2021 confirm that Moroccan banks will continue to demonstrate their abilities to face the shock induced by the Covid-19 crisis.
This can be accredited to the banks following the central bank’s guidelines at the early days of the pandemic, such as capital buffers set by Bank Al Maghrib as well as the non-distribution of dividends.
When it comes to the pensions and social security sector, the main pension plans are experiencing a difficult financial situation, marked overall by the size of their indirect debts and by the exhaustion of their reserves over various projections.
The systemic pension reform, for which the study on the technical design of scenarios within the framework of a dual system (public and private) is at an advanced stage, will make it possible to establish not only a system of balanced pricing, but of recovering past commitments and restoring financial balances in the future as well.
According to the latest report on financial stability published by Bank Al-Maghrib, households and non-financial companies who have been hit by the health crisis will be at risk of financial instabilities in the future.
The pandemic is far from over, and as the Moroccan government imposes new restrictions amid a raging third wave, other economic sectors are particularly vulnerable. Despite slight declines in profitability and returns on investments, Moroccan financial sector is largely considered to remain stable.
