The banking system

31. The banking system dominates the financial system and consists of two subsectors. In May 2002, the Moroccan banking sector consisted of 19 banks divided into two subsectors, the first of which comprises 14 multipurpose banks (the “commercial banks”) and the second five “specialized banks.”³ The sector accounts for the bulk of financial system assets (60 percent, see Table 10), and plays a central role not only because of its size, but also because of its links with the other components of the financial system. Four commercial banks and four of the specialized banks (the “public banks”) are majority state-owned, while foreign shareholders hold majority stakes in five institutions (the “foreign banks”). The six others are private, domestically-owned banks. The banking population remained stable from 1997 to 2001, but since the second half of 2001, the long-term trend towards concentration has resumed. Two mergers took place in the final quarter of 2001 and two others are underway.⁴

32. Aggregate banking sector assets amounted to DH 345 billion, or 90 percent of GDP, at end-2001. The five specialized banks accounted for 18 percent of this amount, the public banks 43 percent, and the foreign banks 20 percent. Seven commercial banks, of which one is public and three are foreign, dominate the commercial banking subsector. Together, they hold 94 percent of commercial banking assets and 76 percent of total banking system assets. The three largest of them represent, by themselves, about one half of the total banking system on a number of measures.

33. The State continues to play an important role as a controlling shareholder of banks. The government controls, directly or indirectly, the largest commercial bank in terms of assets, three small commercial banks, and four specialized banks (the former OFS’s⁵). Overall, the public banking system represents 43 percent of total banking system assets. In addition, the State owns Caisse des Dépôts et de Gestion (CDG), an institution that has a dominant position in the management of institutional savings.

34. While the differences between foreign and domestic banks, or even between public and private banks, are not all that consistent, there is a marked dichotomy between the commercial and specialized banks. The basic activities of the commercial banks consist of collecting deposits and using these to provide loans—especially short-term loans to the private sector—and to invest in treasury bills. With the exception of the Crédit Populaire du Maroc (CPM), they target an exclusive clientele of middle and upper class customers. The specialized banks, by contrast, were established to provide long-term financing to certain priority sectors, in particular agriculture (CNCA), housing and tourism (CIH), local government (FEC), industry (BNDE), and the projects of Moroccans living abroad (Banque A1-Amal). As a result of this historically different focus, their balance sheets differ significantly from those of the commercial banks. On the liability side, the resources of the commercial banks consist essentially of customer deposits (83 percent of the total), whereas the specialized banks obtain their funds by issuing bonds underwritten by commercial banks or by the CDG⁶ (32 percent of their total resources) and by borrowing at long terms from international financial institutions (18 percent), while only 36 percent comes from deposits. As a result, the specialized banks’ cost of funds is significantly higher than that of the commercial banks (6.7 percent versus 2.5 percent in 2001), resulting in a much smaller interest spread (1.3 percent versus 4.2 percent). On the asset side, the specialized banks devote 76 percent of their balance sheet totals to lending activities, as against 44 percent for the commercial banks. Furthermore, while the credits of the former are mostly long-term (58 percent), 61 percent of those of the commercial banks are short term. Finally, the commercial banks invest a large proportion of their assets (24 percent) in fixed-income securities (essentially treasury bills), while such investments represent no more than 6 percent of the specialized banks’ assets. The combination of relatively high lending and low deposit collection results in a loan-to-deposit ratio that is much higher at the specialized banks (212 percent) than at the commercial banks (53 percent).

35. Customer deposits consist mostly of unremunerated demand deposits and low yielding liquid deposits. Non-interest bearing demand deposits represent almost half the total. Foreign currency deposits are marginal, at around 1 percent of total deposits.

Non-bank financial institutions

36. The CDG is a public, nonbank financial institution established to centralize and manage institutional savings. The CDG is financially autonomous and manages the assets of institutions such as the National Social Security Fund (CNSS) and the National Savings Bank (CEN). It also provides financial and administrative management of pension and insurance funds, is involved in economic development through equity investments, and conducts a variety of other public services and competitive commercial activities. With a balance sheet total of DH 34 billion (6 percent of the total financial system, see Table 10), it is a leading player in the financial sector. Its management is appointed by the government and consists mainly of (former) government officials. The CDG is not subject to any prudential supervision, but its accounts are audited by external auditors and by the National Audit Office.

37. The insurance sector holds 11 percent of financial system assets and comprises 18 companies, one of which is a government-controlled reinsurance company. Of the 17 regular insurance companies, 14 are private and three are mutually organized. The three largest companies—two of which belong to domestic financial conglomerates—dominate the system, although concentration indicators do not suggest excessive concentration. The assets of the sector totaled approximately DH 61 billion (17 percent of GDP) at the end of 2000, and its premiums amounted to three percent of GDP. The Central Reinsurance Corporation (SCR) receives a mandatory ten percent of all the premiums issued by Moroccan insurance companies and benefits from an unlimited State guarantee. The insurance sector is regulated and supervised by the Ministry of Finance (DAPS).

38. The Post Office (“Barid Al-Maghrib”) offers a range of financial services through its extensive branch network, but is not subject to the banking law. Alongside its traditional postal activities, it offers postal checking accounts (CCP), passbook savings accounts (organized as the CEN) and a number of other financial services. The management of the collected deposits is entrusted to the treasury (for CCP funds) and to the CDG (for CEN funds). The Post Office has a wide network of 1,563 service counters (serving smaller customers whom the banks seek to avoid) but, with 18 percent of passbook savings and 5 percent of checking accounts, it handles only a small proportion of the Kingdom’s savings.

39. The Moroccan pension system is composed of a large number of plans, but covers only a small part of the labor force. There is a wide range of pension schemes that differ from each other on a whole set of parameters (benefit formulas, contribution bases, vesting periods, contribution proportions, etc.). The schemes are managed by four public institutions and one association between public and private sector employers. Only the four public institutions are regulated and supervised, as no supervisory arrangements have been made for the public-private association. In spite of the variety in available pension plans, it is estimated that only 24 percent of the labor force participates in the system.

40. The mutual funds industry is relatively undeveloped and is characterized by its close ties to the banking sector. The mutual funds (OPCVMs) tend to serve wealthy customers and institutional investors. As a result of a shortage of profitable investment opportunities, partially due to the high concentration among listed groups, 85 percent of the assets managed by the mutual funds are invested in treasury securities, and they hold only 5 percent of the stock market’s capitalization. The sector is regulated and supervised by the CDVM.

41. Although the leasing sector in Morocco is one of the most developed in the region, it continues to be small within the financial system. Its main activity is the leasing of movable goods to companies. Close ties to the banking sector (eight out of nine companies are subsidiaries of banks) provide a reliable source of finance, and as a result more than half the leasing companies’ overall financing comes from bank loans. The sector is regulated by the MoF and supervised by the BAM.

42. The microcredit sector is relatively new, and comprises 12 approved microcredit associations (AMCs), some of which have experienced very rapid growth. The 4 largest AMCs account for 92 percent of the beneficiaries and 95 percent of the total activity of the sector. The law on microcredit authorizes lending operations and the provision of related services, but not the collection of savings or deposits. As a result, the AMCs need to finance themselves through grants, public subsidies, borrowing, interest and commissions charged on their lending operations, and charitable contributions from the public. The regulatory and supervisory framework for AMCs remains to be defined.

The offshore financial system

43. There are currently six offshore banks in Tangiers—all of which are associated with credit institutions active in Morocco—but their level of activity remains modest. The law permits the creation of offshore banks with a liberal legal status and without subjecting them to banking supervision. They are authorized to attract deposits and make loans in foreign exchange to nonresidents, free of exchange controls for non residents and while benefiting from tax advantages. The offshore banks are subject to certain regulatory provisions, which are to be monitored by the external auditors. However, those regulatory provisions have not yet been made specific through the issuance of regulations.

Risks related to the current system

58. Variations in agricultural production, the terms of trade, and competitiveness introduce volatility in the economy, which in turn affects the creditworthiness of borrowers. Erratic developments in agricultural production and international commodity prices are responsible for a volatile economic growth rate and increase uncertainty in financial decision-making. In addition, while the policy of pegging the dirham to a basket of currencies has provided a nominal anchor to the economy, it has led to variations in the real exchange rate and thus in competitiveness. Nevertheless, the real effective appreciation that occurred during the 1990s has been significantly reduced since 2001, and the external position has been further consolidated.

59. Remittances play an important role in the economy and the banking system, but their stability cannot be taken for granted. Remittances help finance the trade deficit, support domestic demand and account for a substantial part (27 percent) of deposits in the banking system. While these remittances have been stable in the past, driven by factors such as culture, family ties, and tax considerations, it cannot be excluded that economic or other developments in Morocco or Europe could trigger a decrease in remittance flows or—admittedly much less probable—even a reversal of those flows.

60. The prohibition on investing abroad limits the scope for diversification in investors’ portfolios. Private as well as institutional investors are restricted to investing in a very limited range of domestic assets. As a result, portfolios can only achieve a substantially less favorable optimization between risks and returns than what would be possible with the inclusion of foreign assets.

61. Government debt represents a substantial part of the financial system’s assets. Partly as a result of the authorities’ choice to replace foreign debt with domestic debt, public debt now accounts for 25 percent of the assets of the commercial banks, and 60 percent of those of institutional investors. As a result, the solvency and liquidity situation of the financial system is dependent on the authorities’ continued ability to service and roll over its debts, which depends on overall confidence in the authorities’ fiscal policy. The latter in turn could be affected by developments in the financial sector, as a result of the implicit and explicit contingent liabilities the authorities have vis-à-vis the sector (e.g., the fiscal costs of the rehabilitation of troubled banks). In addition, although the captive nature of domestic financing has been reduced with the elimination of liquidity requirements and some of the other forms of nonmarket based borrowing, the absence of alternative investments, in combination with state ownership of the main players on the T-bill market, continues to put the treasury in a privileged position as a borrower, which has implications for the profitability, diversity and profile of investors’ portfolios.

62. In addition, risks also arise from the transitional nature of the economy. A gradual reform process necessarily means that elements of the former economic system survive and keep on functioning alongside elements of the new system. That could present risks when such elements are not consistent with each other. In the financial sector, for example, risks could arise when the regulatory and supervisory arrangements, and the management and internal control systems of financial institutions, are not consistent with a higher-risk free-market context in which banks have access to developed financial markets.

Risks associated with the need for reform

63. In the medium to long run, the main macroeconomic risks are related to the dynamics of the economic liberalization process. Liberalization could weaken the quality of the financial system’s assets because Moroccan enterprises are insufficiently prepared for the competition from abroad and, indirectly, because the government budget could be weakened as a result of lower tax receipts. The financial system would also suffer if a precipitous opening of the capital account would lead to capital outflows and a balance of payments problem. A related challenge is the likelihood that the pegged exchange rate would become unsustainable after liberalization, and that many economic agents (including, perhaps, financial institutions) may be unprepared for an alternative regime, having adapted to the stability of the current environment. If the authorities decided to maintain the peg, it would need to be supported by monetary and fiscal policy, which in turn would likely lead to a greater volatility of the real economy, as the scope for setting macroeconomic policies as a function of domestic considerations would be diminished. Excessive delays in reform would represent other important risks. They would sap confidence, not only of domestic economic agents, but also of the foreign direct investors that have helped finance the balance of payments in recent years. It would also likely lead to a growing gap in technologies, development and know-how between Morocco and the rest of the world, increasing the eventual reform cost.

64. The long-term stability of the financial system depends upon Morocco’s successful transition toward integration into the global economy, which itself is dependent on a more balanced fiscal policy. Substantially reducing fiscal deficits (excluding privatization receipts) is critical for the financial system, in order to: (1) minimize the risk of arrears and debt servicing problems; (2) improve the sovereign risk profile and thus reduce the cost of financing for the public and private sectors on international capital markets; and (3) facilitate the financing of the private sector, by avoiding crowding out and high interest rates that could lead to short-term speculative capital inflows.

Cross-ownership of capital

69. Ownership links represent a potential channel for contagion within the public financial system. The past practice of calling upon public institutions to support troubled private financial institutions, has led to substantial exposure of the stronger public financial institutions to the weaker ones. This exposure has come both in the form of equity stakes and credits. Nevertheless, ownership links do not appear to pose a risk of contagion between the public and private financial systems, as there are few cases of cross-ownership between the two. The crossed equity interests of the public and private banks do not exceed 2 percent (see Table 12), and remain limited even if the public nonbank institutions are included.

70. While banks hold equity stakes in a range of nonbank financial institutions, potential contagion is limited by the small value of these stakes in the banks’ books. The private financial system is characterized by the dominance of the banks, which hold major equity interests in the other components of the system. Thus, banks hold 54 percent of the capital of the mutual fund management companies (OPCVMs) and about 57 percent of the capital of the financial leasing companies. As a result, problems in these other components could, in principle, affect the banks. However, these equity stakes only account for a small portion of total bank assets, limiting the risks.

71. The importance of financial conglomerates within the private financial sector holds risks. The three largest groups hold an estimated 25 percent of the capital of the private banks, 22 percent of the mutual fund management firms, 30 percent of the leasing companies, and 58 percent of the insurers. Hence, even if ownership links within these groups at present do not appear to be important on the banks’ balance sheets, there is a risk that when problems would arise, they could quickly spread throughout a financial group, as the healthy parts are called upon to support the weaker parts. At present, the main potential channel of contagion within these groups is between the insurance and banking sectors.

Operational links

72. Risks of contagion through the interbank market, debt instruments and bank loans appear small given the low volume and value of transactions. As of end-September 2001, for example, total interbank exposure among Moroccan banks was only about two percent of the aggregate total assets of the banking system. Exposure between financial institutions through debt instruments and bank lending is in practice small, although there is a certain degree of credit provision through debt instruments and bank loans (see Table 13), mainly from the banks and the mutual funds to leasing companies, which often reflects the cross-ownership ties that exist between these institutions.

Financial soundness

73. The banking system’s financial soundness indicators reveal that the commercial banking sector is globally healthy and growing but that the specialized banking system is in dire straits (see Table 14). The most important factors that might threaten the overall stability of the system include the large amounts of nonperforming loans, the downward trend of interest spreads, the commercial banks’ reliance on demand deposits (especially by nonresidents), and the insufficient solvency of the specialized banks. The factors that support the stability of the system include the sustained strong growth of customer deposits, the soundness of the commercial banks, the diversity of the commercial banks’ loan portfolios, and the limited financial links between the banks (see also section IV.A).

74. The solvency situation of the commercial banking system is generally comfortable, but that of the specialized banking system is precarious. According to data supplied by the BAM, the capital adequacy ratio of the banking system was 12.5 percent at end-June 2002 (see Table 14), well above the prudential threshold of 8 percent. However, this healthy figure is entirely due to the commercial banking system, the solvency of which stands at 15.3 percent. By contrast, the specialized banks average a solvency ratio of just 1.5 percent, in spite of the fact that two of them benefited from recapitalization operations during 2000–2001. In fact, two of the specialized banks were insolvent at the end of June-2002, as were three small public commercial banks.⁷

75. The banking system suffers from large amounts of nonperforming loans (NPLs), which are concentrated at the specialized banks (See Table 16). The net amount of NPLs (after provisions) on the balance sheets of the specialized banks amounted to 20 percent of total assets at end-September 2002, as compared to only two percent at the commercial banks (see Table 14). This difference is the result of a combination of a much higher gross level (gross NPLs amount to 36 percent of gross loans at the specialized banks, against 11 percent at the commercial banks) and inadequate provisioning at the specialized banks (where provisions amount to 40 percent of gross NPLs, against 70 percent at the commercial banks).⁸ The NPL problems are aggravated by the long delays in the recovery of claims through the courts, a factor which affects commercial and specialized banks alike.

76. Exposure and asset concentration indicators do not reveal major problems, although the concentration in financial sector ownership represents a risk. BAM data show that large exposures represent 148 percent of the banks’ equity capital (which is below the European prudential limit of 800 percent) and that connected lending totals 29 percent (see Table 14). It should be noted, however, that these figures do not fully take into account the impact of conglomerates, whose weight in the economy could result in risk concentration and connected lending being underestimated. Indeed, a sizable proportion of the large exposures concerns a single private conglomerate, which could constitute a factor of systemic vulnerability.⁹ Nevertheless, in terms of sectoral exposure, the banking system’s loan portfolios appear relatively well diversified. Thirty-eight percent of loans are to miscellaneous services businesses, 19 percent to construction and public works (including residential mortgage loans), 16 percent to the manufacturing sector, 11 percent to agriculture, and 9 percent to the commercial sector. Loans in foreign exchange are negligible, at 1 percent of total lending. Off-balance sheet exposure are predominantly trade-related. Since there are no derivatives markets in Morocco, and capital controls prevent banks from taking sophisticated off-balance sheet positions, the risks related to exposures appear limited.

77. Moroccan banks generally appear to be well managed, with private domestic banks in particular pursuing conservative policies. However, the quality of management in the banking sector is impaired by government interference in its own banks, the noncompetitive appointment of managers, relatively undeveloped relations with foreign banks, and by educational constraints in Morocco, particularly in the areas of management, finance, and economics. Most of the large private banks benefit from the presence of foreigners on their boards of directors, but foreigners are not usually to be found at the day-to-day management level, except in the foreign banks. Publicly held banks are often run by managers recruited from the ranks of the civil service. As their banking experience is often very limited, this policy is not without risk.

78. Management efficiency indicators show that expenses, including personnel expenditure, are being kept under control; they are either stable or declining. Overall expenditure has varied between 45 and 50 percent of gross earnings during the past five years (see Table 14). While the number of employees is increasing, this is happening at a slower rate than the growth in assets and branches, suggesting gains in productivity. As a result, revenues per employee are on an upward trend. One risk factor is the strong growth in the number of branches (5–7 percent per year over the past five years). The risk, which has not yet materialized, is that this “competition through branch network growth” would bring costs to a level that is unsustainable for the size of the market, at a time when liberalization would attract lean and efficient foreign or start-up institutions into the market.

79. The banks are generally audited by at least two statutory auditors. The accounts of the large private commercial banks are audited by Moroccan branches of international accounting firms. The auditing standards applied are normally those of the accounting profession in Morocco, which are largely inspired by IAS (see section VI.G.).

80. Despite increased competition and declining interest rate spreads, the profitability of the commercial banking system has been both comfortable and stable over the past five financial years, while the specialized banks suffered significant losses. The commercial banks’ return on assets was a remarkably stable 1.1 percent during the past five years, generating a return on equity of between 12.5 and 13.5 percent (see Table 14). Thanks to an increase in commission and fee revenues and good control of operating costs, the overall profitability of the commercial banking system was maintained in spite of declining interest rate spreads. The specialized banks, by contrast, have suffered significant losses since 1998, brought about primarily by a drastic reduction in the assessed quality of their loan portfolios.

81. The interest margin represents the bulk of profits, and is supported by the importance of unremunerated demand deposits. Profitability analysis reveals that the interest margin represents 84 percent in the net banking product of the system (Appendix Table 2), and even almost 90 percent at the specialized banks. Other sources of income, which consist mainly of commissions, remain limited. The analysis further shows the importance of the interest on the government debt in the earnings of the commercial banks, and indicates that the lack of profitability at the specialized banks is the result of a combination of high operating costs and provisions and a low interest margin (see section II.A., para. 34). Interest rate spreads, in particular at the commercial banks, have benefited from the importance of unremunerated demand deposits as a source of funding, but they have been on a downward trend, fueled by an increase in interest rate competition and by an overall decrease in the level of interest rates in the economy, which has reduced spreads over unremunerated demand deposits.

82. The availability of a large and steadily growing pool of deposits requiring little or no remuneration is currently one of the major strengths of the financial system, but is unlikely to last. Since 1992, deposits have grown constantly, at an average of 11 percent per year and a minimum annual growth rate of five percent. The banking system has benefited greatly from this, both in terms of profitability and liquidity. However, that leaves the banks vulnerable to changes in this pattern of rising free deposits. Experience from other countries shows that such a situation cannot be sustained in the long term as the financial system develops, and a wider range of competing financial assets becomes available.

83. The liquidity position of the banking system appears satisfactory, but structural vulnerabilities exist. Demand assets represent 4.5 percent of the banking system’s balance sheet total, or 12 percent of its demand obligations. Adding in short-term realizable assets, such as treasury bills and short-term loans, raises this ratio to 137 percent, which appears comfortable. Nevertheless, a sudden massive withdrawal of demand deposits, triggered for example by a crisis of confidence or a premature opening of the capital account, would likely create severe liquidity problems, requiring the BAM to refinance a large part of the banks’ holdings of treasury bills. If monetary or exchange rate policy considerations would prevent it from doing so, the stability of the banking system could be threatened. Commercial banks would be particularly vulnerable in this regard, given their reliance on demand deposits. The situation of the specialized banks is somewhat different. On the asset side, the specialized banks do not have substantial reserves of treasury bills, their loans tend to be longer term, and a fifth of their balance sheet totals is tied up in the form of (net) nonperforming loans. On the liability side, however, their resources are more stable in the short run, because demand deposits represent only 16 percent on average of their balance sheet totals, as compared to 41 percent at the commercial banks. However, in the medium term, they do face a rollover risk related to their borrowing operations.

Vulnerabilities and stress tests

84. Stress tests indicate that the main vulnerabilities to which the banking system is exposed are credit risk, margin risk and, to a lesser extent, transformation risk. The stress tests conducted during the FSAP missions were based on end-2001 data reported by the banks to the BAM. Hence, the validity of the stress test findings is contingent on the reliability of those data. As noted above (see Section I.A., para. 12), there are several factors that could affect data reliability. In addition, it is important to note that stress tests look into the situation of financial institutions at a particular point in time, and that the findings are therefore only valid in the short term.

85. The main vulnerability facing the banking system is that of credit risk (see Table 18). This said, the stress tests do not suggest any immediate solvency risk for the commercial banking system as a whole, even if several major, mostly foreign-owned, commercial banks run the risk of seeing their solvency ratios fall below the prudential threshold of 8 percent in the event of a shock of even medium-sized proportions. For example, a shock in which 15 percent of performing loans are classified, and 50 percent of classified loans are downgraded to the next lower classification category, would reduce the solvency ratio of the commercial banking system to 11.6 percent. At the specialized banks, credit risk has already materialized, and the tests show that these banks remain highly vulnerable in the event of further deterioration in the quality of their portfolios. The same shock as mentioned above would reduce the solvency ratio of the specialized banks to -3.6 percent. Stress test simulations of sector-specific shocks show no major vulnerabilities at the level of the commercial banks, thanks to the wide sectoral diversification of their loan portfolios. In contrast, the specialized banks are extremely vulnerable to shocks specific to their areas of activity. Stress tests for eight different severe sectoral shocks indicate that the greatest impact on the banking system would result from a crisis in the area of government finance (i.e., domestic arrears), followed by a crisis in manufacturing, a crisis in the construction industry and real estate, and a crisis in export sectors.¹⁰ In contrast, the banks’ loan portfolios generally appear less vulnerable to shocks hitting the phosphates sector, agriculture, remittances or tourism.¹¹

86. Further declines in interest rate spreads would put profitability under pressure. Interest rate spreads have declined steadily over the past five years (see Table 14), and stress tests indicate that a further fall of 100 basis points would, everything else equal, lower the return on equity of the commercial banks from 13.4 percent to 6.5 percent. While tests were not meaningful for the loss-making specialized banks, their potential to return to profitability would be further reduced in a context of lower spreads.

87. The banks are also exposed to transformation risk. As discussed above, the banking system relies heavily on short-term resources, part of which it invests in long-term loans or treasury bills. Other assets are tied up in the form of nonperforming loans and short-term credits, which are in practice not always redeemable in the short-term.¹² The commercial banks appear to be vulnerable as a result of the fact that demand deposits account for 41 percent of their balance sheet totals. Transformation risk can materialize in two forms, interest rate risk and liquidity risk.

88. Interest rate risk appears contained. From the perspective of the banking system as a whole, it is estimated that fixed-rate assets exceed fixed-rate liabilities by an amount equivalent to 21 percent of the balance sheet value. Variable-rate assets exceed variable-rate liabilities by an amount equivalent to 12 percent of the balance sheet value. These spreads between assets and liabilities are financed by unremunerated liabilities—essentially demand deposits. This implies that there is not really any rate risk aside from the margin risk described above, provided that demand deposits continue to be stable and unremunerated.

89. The simulations also indicate that there is no systemic risk of short-term liquidity problems, as long as the BAM stands ready to refinance the banks’ treasury bills. By refinancing their treasury bills most banks would be able to withstand an almost immediate withdrawal of 20 percent of passbook savings, 25 percent of demand deposits, and 100 percent of interbank deposits.¹³ The only two major banks that would not have sufficient treasury bills have controlling foreign shareholders that could provide liquidity support. Nevertheless, if structural reforms or other factors were to provoke a structural downturn in demand deposits, liquidity problems could result in the medium term.

90. The importance of treasury bills on the commercial banks’ balance sheets implies a high level of vulnerability for the hypothetical risk of a sovereign default. In 2002, the largest monthly installment payment on treasury bills was equivalent to more than 1.8 times the annual profits of the banking sector and 1.8 percent of all deposits. This vulnerability is concentrated in the commercial banking sector, 24 percent of whose assets are public debt instruments, as against only 6 percent for the specialized banks.

91. The commercial banking system does not appear to be vulnerable to exchange rate risk, whereas the specialized banks are exposed to such risk because of their borrowing abroad.¹⁴ Tests indicate that a five percent devaluation would result in a small net loss, on average, for the commercial banks, and a net loss at the specialized banks equivalent to 0.7 percent of their assets. In contrast to a few years ago, the State now only covers a portion of exchange rate losses of the specialized banks, but this coverage is not taken into account in these tests. The tests also only measure direct exchange rate risks related to the banks’ own exposures to foreign exchange. Indirect exchange rate risk stemming from private borrowers’ balance sheets is considered to be negligible given the small share of foreign currency denominated loans in total loans (about 1 percent, see Table 14). Nevertheless, the government is exposed to foreign exchange risk through its external debts, and as a result, banks’ portfolios of loans and public debt could be affected indirectly by a foreign exchange shock, through the impact on the government budget.

Regulation and supervision

101. Although the banking sector’s prudential framework has been significantly strengthened in recent years, additional measures of a legislative, regulatory, and organizational nature will be necessary within Bank Al-Maghrib (BAM) to improve observance of the Basel Core Principles for Effective Banking Supervision. During the past few years, the regulatory and supervisory framework has, in fact, improved. A new bank chart of accounts was introduced, regulations on internal control were adopted, and certain prudential rules have been amended or introduced, including on external audit. In addition, the entry into force in 2001 of a regulation on financial penalties should enable BAM to exert greater pressure on supervised institutions so that future infringements of the major prudential rules, including those relating to loan classification and provisioning, would be punishable by a specific fine. In spite of this progress, however, important weaknesses remain, including the limited independence of bank supervision, the lack of efficiency of on-site and off-site supervision, the weaknesses of the AML framework and shortcomings in the regulations on loan loss provisioning.

102. Further improvements are necessary to enhance the effectiveness of banking supervision. In terms of supervision strategy, it is essential that BAM reach decisions on the respective roles to be played by off-site inspections, on-site inspections, and external auditing. At the institutional level, the reform of the banking law, which is currently under discussion, should clearly emphasize the independence of the BAM vis-à-vis the MoF in respect of preparing prudential and supervisory regulations. In the legal and regulatory area, the loan classification and provisioning system would benefit from a revision aimed at gaining a better understanding of the real risks to which credit institutions are exposed. The BAM’s powers to apply coercive measures (authority to forbid the distribution of dividends, etc.) also need to be enhanced, and crisis management mechanisms should be reconsidered (see below). Operationally, effective supervision requires staffing increases and staff quality improvements. Finally, as regards the internal organization of BAM’s Credit Institution Directorate, priority should be given to formalizing procedures for analyzing the overall position of all banks with external auditors.

Guarantee and crisis management procedures

103. While the Moroccan authorities have a range of legal tools at their disposition to address banking crises, these are unsatisfactory. The authorities have so far succeeded in avoiding the liquidation of problem institutions and preventing contagion, despite difficulties experienced by several public and private banks. They have done so by intervening directly, injecting budget funds (DH 2.27 billion for CIH and CNCA between 1998 and 2001), but above all indirectly, by guaranteeing bonds issued by problem institutions and by providing financial support (bond purchases and contributions to equity) through government-controlled institutions (CDG and BCP). Although this approach may have succeeded in preventing liquidations, it is far from satisfactory.

104. The detection, diagnosis and management of banking sector difficulties have been hampered by a dearth of supervisory resources, past delays in applying penalties, and a fragmentation of responsibilities. Responsibilities are shared between the Minister of Finance, the governor of the BAM, and, on an advisory basis, the Credit Institutions Committee, resulting in slow and difficult decision-making. In many areas the final decision rests with the Minister of Finance, which introduces an undesirable political dimension in dealing with problems in a banking system that aspires to be predominantly private but where public institutions remain important.

105. The authorities’ role in the resolution of banking crises has been less than transparent and often excessive. Thus: (i) the market solidarity mechanism forces healthy banks to support their poorly managed competitors and discourages foreign investment in the Moroccan financial system; (ii) the Minister of Finance’s right to order the Deposit Guarantee Fund to lend money to a problem institution (see below) entails the risk that funds that are intended to protect depositors could be lost; (iii) the practice to use public financial institutions to shore up problem institutions risks spreading and deepening banking system problems rather than resolving them; (iv) the five-year exemption from prudential rules granted recently to a number of troubled public institutions (without a specific schedule for their gradual return to observance of standards at the end of the five year exemption period) erodes the supervisor’s authority and creates distortions in competition; and (v) transparency is also called into question by the capital and management ties that exist between the BAM and the public financial institutions.¹⁷

Deposit guarantee

106. The banking law has created a Deposit Guarantee Fund, which is managed by the BAM and financed by annual contributions from the banks, based on their level of deposits. The Fund is not a legal entity, but simply an account opened on the books of the BAM, which invests the funds in treasury bills. The estimated value is DH1.8 billion, and no withdrawals have been made since it was opened. By decision of the Minister of Finance, the Fund can cover deposits made by individuals or legal entities up to a limit of DH50,000 (US$4,400) per depositor, with no particular restriction. It can also, subject to the existence of a recovery plan and after consultation with the Credit Institutions Committee, grant reimbursable assistance to troubled institutions.

107. This mechanism could be substantially improved. In particular, it would be useful to: (i) clarify the manner in which depositors are to be indemnified; (ii) transfer the decision to use the Fund to the governor of BAM; (iii) keep the banks informed on a regular basis of the Fund’s financial position; (iv) eliminate the possibility of using the fund to grant advances so as to avoid the risk of finding the Fund depleted of resources in the event of a bank failure; and (v) reform the structure of the Fund, making it a legal entity and entrusting its management to the banks themselves, with strict rules for the use of its resources.

Background

129. The BAM has the power to exercise on-site and off-site supervision over the activities of credit institutions and their subsidiaries, and over their compliance with laws and regulations. The BAM is also empowered to issue directives and general circulars to enforce certain provisions of the banking law and its regulations. In this context, the BAM has a particular responsibility to establish the conditions for enforcement of decrees by the Minister of Finance relating to the activities of credit institutions and their supervision. The granting and revocation of licenses is in the hands of the Minister of Finance, although the Credit Institutions Committee must be consulted in these cases. The Moroccan legal system has undergone profound changes in recent years. Several laws have been amended (the law on corporations, the commercial code, the competition law, etc.). At the same time, efforts have been made to streamline the operations of the courts, in particular with the creation of the commercial courts in 1997. The commercial registries have yet to be reformed and financial legislation must still be harmonized.

Objectives, independence, powers and resources (principle 1)

131. While the BAM has a key role as the supervisory authority, the MoF retains extensive powers over licensing, regulation, and penalties. A clarification of the respective roles of the BAM and the MoF, with a view to strengthening the independence of the BAM, is now under consideration as part of a review of the banking law. The draft law would also redefine the roles of the Credit Institutions Committee and the Credit Institutions Commission, whereby the first body (CEC) would be responsible for licensing and regulation, and the second (CDEC) would have exclusive authority over disciplinary questions.

132. In terms of human resources, a cutback in recruitment in recent years has left the banking supervision department of the BAM (DCEC) with a shortage of staff and an unbalanced age structure. In effect, there are only about 30 staff members available for supervising 21 banks and 50 finance companies. On the other hand, steps have recently been taken to equip the DCEC with adequate equipment and computer resources.

Licensing and structure (principles 2–5)

133. Licensing procedures are largely consistent with the Basel principles. Licensing applications are processed by the CEC, which then advises the Minister of Finance on the decision to be taken. The Law also requires approval, under the same conditions, for any merger or takeover. The MoF may refuse to grant a license, despite a favorable opinion of the CEC. On the other hand, the MoF is bound by that advice if it is unfavorable or recommends certain conditions. The decision to revoke a license also rests with the MoF.

Prudential regulations (principles 6–15)

134. The regulatory and prudential framework has been improved substantially in recent years. Several laws have been introduced or amended. Other initiatives now under way should strengthen prudential control significantly.

135. With the regulations on internal controls that were adopted in 2001 (principle 14), the BAM should now overhaul supervisory conditions for credit institutions, to pay more attention to their operations and governance. Until now, off-site supervision has focused primarily on audits of accounts, while on-site inspections have been essentially limited to examining the loan portfolio and the adequacy of provisioning.

136. There are plans to reform regulations dealing with the classification and provisioning of loans (principle 8).

137. Because staff shortages limit the frequency of on-site inspections, external auditors (principle 14) were expected to play the role of “delegated supervisors” [“auxiliaires de supervision”], although the specific responsibilities associated with this function, and the manner in which it was to be performed, were never clearly defined. Now that, according to a draft circular, the role of external auditors is to be strengthened, it is essential to define clear objectives setting out the conditions under which the prudential authorities intend to conduct their work.

138. In terms of money laundering (principle 15), there is no specific legislation governing the participation of financial institutions in combating financial crime. However, in October 2001 Morocco adopted resolution No. 1373 of the U.N. Security Council on combating the financing of terrorism. Furthermore, a committee consisting of representatives of the MoF, the BAM and the Foreign Exchange Office has been made responsible for proposing measures in this area. The circular on internal controls (Articles 68 and 69) requires credit institution managers to take proper precautions and measures to prevent their institutions from being involved in any way in financial transactions related to unauthorized activities and, more generally, to prevent any situation from arising that might tarnish their reputation or that of the banking sector.

Methods of ongoing banking supervision (principle 16–20)

139. The BAM is responsible for both on-site and off-site supervision (principle 16). Due to staff shortages, on-site inspections tend to have limited objectives and are conducted only infrequently (every five or six years, on average). With the recent introduction of a new chart of accounts, the DCEC is currently working to establish evise supervisory procedures consistent with the new environment, so as to make maximum use of the information collected (principle 18).

140. The circular on internal controls, as well as the circular now being finalized on external audits, should help to reform the architecture of the overall prudential supervision system. In terms of supervisory strategy, these circulars affect the functions of off-site inspection, on-site inspection and external auditing (principle 19). Inspectors will now be responsible for assessing the quality of internal controls and the work of external auditors. Finally, given the demands that these regulations entail, the BAM will have to intensify its contacts at different levels of bank management as well as with the external auditors (principle 17).

141. With the adoption of the chart of accounts and the rules on consolidation for financial institutions, the DCEC has changed its internal organization in order to supervise banking groups on a consolidated basis (principle 20).

Information requirements (principle 21)

142. The adoption and introduction of a new chart of accounts for banks has allowed credit institutions to rationalize their information systems, and has enabled the BAM to adapt its own processing systems. This should lead to improvements in the reliability of information and supervision procedures.

Formal powers of supervisors (principle 22)

143. The BAM has wide legal powers (principle 22) to force banks to take the necessary measures to comply with prudential regulations to protect depositors. The most severe penalties (restriction of activities, revocation of licenses, appointment of provisional administrators) are pronounced by the Minister of Finance, on the recommendation of the governor of the BAM, and with the advice of one of the two advisory bodies (CEC and CDEC). In the case of problems with state-owned banks (e.g. OFS), the BAM’s action may be hindered in some circumstances by its lack of independence. The adoption in 2001 of financial penalties should allow the BAM to exert stronger pressure on banks, since violations of prudential regulations will now result in the imposition of penalties. The revisions to the banking law should also equip the BAM with a broader range of tools for action.

Overview of the institutional and macroprudential environment and market structure

150. The Moroccan insurance and reinsurance industry consists of 18 companies, of which 14 are private corporations, three are mutual companies and one is state-owned. Of these 18 companies, 10 are active in life insurance as well as non-life insurance, three are engaged only in non-life insurance, two engage only in assistance transactions (one in life insurance, the other in credit insurance), and the last is a reinsurance company.

151. The Central Reinsurance Corporation (SCR), the only Moroccan reinsurer active in international reinsurance markets, was created in 1960 and is owned 95 percent by the CDG, the Caisse de Dépôt et de Gestion (CDG). The SCR is not supervised by the DAPS. The government provides it with an unlimited guarantee. Moreover, the assistant director of the DAPS is a member of the SCR’s board of directors. It is legally entitled to ten percent of all the premiums written by Moroccan insurers. For the fiscal year ending December 31, 2000, insurance companies ceded about 20 percent of written premiums to reinsurers. In the same year, reinsurers ceded about 14 percent of written premiums—representing DH1.4 billion—to the SCR. This amount included optional and contractual reinsurance, in addition to the legal transfer often percent.

152. The SCR earned a profit in 2000 and 2001, but it suffered operating losses in 1998 and 1999, which were absorbed by the realization of exceptional earnings from the transfer of securities and by booking capital gains on real property. The SCR was exposed to insurance claims in connection with September 11, for which it recorded losses of DH 54 million in 2001. Despite this, it managed to earn a profit.

153. The Moroccan insurance market has consolidated considerably over the last six years. In 1995, decrees issued by the MoF ordered the liquidation of five bankrupt companies, and in 2000, there were two major mergers.

154. The insurance industry in Morocco is now highly concentrated: two major financial groups, held nearly 52 percent of the shares of insurance companies at the end of 2001.

155. There are three types of insurance intermediaries in Morocco: agents, brokers, and direct offices. The only difference between an agent and a broker in Morocco is that the agent represents the insurance company or companies to which he is under contract, while the broker represents the client. The new insurance code will reduce to two the number of insurers that an agent may represent. The number of agents stood at 508 in 2001. There were 184 brokers. Some brokers and agents got together in 1994 to form the National Federation of Insurance Agents and Brokers in Morocco (FNACAM), but it does not speak for all intermediaries.

Prerequisites for Effective Insurance Supervision

156. The standards governing accounting and auditing for private firms in Morocco are based primarily on the principles and procedures of France and the European Union (fourth directive on annual financial statements, 1978). Major modifications were introduced a few months ago. Among these are a new commercial accounting framework and measures for enhancing the professional status of auditors. Implementation of the new standards is at the preliminary stage.

157. The financial sector and the business sector as a whole underwent a period of liberalization and reform in Morocco during the 1990s, particularly with respect to legislation and regulations. The current regulatory framework for the insurance industry is based on two laws: (a) the Decree of September 6, 1941, on insurance, reinsurance and capitalization activities, which constitutes the general framework for government activity in the insurance sector; and (b) the decree of November 28, 1934, on insurance contracts. Other laws also affect activities in this sector, including the decree implementing the law of October 9, 1977, on the presentation of insurance transactions and on the status of insurance agents.

158. There is currently a legal loophole with respect to insurance activities by banks. This has allowed the banks to compete with insurance companies, with the tacit approval of the authorities. This situation is supposed to be regulated in the forthcoming insurance code, a draft of which is now before parliament.

159. Under that draft code, no single shareholder may hold more than 50 percent of the capital of an insurance company. The new rules, if adopted, would pose a serious problem that could undermine the development and health of the insurance industry, particularly in terms of competition and capitalization. The ceiling may be justified on the grounds that it prevents the company from being controlled by a single shareholder. However, this new restriction could have perverse effects, by giving rise to undeclared share transfers where the assignor retains ownership as a means of circumventing the legal limits. This situation could also conflict with the obligation of the reference shareholder to come to the rescue of the company with further capitalization in case of difficulties.

160. The new draft code also requires the joint-and-several liability of insurers in cases of coinsurance. While such a rule might appear logical, it runs the risk of limiting the coinsurance market since, if one of the partners defaults, the other coinsurers’ liability will exceed the originally contracted limits.

161. The insurance industry complains that the mechanisms introduced by the new code are unmanageable, particularly when it comes to coinsurance and the ceiling imposed on capital structure. The industry has also criticized the way the authorities have gone about finalizing the code and presenting it to parliament without consulting the industry properly.

162. The system of business governance in Morocco follows that of French civil law. The question of business governance in Morocco has been the focus of great debate, particularly in terms of providing adequate protection for minority shareholders in the administration of companies. There has been significant progress on the legislative front, in particular the preparation and review of essential legislation such as Law SA 17/95 which provides the framework for the governance of corporations and a growing awareness of the importance of sound business governance, as a means both of ensuring corporate responsibility and of encouraging the development of capital markets and investment. The next stage will be to bridge the gap between legislation and practice.

Regulatory framework

168. Regulatory responsibility for the securities market lies primarily with the MoF and the CDVM. The CDVM was established by Decree-Law No. 1-93-212 of September 21, 1993, with the objective of protecting investors in securities and proposing the necessary measures for this purpose.

169. The CDVM is responsible for ensuring that corporations accepting funds from the public provide information in a manner consistent with existing laws and regulations. The CDVM is also responsible for supervising securities markets and for helping the government in matters related to regulation of these markets.

170. The MoF is responsible for regulating the securities market, and must in particular approve the specifications [Cahier de Charges] of the Stock Exchange, the statutes of the Central Depository, and the general regulations [Règlement Général] of those two institutions. The MoF is also responsible for licensing securities market intermediaries. The CDVM is essentially responsible for supervising securities market intermediaries, such as the Stock Brokerage Companies and the Collective Investment Schemes (OPCVMs) and approving the information disclosed to the public by savings-taking corporations and by OPCVMs. The Bank Al-Maghrib is responsible for supervising credit institutions, which represent the vast majority of securities-custody institutions and which play the role of depository for the assets of the OPCVMs.

171. The two central entities of the market, the Casablanca Stock Exchange and the Central Depository (Maroclear) fall under the direct control of the MoF. The CDVM is not responsible for their supervision.

Market structure

172. The Casablanca Stock Exchange, one of the oldest securities markets in Africa, was created in 1929. Since then it has undergone several structural reforms. The last one, which dates to 1993, was part of a broader reform of the securities market that established the current regulatory and technical frameworks. The Casablanca Stock Exchange has the second-highest capitalization, after that of Egypt, of any in North Africa and the Middle East.

173. The 1993 reform was based on three laws that govern the activities of the regulatory body (CDVM), of the Casablanca Stock Exchange and of the mutual funds. In 1997, a fourth law regulated the Central Depository for the securities markets (Maroclear). Trading activity is managed and supervised by the Casablanca Stock Exchange Corporation [Société de la bourse de valeurs de Casablanca, SBVC], a limited liability company owned entirely by the brokerage firms active on the exchange, which acts as a cooperative body and has been granted an indefinite management concession.

174. Apart from shares, a limited number of public and private bonds are quoted on the Casablanca Stock Exchange, but their total market value and the volume of bonds traded are relatively low.

175. Brokerage companies, licensed by the MoF, have a monopoly on transactions at the Casablanca Stock Exchange. There are 13 such firms. In addition to trading transactions, they are engaged in securities safekeeping, the placement of corporate issues, portfolio management and advisory services.

176. Following a reorganization of the stock exchange in 1993, stock prices and trading volumes rose steadily until the end of 1998, when the turnaround in investment flows sparked a downward trend that has not yet been reversed. The rising prices and trading volumes in the mid-1990s were encouraged by reforms that simultaneously strengthened the demand for equities and their supply. On the demand side, the creation of mutual funds helped to channel a portion of household savings into the stock market, while on the supply side the privatization policy, which was based on public offerings and private placements, led to the issuance of new equity shares. Structural reforms were strengthened by the concomitant upsurge in foreign portfolio investment in emerging markets, which was reversed by the Asian crisis of 1997.

177. At the end of 2001, the Casablanca Stock Exchange listed 53 companies (compared to 54 in 1999), with a total capitalization of DH104.7 billion (compared to DH138.1 billion in 1999). Transaction volume fell even more significantly, from DH94.3 billion in 1999 to DH26.7 billion in 2001. The market is highly concentrated, as the five largest companies account for 47 percent of the market’s capitalization, and the five most heavily traded shares represent 54 percent of trading volume.

Context

188. The Moroccan payment system can be characterized by the following elements: (i) cash payments occupy a pre-eminent position, because of the low rate of banking penetration; (ii) paper instruments (checks and notes) are dominant; (iii) the number of payment cards in circulation is significant, but the lack of compatibility between the four processing centers severely limits the use of payment cards; (iv) checks, money orders and notes are exchanged in 20 clearing houses and require each bank at each presentation site to have sufficient cash on hand to cover clearance balances; (v) settlement times are satisfactory for on-site clearance, but are not in line with the needs of a modern economy for off-site clearance; (vi) with respect to large-value transactions (currency and financial markets, clearing house balances, securities transactions), procedures for recording transactions are not integrated and much information must be transferred on paper, by fax or telex; and (vii) there are plans to establish an integrated network for real-time clearance, but the timing of this move has yet to be determined.

189. Because manual procedures are used, and because of the way the BAM is involved in the system, the situation described above does not pose any systemic risk in practice. However, it is unsatisfactory in terms of efficiency of clearance and settlement, and it is holding back development of the financial sector, particularly the retail banking sector. Furthermore, it does little to promote greater use of banking services among the public or to diminish reliance on cash transactions, which pose costs and risks for all economic agents.

190. Two major projects are being undertaken to overhaul the infrastructure of Morocco’s payment systems. These two projects are the Moroccan Interbank Tele-Clearance System (SIMT), which became operational in June 2002, and the Interbank Electronic Payments Center (CMI), which is scheduled to become operational during the first half of 2003.

191. There is a need for better coordination among players and projects, however, on two major points: (i) defining policy and supervisory responsibilities for payment systems within the BAM; and (ii) coordination and consultation with all participants in establishing a plan to overhaul the infrastructure of the payment system over the medium term.

The identification of a systemically important payment system

192. In the context described above, there is, stricly speaking, no systemically important payment system to which the core principles can be applied. Given the state of progress of the SIMT, which is supposed to handle all media of payment and was expected to handle about 70 percent of the flows of funds within the country as of June 2002, it was agreed with the BAM to focus the assessment on the SIMT as it is to be implemented, while including the settlement procedures of the BAM associated with the SIMT.

Legal and institutional framework: overview

193. According to Article 37 of its statutes, the BAM “may take any initiative to facilitate the movement of funds, and to see to the creation and functioning of clearing houses.” There is no explicit mention of overall surveillance of payment systems, and in practice the BAM performs only operational functions (functioning of the clearing houses and settlement system). Thus, there is no department or office in charge of designing and implementing policy and supervision or maintaining an overview of the payment system. Nevertheless, there has been coordination involving several directorates and departments of the BAM (Inspection, Internal Audit, Credit Institutions Supervision, Computerization, Legal) through its Directorate General, in the course of developing the SIMT project. There is a need for a multidisciplinary entity to oversee the responsibilities described in the core principles.

194. The Central Bank assumes the operational function of managing the 20 regional clearing houses. The Casablanca branch plays an essential role here: it clears 70 percent of transactions, and it is responsible for centralizing advances to cover debit balances of other clearing houses. It also handles interbank transfers to cover the banks’ current accounts, settles clearing operations of the Casablanca clearing house and the SIMT, and securities transactions, etc.

Recommendations

195. The BAM’s statutes are vague about its role in the payment system. The current revision of these statures should include adding an article specifying the BAM’s supervision role, to the effect that “the BAM ensures the proper functioning and security of payment systems, both those managed by the BAM and those managed by external public or private entities.”

196. It was mentioned several times that coordination among the players responsible for proper functioning of the payment system could be improved. It would be desirable therefore to create a National Payments Council (representing all players concerned) to determine reforms in this area, and to monitor and evaluate their implementation. This council should be charged with preparing a plan for the overall modernization of payments infrastructure and for identifying the composition and reporting relationship of the entities that will oversee the implementation of such a project.

197. The BAM does not have a unit responsible for payment system policy and supervision. Along with clarification in its statutes of its role and its policy and supervision duties, establishment of a multidisciplinary department in charge of these issues within the BAM would help to improve policy formulation, oversight of modernization projects, and supervision over the new systems (SIMT and CIM). These new provisions should be published on the BAM’s website.

Table 5.

Action Plan for Improving Observance of the Core Principles for Systemically Important Payment Systems

Table 5.

Action Plan for Improving Observance of the Core Principles for Systemically Important Payment Systems

Core principle	Recommended actions
I. The system should have a well-founded legal basis under all relevant jurisdictions.	Basic questions requiring technical and legal attention:
VIII. The system should provide a means of making payments, which is practical for its users and efficient for the economy.	Procedures and schedule for extending the system to the whole country, with gradual abolition of the clearing houses other than that of Casablanca. Procedures and schedule for eliminating paper exchanges and retaining evidence in case of litigation. Legalization of electronic proof (signatures, files, non-repudiation etc.). Coverage and protection for the system against debit balances of a size that cannot be covered at the end of the day, so as to eliminate any risk of non-settlement in case of liquidity crisis.
	Design and implementation of a plan for reform and comprehensive modernization of the infrastructure of payment systems and instruments.
II. The system’s rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it. V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlement in the event of an inability to settle by the participant with the largest single settlement obligation. Responsibility A. The central bank should clearly define its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems. Responsibility D. The central bank, in promoting payment system safety and efficiency through the core principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities.	Banks’ cash positions are not centralized and financial institutions have no information on those positions even at the end of the day; the BAM sets no limit on the Net Buyer Position (PONA) of Maroclear for the large banks in the delivery-against-payment procedure, a fact that limits the scope for effective risk management by the BAM and the treasurers of financial institutions. The precarious condition of some banks requires adequate protection mechanisms (collateralization fund for example) that limit the risks to participants in the system, especially to the BAM. The new BAM statutes should specify its guidance, management and surveillance responsibilities for payment systems. The creation of a payment systems unit within the BAM would facilitate the formulation of policies and objectives. Moreover, there should be greater consultation and coordination between the BAM and financial institutions on the modernization of the payment systems as a whole. A National Payments Council should be established, in which the major players and beneficiaries of the system (BAM, banks, economic transactors, consumers etc.) would establish strategic guidelines and an overall reform plan including the projects now under way. Political and technical monitoring of these projects should be conducted at the highest level and with maximum transparency.

View Table

Table 5.

Action Plan for Improving Observance of the Core Principles for Systemically Important Payment Systems

Core principle	Recommended actions
I. The system should have a well-founded legal basis under all relevant jurisdictions.	Basic questions requiring technical and legal attention:
VIII. The system should provide a means of making payments, which is practical for its users and efficient for the economy.	Procedures and schedule for extending the system to the whole country, with gradual abolition of the clearing houses other than that of Casablanca. Procedures and schedule for eliminating paper exchanges and retaining evidence in case of litigation. Legalization of electronic proof (signatures, files, non-repudiation etc.). Coverage and protection for the system against debit balances of a size that cannot be covered at the end of the day, so as to eliminate any risk of non-settlement in case of liquidity crisis.
	Design and implementation of a plan for reform and comprehensive modernization of the infrastructure of payment systems and instruments.
II. The system’s rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it. V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlement in the event of an inability to settle by the participant with the largest single settlement obligation. Responsibility A. The central bank should clearly define its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems. Responsibility D. The central bank, in promoting payment system safety and efficiency through the core principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities.	Banks’ cash positions are not centralized and financial institutions have no information on those positions even at the end of the day; the BAM sets no limit on the Net Buyer Position (PONA) of Maroclear for the large banks in the delivery-against-payment procedure, a fact that limits the scope for effective risk management by the BAM and the treasurers of financial institutions. The precarious condition of some banks requires adequate protection mechanisms (collateralization fund for example) that limit the risks to participants in the system, especially to the BAM. The new BAM statutes should specify its guidance, management and surveillance responsibilities for payment systems. The creation of a payment systems unit within the BAM would facilitate the formulation of policies and objectives. Moreover, there should be greater consultation and coordination between the BAM and financial institutions on the modernization of the payment systems as a whole. A National Payments Council should be established, in which the major players and beneficiaries of the system (BAM, banks, economic transactors, consumers etc.) would establish strategic guidelines and an overall reform plan including the projects now under way. Political and technical monitoring of these projects should be conducted at the highest level and with maximum transparency.

Preface

200. This assessment of practices on transparency in monetary policy in Morocco was conducted by Messrs. Fernando Delgado and Laurent Bouscharain²⁰ in the context of the February and May 2002 FSAP missions for Morocco. The assessment is based primarily on the statutes of the BAM (Decree No. 1.59.2.33 of 30/6/1959), the banking law (Decree No. 1.93.147 of 6/7/1993), BAM publications, information available on the BAM website including its bulletins, discussions with BAM executives, and responses to questionnaires submitted to the Moroccan authorities. The assessment reflects the situation as of May 2002. Any legal or regulatory changes since then may affect the continued validity of its findings and conclusions.

Legal and institutional framework - overview

201. Decree No. 1.59.2.33 of 30/6/1959 establishes and specifies the statutes of the central bank, and Decree No. 1.93.147 of 6/7/1993 on the banking law establishes and specifies certain powers of the BAM.

Main findings and recommendations

Table 6.

Main Findings of the Assessment of Observance of the Code of Good Practices on Transparency—Monetary Policy

Table 6.

Main Findings of the Assessment of Observance of the Code of Good Practices on Transparency—Monetary Policy

Subject	Main Findings
I. Clarity of Roles, Responsibilities, and Objectives of Central Banks for Monetary Policy.	The law does not clearly specify whether it is the government or the central bank that sets exchange rate policy and, if responsibility is shared, what the exact role of the central bank is. Also, the legislation is not clear in assigning priority to BAM’s objective of maintaining domestic monetary stability, over and above its other responsibilities.
II. Open Process for Formulating and Reporting Monetary Policy Decisions.	The BAM does not publish the minutes of its monetary policy board’s meetings, and monetary policy decisions are not analyzed or explained in the BAM’s regular publications on monetary developments. The criteria for appointing and removing the governor and board members are not spelled out.
III. Public Availability of Information on Monetary Policy.	Despite efforts to disseminate information, the public is not necessarily well informed about monetary policy, because institutional responsibilities, objectives, procedures and even certain operations are not explicitly formulated, but are part of a public affairs management culture in which a fairly transparent administrative structure coexists with informal decision-making structures.
IV. Accountability and Assurances of Integrity by the Central Bank.	Central bank accounts are not audited, except by the government controller’s office. Objectives and results of the BAM’s monetary policy management are presented to the King, but they are not presented to and discussed with the parliament.

View Table

Table 6.

Main Findings of the Assessment of Observance of the Code of Good Practices on Transparency—Monetary Policy

Subject	Main Findings
I. Clarity of Roles, Responsibilities, and Objectives of Central Banks for Monetary Policy.	The law does not clearly specify whether it is the government or the central bank that sets exchange rate policy and, if responsibility is shared, what the exact role of the central bank is. Also, the legislation is not clear in assigning priority to BAM’s objective of maintaining domestic monetary stability, over and above its other responsibilities.
II. Open Process for Formulating and Reporting Monetary Policy Decisions.	The BAM does not publish the minutes of its monetary policy board’s meetings, and monetary policy decisions are not analyzed or explained in the BAM’s regular publications on monetary developments. The criteria for appointing and removing the governor and board members are not spelled out.
III. Public Availability of Information on Monetary Policy.	Despite efforts to disseminate information, the public is not necessarily well informed about monetary policy, because institutional responsibilities, objectives, procedures and even certain operations are not explicitly formulated, but are part of a public affairs management culture in which a fairly transparent administrative structure coexists with informal decision-making structures.
IV. Accountability and Assurances of Integrity by the Central Bank.	Central bank accounts are not audited, except by the government controller’s office. Objectives and results of the BAM’s monetary policy management are presented to the King, but they are not presented to and discussed with the parliament.

202. Clarification of the BAM’s ultimate objective would help prioritization and enhance accountability. The BAM is entrusted with several responsibilities under its current charter, and seems to give priority to supporting the government’s policy objectives rather than to defending monetary stability. The necessary clarification would also have to specify whether monetary stability is understood to refer to domestic or external stability.

203. The law should be more precise in defining the authority in charge of exchange rate policy. The present legal framework gives neither the MoF nor the BAM an explicit mandate to set exchange rate policy. In practice, however, the exchange regime is decided by the minister of finance in consultation with the governor of the BAM, and he BAM is responsible for the day-to-day implementation of exchange rate policy.

204. A prohibition on direct BAM participation in the capital or management of financial institutions would eliminate potential conflicts of interest. The current statutes allow for such participation without specifying any purpose or criteria. The coming review of the BAM’s statutes is expected to address this issue.

205. Systematic assessment of the results of monetary policy, compared with government objectives, would allow the public to judge the BAM’s performance. The macroeconomic analysis found in the BAM’s annual report could be tied more systematically in the BAM’s monthly and quarterly reports, and be enhanced with analysis of the impact on the prospects for the central bank’s pursuit of its policy objectives, as announced annually in the CNME’s report. This would help the public to understand better the reasons and thought process behind monetary policy decisions and, implicitly, foreign exchange policy decisions.

206. Better defined and more transparent criteria for appointing and removing members of the BAM’s board of directors would enhance its independence and credibility. The lack of transparency in the removal criteria may be seen as a source of influence over the BAM that could reduce its independence and its credibility with the public.

207. The BAM’s role in the handling and resolution of banking crises should be clarified. Although its statutes do not expressly require it to act as lender of last resort (except for overnight advances collateralized by treasury bills), in the event of a systemic risk or shortfall in resources of the Deposit Guarantee Fund, it is unlikely that the BAM would fail to assist illiquid institutions. The division of responsibilities between the MoF and the BAM in this regard could also be clarified.

208. Transparency in the BAM’s management could be enhanced by institutionalizing arrangements for public accountability. For example, the governor could present and explain the results of the BAM’s policies before a public session of parliament; internal control standards and criteria could be made public; the rules governing managers and employees of the BAM in the conduct of their private financial affairs could be strengthened by including supervision mechanisms and sanctions in the BAM’s personnel regulations; and the BAM could publish the nature of the legal defense that it would use in case of lawsuits against an employee in the exercise of his duties.

209. The code of good practices on transparency recommends that central bank accounts be audited by an independent auditor, preferably one outside of the government. In Morocco, BAM accounts are audited only by the government controller.

Table 7.

Recommended Actions to Improve the Transparency of Monetary Policy

Table 7.

Recommended Actions to Improve the Transparency of Monetary Policy

Subject	Main Findings
I. Clarity of Roles, Responsibilities, and Objectives of Central Banks for Monetary Policy.	Specify responsibilities for exchange rate policy.
	Specify that the ultimate objective of monetary policy is internal stability of the currency.
	Specify or exclude BAM participation in the capital or management of private financial institutions.
II. Open Process for Formulating and Reporting Monetary Policy Decisions.	The BAM could consider publishing the minutes of the Monetary Policy Board and, more generally, adding more analysis and explanations to its regular publications.
	The criteria for removal of the governor and members of the Monetary Policy Board should be specified and made public.
III. Public Availability of Information on Monetary Policy.	Strengthen the analytic and explanatory content of the BAM’s monthly and quarterly publications.
IV. Accountability and Assurances of Integrity by the Central Bank.	The central bank’s accounts should be audited systematically, preferably by an authority independent of the government.
	The governor of the BAM should present the objectives and results of monetary policy management to parliament.

View Table

Table 7.

Recommended Actions to Improve the Transparency of Monetary Policy

Subject	Main Findings
I. Clarity of Roles, Responsibilities, and Objectives of Central Banks for Monetary Policy.	Specify responsibilities for exchange rate policy.
	Specify that the ultimate objective of monetary policy is internal stability of the currency.
	Specify or exclude BAM participation in the capital or management of private financial institutions.
II. Open Process for Formulating and Reporting Monetary Policy Decisions.	The BAM could consider publishing the minutes of the Monetary Policy Board and, more generally, adding more analysis and explanations to its regular publications.
	The criteria for removal of the governor and members of the Monetary Policy Board should be specified and made public.
III. Public Availability of Information on Monetary Policy.	Strengthen the analytic and explanatory content of the BAM’s monthly and quarterly publications.
IV. Accountability and Assurances of Integrity by the Central Bank.	The central bank’s accounts should be audited systematically, preferably by an authority independent of the government.
	The governor of the BAM should present the objectives and results of monetary policy management to parliament.

Authorities’ response

210. The authorities were asked to comment on this evaluation, and several of their suggestions have been incorporated.

211. The authorities consider that the present definition of the objective of monetary policy in the statutes of the BAM and the mechanism for discussing the annual objectives of the BAM within the CNME constitute a sufficient guarantee for monetary stability.

212. The authorities stressed the progress that has already been made in disengaging the BAM from the private financial sector and noted that the amendments now being made to its statutes make specific provision for such divestiture.

213. Finally, the authorities expressed reservations about the recommendation to present the results of monetary policy to parliament. They fear that such a provision could have harmful consequences for the BAM’s independence.

Preface

214. This assessment of observance of the Code of Good Practices on Transparency in Monetary and Financial Policies with respect to financial policies in Morocco was carried out as part of the FSAP mission that took place in May 2002. The assessment summarizes detailed assessments that covered the following agencies and responsibilities: the BAM, in its capacity as agency responsible for banking supervision; the MoF/DAPS, in its capacity as agency responsible for insurance oversight; the CDVM, as agency responsible for securities regulation; and the BAM, in its capacity as agency responsible for payment systems oversight.

215. This assessment is based primarily on the statutes of the BAM, the banking law, BAM publications, information available on the BAM Web site including its bulletins, discussions with BAM executives, and responses to questionnaires submitted to the Moroccan authorities. The assessment reflects the situation as of May 2002, and does not take into account any legal or regulatory changes that may have happened since that date.

Legal and institutional framework—overview

216. The Credit Institutions Supervisory Directorate (DCEC) is the administrative unit of the BAM responsible for supervising the banks in Morocco. Regarding insurance and financial markets, independent agencies (DAPS and CDVM respectively) have been given supervisory responsibilities. Regarding payment systems, BAM performs only operational functions. Namely, according to Article 37 of its statutes, the BAM “may take any initiative to facilitate the movement of funds, and to see to the creation and functioning of clearing houses.”

Main findings

Table 8.

Summary of Main Findings of Assessment of Observance of Transparency Code Principles - Financial policies

Table 8.

Summary of Main Findings of Assessment of Observance of Transparency Code Principles - Financial policies

Subject	Main findings
V. Clarity of Roles, Responsibilities and Objectives of Financial Agencies Responsible for Financial Policies	Financial supervision could be undermined by fragmented responsibilities between the supervisory body and the policy authority (MoF) or external institutions. Regarding payment systems, BAM is given a broadly defined mandate and has therefore no permanent internal structure to establish guidelines or monitor performance and results in this area.
VI. Open Process for Formulating and Reporting Financial Policies	Reporting of financial policies appear to be generally satisfactory since all relevant legislation is published in Morocco’s Official Journal (Bulletin Officiel). However the process for policy formulation is largely limited to the BAM and MoF with only limited consultation of parties interested in changes in the regulation.
VII. Public Availability of Information on Financial Policies.	Information on bank and financial market supervision is readily accessible. The main weakness regarding availability of information pertains to the insurance sector, for which the annual report of the Insurance and Social Welfare Directorate (DAPS) is generally published late. This delay not only hinders a proper evaluation of firms in the sector, but also limits the public’s ability to evaluate of the prudential and supervisory arrangements for the sector.
VIII. Accountability and Assurance of Integrity by Financial Agencies.	Regarding bank supervision and payment systems, the BAM submits an annual report to the King, which is made public afterward. Regarding financial market and insurance supervision, the supervision agencies report to the MoF. Those reports present fairly aggregated financial statements of the financial agencies, which limits their financial transparency.

View Table

Table 8.

Summary of Main Findings of Assessment of Observance of Transparency Code Principles - Financial policies

Subject	Main findings
V. Clarity of Roles, Responsibilities and Objectives of Financial Agencies Responsible for Financial Policies	Financial supervision could be undermined by fragmented responsibilities between the supervisory body and the policy authority (MoF) or external institutions. Regarding payment systems, BAM is given a broadly defined mandate and has therefore no permanent internal structure to establish guidelines or monitor performance and results in this area.
VI. Open Process for Formulating and Reporting Financial Policies	Reporting of financial policies appear to be generally satisfactory since all relevant legislation is published in Morocco’s Official Journal (Bulletin Officiel). However the process for policy formulation is largely limited to the BAM and MoF with only limited consultation of parties interested in changes in the regulation.
VII. Public Availability of Information on Financial Policies.	Information on bank and financial market supervision is readily accessible. The main weakness regarding availability of information pertains to the insurance sector, for which the annual report of the Insurance and Social Welfare Directorate (DAPS) is generally published late. This delay not only hinders a proper evaluation of firms in the sector, but also limits the public’s ability to evaluate of the prudential and supervisory arrangements for the sector.
VIII. Accountability and Assurance of Integrity by Financial Agencies.	Regarding bank supervision and payment systems, the BAM submits an annual report to the King, which is made public afterward. Regarding financial market and insurance supervision, the supervision agencies report to the MoF. Those reports present fairly aggregated financial statements of the financial agencies, which limits their financial transparency.

Recommendations

Table 9.

Recommended Plan of Action for Improving Transparency of Financial Policies

Table 9.

Recommended Plan of Action for Improving Transparency of Financial Policies

Subject	Recommended action
I. Clarity of Roles, Responsibilities and Objectives of Financial Agencies Responsible for Financial Policies	Clarify the distribution of responsibilities between the BAM and the minister of finance and clearly define the supervisory duties that external auditors are expected to perform in the area of banking supervision.
	Reform the legislation defining the CDVM’s actions to enhance their effectiveness by reducing the fragmentation of responsibilities.
	The MoF should publish the means by which it is held accountable for its insurance supervisory activities.
	The statutes of the BAM should specify its objectives as they relate to the payment system, and should assign responsibility to a single structure.
II. Open Process for Formulating and Reporting Financial Policies	Clarify the distribution of banking supervisory responsibilities between the BAM and the minister of finance and reinforce consultation and publicity.
	Establish a formal and transparent consultation process with interested parties when changes are made to financial market regulations.
	Enhance the annual report and publish it more promptly, to provide the industry a better understanding of the objectives of insurance supervision and information relative to the structure of fees charged to insurance companies for supervision.
	If established, the permanent authority in charge of payment systems should announce its objectives and explain its activities.
III. Public Availability of Information on Financial Policies.	The annual report of the BAM should provide greater detail on the objectives and achievements of banking supervision policy.
	The CDVM should publish information more frequently.
	The DAPS ought to publish a more detailed report that better reflects its own accounts as well as the situation of the insurance sector.
	Payment systems-related legislation could be made more accessible.
IV. Accountability and Assurance of Integrity by Financial Agencies	Public reporting on banking supervision policy could be strengthened.
	The CDVM should publish financial statements in sufficient detail and have them audited by an authority independent of the government. The CDVM should be accountable for its management of financial market policy, for example to an open session of parliament.
	The insurance supervisory body should be accountable for its prudential policy and its own financial management to bodies other than the MoF.

View Table

Table 9.

Recommended Plan of Action for Improving Transparency of Financial Policies

Subject	Recommended action
I. Clarity of Roles, Responsibilities and Objectives of Financial Agencies Responsible for Financial Policies	Clarify the distribution of responsibilities between the BAM and the minister of finance and clearly define the supervisory duties that external auditors are expected to perform in the area of banking supervision.
	Reform the legislation defining the CDVM’s actions to enhance their effectiveness by reducing the fragmentation of responsibilities.
	The MoF should publish the means by which it is held accountable for its insurance supervisory activities.
	The statutes of the BAM should specify its objectives as they relate to the payment system, and should assign responsibility to a single structure.
II. Open Process for Formulating and Reporting Financial Policies	Clarify the distribution of banking supervisory responsibilities between the BAM and the minister of finance and reinforce consultation and publicity.
	Establish a formal and transparent consultation process with interested parties when changes are made to financial market regulations.
	Enhance the annual report and publish it more promptly, to provide the industry a better understanding of the objectives of insurance supervision and information relative to the structure of fees charged to insurance companies for supervision.
	If established, the permanent authority in charge of payment systems should announce its objectives and explain its activities.
III. Public Availability of Information on Financial Policies.	The annual report of the BAM should provide greater detail on the objectives and achievements of banking supervision policy.
	The CDVM should publish information more frequently.
	The DAPS ought to publish a more detailed report that better reflects its own accounts as well as the situation of the insurance sector.
	Payment systems-related legislation could be made more accessible.
IV. Accountability and Assurance of Integrity by Financial Agencies	Public reporting on banking supervision policy could be strengthened.
	The CDVM should publish financial statements in sufficient detail and have them audited by an authority independent of the government. The CDVM should be accountable for its management of financial market policy, for example to an open session of parliament.
	The insurance supervisory body should be accountable for its prudential policy and its own financial management to bodies other than the MoF.

Authorities’ response

217. The authorities were asked to provide comments on this assessment. Those comments have been incorporated into the final version of the report. There are no remaining points of significant disagreement.

Table 10.

Structure of the Financial System, End-2001 ^1/

Sources: Banque al-Maghrib and staff calculations.

^1/In the case of the insurance sector, the data refer to end-2000.

^2/At end-2000, mere were 30 mutual fund management companies managing 141 funds.

^3/The number of institutions refers to the situation as of end-2000.

^4/The number of institutions refers to pension plan management institutions.

Table 10.

Structure of the Financial System, End-2001 ^1/

			Number of institutions	Assets (in billions of dirhams)	In percent of total	In percent of GDP
Banks			19	344.9	59.7	88.9
	Private banks		11	203.8	35.3	52.6
	Public banks		8	141.1	24.4	36.4
	Specialized banks		5	63.5	11.0	16.4
CDG			1	35.0	6.1	9.0
Insurance			18	61.0	10.6	15.7
Mutual funds		2/	157	45.5	7.9	11.7
Financial leasing companies		3/	9	10.4	1.8	2.7
Pension funds		4/	5	55.0	9.5	14.2
Post Office			1	8.1	1.4	2.1
Consumer credit		3/	28	17.5	3.0	4.5
Total			238	577.5	100.0	148.9

Sources: Banque al-Maghrib and staff calculations.

^1/In the case of the insurance sector, the data refer to end-2000.

^2/At end-2000, mere were 30 mutual fund management companies managing 141 funds.

^3/The number of institutions refers to the situation as of end-2000.

^4/The number of institutions refers to pension plan management institutions.

View Table

Table 10.

Structure of the Financial System, End-2001 ^1/

			Number of institutions	Assets (in billions of dirhams)	In percent of total	In percent of GDP
Banks			19	344.9	59.7	88.9
	Private banks		11	203.8	35.3	52.6
	Public banks		8	141.1	24.4	36.4
	Specialized banks		5	63.5	11.0	16.4
CDG			1	35.0	6.1	9.0
Insurance			18	61.0	10.6	15.7
Mutual funds		2/	157	45.5	7.9	11.7
Financial leasing companies		3/	9	10.4	1.8	2.7
Pension funds		4/	5	55.0	9.5	14.2
Post Office			1	8.1	1.4	2.1
Consumer credit		3/	28	17.5	3.0	4.5
Total			238	577.5	100.0	148.9

Sources: Banque al-Maghrib and staff calculations.

^1/In the case of the insurance sector, the data refer to end-2000.

^2/At end-2000, mere were 30 mutual fund management companies managing 141 funds.

^3/The number of institutions refers to the situation as of end-2000.

^4/The number of institutions refers to pension plan management institutions.

Table 11.

Morocco: Overview of Regulatory and Supervisory Responsibilities, 2001

Source: IMF and World Bank staff, on the basis of information provided by the authorities.

^1/Not all pension systems are regulated and supervised.

^2/The supervisory arrangements for the microcredit companies are not in place yet.

Table 11.

Morocco: Overview of Regulatory and Supervisory Responsibilities, 2001

Institution	Regulator		Supervisor
Banks	BAM		BAM
Insurance companies	MoF		MoF
SCR	Government		Government
CDG	MoF		-
Pension system	MoF/-	1/	MoF/-	1/
Post office	-		-
Microcredit companies	MoF		(MoF)	2/
Mutual funds (OPCVMs)	MoF		CDVM
	CDVM
Brokerages	MoF		CDVM
	CDVM
Leasing companies	MoF		BAM
Consumer finance companies	MoF		BAM
Casablanca stock exchange	MoF		MoF
Treasury bill market	BAM		BAM
	CDVM		CDVM
Corporate bond / TCN market	BAM		BAM
	CDVM		CDVM
Payment system	-		(BAM)
Maroclear	MoF		MoF
Offshore banks	BAM		-

Source: IMF and World Bank staff, on the basis of information provided by the authorities.

^1/Not all pension systems are regulated and supervised.

^2/The supervisory arrangements for the microcredit companies are not in place yet.

View Table

Table 11.

Morocco: Overview of Regulatory and Supervisory Responsibilities, 2001

Institution	Regulator		Supervisor
Banks	BAM		BAM
Insurance companies	MoF		MoF
SCR	Government		Government
CDG	MoF		-
Pension system	MoF/-	1/	MoF/-	1/
Post office	-		-
Microcredit companies	MoF		(MoF)	2/
Mutual funds (OPCVMs)	MoF		CDVM
	CDVM
Brokerages	MoF		CDVM
	CDVM
Leasing companies	MoF		BAM
Consumer finance companies	MoF		BAM
Casablanca stock exchange	MoF		MoF
Treasury bill market	BAM		BAM
	CDVM		CDVM
Corporate bond / TCN market	BAM		BAM
	CDVM		CDVM
Payment system	-		(BAM)
Maroclear	MoF		MoF
Offshore banks	BAM		-

Source: IMF and World Bank staff, on the basis of information provided by the authorities.

^1/Not all pension systems are regulated and supervised.

^2/The supervisory arrangements for the microcredit companies are not in place yet.

Table 12.

Shareholdership of Selected Components of the Moroccan Financial System September 2001

Source: Staff calculations on the basis of data provided by the Moroccan authorities.Note: The table presents the shareholdership of selected (groups of) financial institutions, as listed in the column headings. The shareholding agents are listed in the row headings. All numbers are expressed in percent of the total outstanding shares of the share-issuing institutions.

Table 12.

Shareholdership of Selected Components of the Moroccan Financial System September 2001

		Banks	Private Bk	Public Bk	CDG	Insurance	OPCVM	Leasing
Gov/BAM		25.2	4.2	52.6	100.0	0.0	0.0	0.0
Banks		***	4.0	12.1	0.0	7.8	58.9	62.8
	Private Bk	2.5	***	2.2	0.0	7.1	54.3	56.8
	Public Bk	11.7	1.3	***	0.0	0.7	4.6	6.0
CDG		8.8	1.2	18.7	***	0.6	11.0	0.9
Insurance		8.8	16.9	0.9	0.0	***	0.0	15.5
OPCVM		0.6	1.1	0.0	0.0	0.0	***	0.0
Leasing		0.0	0.0	0.0	0.0	0.0	0.0	***
Domestic
agents		23.4	35.5	7.7	0.0	48.9	21.8	15.4
Foreign		20.9	30.7	8.1	0.0	8.5	8.3	5.5

Source: Staff calculations on the basis of data provided by the Moroccan authorities.Note: The table presents the shareholdership of selected (groups of) financial institutions, as listed in the column headings. The shareholding agents are listed in the row headings. All numbers are expressed in percent of the total outstanding shares of the share-issuing institutions.

View Table

Table 12.

Shareholdership of Selected Components of the Moroccan Financial System September 2001

		Banks	Private Bk	Public Bk	CDG	Insurance	OPCVM	Leasing
Gov/BAM		25.2	4.2	52.6	100.0	0.0	0.0	0.0
Banks		***	4.0	12.1	0.0	7.8	58.9	62.8
	Private Bk	2.5	***	2.2	0.0	7.1	54.3	56.8
	Public Bk	11.7	1.3	***	0.0	0.7	4.6	6.0
CDG		8.8	1.2	18.7	***	0.6	11.0	0.9
Insurance		8.8	16.9	0.9	0.0	***	0.0	15.5
OPCVM		0.6	1.1	0.0	0.0	0.0	***	0.0
Leasing		0.0	0.0	0.0	0.0	0.0	0.0	***
Domestic
agents		23.4	35.5	7.7	0.0	48.9	21.8	15.4
Foreign		20.9	30.7	8.1	0.0	8.5	8.3	5.5

Source: Staff calculations on the basis of data provided by the Moroccan authorities.Note: The table presents the shareholdership of selected (groups of) financial institutions, as listed in the column headings. The shareholding agents are listed in the row headings. All numbers are expressed in percent of the total outstanding shares of the share-issuing institutions.

Table 13.

Credit Exposures Between Components of the Moroccan Financial System, September 2001

(In percent of assets)

Source: Staff calculations on the basis of data provided by the Moroccan authorities.Note: The table presents the exposure of selected (groups of) financial institutions to other institutions. The exposed institutions are presented in the column headings, and the exposures in the row headings. All numbers are expressed as a percentage of the exposed institution’s assets.

Table 13.

Credit Exposures Between Components of the Moroccan Financial System, September 2001

(In percent of assets)

		Banks	Private Bk	Public Bk	CDG	Insurance	OPCVM	Leasing
Gov/BAM		7.6	9.7	0.9	0.1	0.0	0.0	0.0
Banks		***	1.8	1.6	0.5	3.0	11.9	8.3
	Private Bk	1.3	***	NA	0.3	2.9	11.7	8.2
	Public Bk	0.5	NA	***	0.2	0.1	0.2	0.2
CDG		0.0	0.0	0.0	***	NA	NA	0.0
Insurance		0.3	0.4	0.0	0.0	***	NA	0.0
OPCVM		0.4	0.6	0.0	0.7	18.6	***	1.2
Leasing		1.5	1.6	1.3	0.0	NA	NA	***
Treasury Bills		19.7	25.4	1.7	58.0	67.0	58.2	5.0
Foreign		2.1	2.6	0.3	0.0	NA	0.0	0.0

Source: Staff calculations on the basis of data provided by the Moroccan authorities.Note: The table presents the exposure of selected (groups of) financial institutions to other institutions. The exposed institutions are presented in the column headings, and the exposures in the row headings. All numbers are expressed as a percentage of the exposed institution’s assets.

View Table

Table 13.

Credit Exposures Between Components of the Moroccan Financial System, September 2001

(In percent of assets)

		Banks	Private Bk	Public Bk	CDG	Insurance	OPCVM	Leasing
Gov/BAM		7.6	9.7	0.9	0.1	0.0	0.0	0.0
Banks		***	1.8	1.6	0.5	3.0	11.9	8.3
	Private Bk	1.3	***	NA	0.3	2.9	11.7	8.2
	Public Bk	0.5	NA	***	0.2	0.1	0.2	0.2
CDG		0.0	0.0	0.0	***	NA	NA	0.0
Insurance		0.3	0.4	0.0	0.0	***	NA	0.0
OPCVM		0.4	0.6	0.0	0.7	18.6	***	1.2
Leasing		1.5	1.6	1.3	0.0	NA	NA	***
Treasury Bills		19.7	25.4	1.7	58.0	67.0	58.2	5.0
Foreign		2.1	2.6	0.3	0.0	NA	0.0	0.0

Source: Staff calculations on the basis of data provided by the Moroccan authorities.Note: The table presents the exposure of selected (groups of) financial institutions to other institutions. The exposed institutions are presented in the column headings, and the exposures in the row headings. All numbers are expressed as a percentage of the exposed institution’s assets.

Table 14.

Indicators of Financial Soundness of the Banking System, 1997–2002

Sources: Bank accounting statements, summary statements, Statistiques monétaires, Bulletin trimestriel, authorities.

^1/Data on capital are as of June-2002. Profitability indicators are annualized figures for the January to June 2002 period.

^2/For 1997, 1998, and 1999, the levels of equity capital used to calculate the solvency ratio are based solely on Tier 1 figures. For 2000 and June 2001, equity capital consists of Tier 1 and Tier 2 capital, as stipulated in Circular No. 4/G/2001 of January 15, 2001, which revised the definition of equity capital and certain risk weightings in accordance with international standards. Calculated on the basis of the earlier Circular, the solvency ratio for 2000 is 11.1 percent.

^3/The figures for 1997–2000 include the profits for the year in equity capital. The figure for 2001 excludes them. The figure for 2001 that is comparable to the earlier figures is 9.6 percent.

^4/The figure for 2001 is provisional, pending establishment of provisions for the year by one of the commercial banks.

^5/Defined as the sum of exposures exceeding five percent of a bank’s capital.

^6/The figure for 2001 refers to the period January-September.

^7/The difference between the average annual interest rates on 10-year treasury bills and those on treasury bills at 26 weeks or less.

Table 14.

Indicators of Financial Soundness of the Banking System, 1997–2002

(Figures in percent)		1997	1998	1999	2000	2001	2002 (Sept.) 1/
Statutory capital, as a proportion of risk-weighted assets 2/		11.2	12.6	12.1	12.8	12.6	12.5
	Commercial banks	12.7	13.1	13.0	14.7	15.3	15.3
	Specialized banks	6.1	11.1	8.3	5.9	1.2	0.5
Tier 1 capital, as a proportion of risk-weighted assets		11.2	12.6	12.1	11.0	15.5	15.0
Equity capital (net value) as a proportion of assets 3/		10.0	10.3	10.0	9.8	8.7	8.6
Growth rate of credit outstanding		5.9	14.3	9.2	11.0	3.6	2.7
NPLs, in percent of total gross loans		11.8	14.6	15.3	17.5	16.8	18.0
	Commercial banks	8.5	8.9	9.1	9.1	10.7	11.3
	Specialized banks	23.8	27.5	29.2	42.3	32.2	36.4
Net NPLs, as a proportion of equity capital		37.6	44.9	49.3	70.5	55.5	59.8
	Commercial banks	12.9	11.9	12.8	15.0	19.9	20.8
	Specialized banks	152.4	186.0	244.7	366.0	188.9	280.4
Provisions, as a proportion of nonperforming loans 4/		57.5	52.6	51.8	45.7	53.0	53.8
	Commercial banks	74.2	75.4	74.7	73.4	70.8	70.3
	Specialized banks	43.0	36.5	36.7	29.8	38.2	39.6
Large exposures (as a proportion of capital) 5/		N/A	159.0	196.0	212.0	194.0	148.0
Connected lending (as a proportion of equity capital)		30.9	23.1	22.2	N/A	23.0	28.5
Foreign currency loans (as a proportion of total loans to customers)		1.1	0.9	1.0	1.0	1.1	1.1
Off balance-sheet exposure (gross, as a proportion of equity capital)		263.6	231.1	209.7	224.3	290.9	240.0
Average return on assets (ROA)		1.0	0.9	0.7	0.7	0.9	0.7
	Commercial banks	1.1	1.1	0.1	1.1	1.1	1.1
	Specialized banks	0.2	-0.1	-0.8	-1.0	-0.1	-1.0
Average return on equity (ROE)		11.0	9.5	8.2	8.1	10.2	7.8
	Commercial banks	13.4	12.4	12.5	13.0	12.7	11.8
	Specialized banks	2.8	-1.8	-14.8	-14.8	-0.9	-10.0
Interest margin (as a percentage of gross revenues)		77.2	75.0	73.4	80.0	77.8
Expenditure excl. interest (as a proportion of gross earnings)		47.3	46.8	47.4	49.1	46.2	45.9
Personnel expenditure (as a proportion of gross earnings)		30.7	30.4	30.7	31.3	29.2	28.3
Average spread between loan and deposit rates		6.27	5.54	5.32	5.10	4.81	4.81
Liquid assets (as a proportion of total assets)		25.4	24.1	22.9	20.4	22.7	22.4
Central bank credit to banks (as a percentage of bank resources)		0.5	1.2	0.4	2.2	0.0	0.2
Bank deposits (as a percentage of bank resources)		67.0	67.2	68.2	72.1	72.5	74.7
	Demand accounts	29.7	30.5	31.0	33.1	35.8	37.5
	Demand accounts of Moroccans living abroad	7.7	8.0	8.1	8.2	9.5	9.8
Financial borrowings from foreign financial institutions (as a percentage of resources)		N/A	N/A	N/A	N/A	3.3	3.1
Bank deposits (as a percentage of bank credits)		114.6	113.5	112.0	113.4	120.3	125.1
Net open position in foreign exchange (as a proportion of equity capital)		N/A	N/A	N/A	N/A	N/A	N/A
Difference between maximum and minimum interbank rates		3.5	3.8	6.0	4.6	6.6
Money market rate (average) 6/		6.7	6.3	5.6	5.4	4.8
Spread between long rates and short rates 6/7/		N/A	2.1	1.8	1.3	1.7

Sources: Bank accounting statements, summary statements, Statistiques monétaires, Bulletin trimestriel, authorities.

^1/Data on capital are as of June-2002. Profitability indicators are annualized figures for the January to June 2002 period.

^2/For 1997, 1998, and 1999, the levels of equity capital used to calculate the solvency ratio are based solely on Tier 1 figures. For 2000 and June 2001, equity capital consists of Tier 1 and Tier 2 capital, as stipulated in Circular No. 4/G/2001 of January 15, 2001, which revised the definition of equity capital and certain risk weightings in accordance with international standards. Calculated on the basis of the earlier Circular, the solvency ratio for 2000 is 11.1 percent.

^3/The figures for 1997–2000 include the profits for the year in equity capital. The figure for 2001 excludes them. The figure for 2001 that is comparable to the earlier figures is 9.6 percent.

^4/The figure for 2001 is provisional, pending establishment of provisions for the year by one of the commercial banks.

^5/Defined as the sum of exposures exceeding five percent of a bank’s capital.

^6/The figure for 2001 refers to the period January-September.

^7/The difference between the average annual interest rates on 10-year treasury bills and those on treasury bills at 26 weeks or less.

View Table

Table 14.

Indicators of Financial Soundness of the Banking System, 1997–2002

(Figures in percent)		1997	1998	1999	2000	2001	2002 (Sept.) 1/
Statutory capital, as a proportion of risk-weighted assets 2/		11.2	12.6	12.1	12.8	12.6	12.5
	Commercial banks	12.7	13.1	13.0	14.7	15.3	15.3
	Specialized banks	6.1	11.1	8.3	5.9	1.2	0.5
Tier 1 capital, as a proportion of risk-weighted assets		11.2	12.6	12.1	11.0	15.5	15.0
Equity capital (net value) as a proportion of assets 3/		10.0	10.3	10.0	9.8	8.7	8.6
Growth rate of credit outstanding		5.9	14.3	9.2	11.0	3.6	2.7
NPLs, in percent of total gross loans		11.8	14.6	15.3	17.5	16.8	18.0
	Commercial banks	8.5	8.9	9.1	9.1	10.7	11.3
	Specialized banks	23.8	27.5	29.2	42.3	32.2	36.4
Net NPLs, as a proportion of equity capital		37.6	44.9	49.3	70.5	55.5	59.8
	Commercial banks	12.9	11.9	12.8	15.0	19.9	20.8
	Specialized banks	152.4	186.0	244.7	366.0	188.9	280.4
Provisions, as a proportion of nonperforming loans 4/		57.5	52.6	51.8	45.7	53.0	53.8
	Commercial banks	74.2	75.4	74.7	73.4	70.8	70.3
	Specialized banks	43.0	36.5	36.7	29.8	38.2	39.6
Large exposures (as a proportion of capital) 5/		N/A	159.0	196.0	212.0	194.0	148.0
Connected lending (as a proportion of equity capital)		30.9	23.1	22.2	N/A	23.0	28.5
Foreign currency loans (as a proportion of total loans to customers)		1.1	0.9	1.0	1.0	1.1	1.1
Off balance-sheet exposure (gross, as a proportion of equity capital)		263.6	231.1	209.7	224.3	290.9	240.0
Average return on assets (ROA)		1.0	0.9	0.7	0.7	0.9	0.7
	Commercial banks	1.1	1.1	0.1	1.1	1.1	1.1
	Specialized banks	0.2	-0.1	-0.8	-1.0	-0.1	-1.0
Average return on equity (ROE)		11.0	9.5	8.2	8.1	10.2	7.8
	Commercial banks	13.4	12.4	12.5	13.0	12.7	11.8
	Specialized banks	2.8	-1.8	-14.8	-14.8	-0.9	-10.0
Interest margin (as a percentage of gross revenues)		77.2	75.0	73.4	80.0	77.8
Expenditure excl. interest (as a proportion of gross earnings)		47.3	46.8	47.4	49.1	46.2	45.9
Personnel expenditure (as a proportion of gross earnings)		30.7	30.4	30.7	31.3	29.2	28.3
Average spread between loan and deposit rates		6.27	5.54	5.32	5.10	4.81	4.81
Liquid assets (as a proportion of total assets)		25.4	24.1	22.9	20.4	22.7	22.4
Central bank credit to banks (as a percentage of bank resources)		0.5	1.2	0.4	2.2	0.0	0.2
Bank deposits (as a percentage of bank resources)		67.0	67.2	68.2	72.1	72.5	74.7
	Demand accounts	29.7	30.5	31.0	33.1	35.8	37.5
	Demand accounts of Moroccans living abroad	7.7	8.0	8.1	8.2	9.5	9.8
Financial borrowings from foreign financial institutions (as a percentage of resources)		N/A	N/A	N/A	N/A	3.3	3.1
Bank deposits (as a percentage of bank credits)		114.6	113.5	112.0	113.4	120.3	125.1
Net open position in foreign exchange (as a proportion of equity capital)		N/A	N/A	N/A	N/A	N/A	N/A
Difference between maximum and minimum interbank rates		3.5	3.8	6.0	4.6	6.6
Money market rate (average) 6/		6.7	6.3	5.6	5.4	4.8
Spread between long rates and short rates 6/7/		N/A	2.1	1.8	1.3	1.7

Sources: Bank accounting statements, summary statements, Statistiques monétaires, Bulletin trimestriel, authorities.

^1/Data on capital are as of June-2002. Profitability indicators are annualized figures for the January to June 2002 period.

^2/For 1997, 1998, and 1999, the levels of equity capital used to calculate the solvency ratio are based solely on Tier 1 figures. For 2000 and June 2001, equity capital consists of Tier 1 and Tier 2 capital, as stipulated in Circular No. 4/G/2001 of January 15, 2001, which revised the definition of equity capital and certain risk weightings in accordance with international standards. Calculated on the basis of the earlier Circular, the solvency ratio for 2000 is 11.1 percent.

^3/The figures for 1997–2000 include the profits for the year in equity capital. The figure for 2001 excludes them. The figure for 2001 that is comparable to the earlier figures is 9.6 percent.

^4/The figure for 2001 is provisional, pending establishment of provisions for the year by one of the commercial banks.

^5/Defined as the sum of exposures exceeding five percent of a bank’s capital.

^6/The figure for 2001 refers to the period January-September.

^7/The difference between the average annual interest rates on 10-year treasury bills and those on treasury bills at 26 weeks or less.

Table 15.

Analysis of the Profitability of the Banking System, 2001

Source: BAM and staff estimates.

^1/Net banking product: the sum of the interest margin and other banking income.

^2/Net result: the difference between the sum of all revenues and the sum of all costs.

Table 15.

Analysis of the Profitability of the Banking System, 2001

		Banking system	Commercial banks	Specialized banks
		(In percent of Net Banking Product)
Interest margin		84.2	83.6	89.3
	Of which: public debt	28.1	30.1	12.2
Margin on commissions		10.0	10.4	7.0
Earnings from market operations		2.5	2.2	4.7
Miscellaneous earnings		3.3	3.8	-1.0
Net Banking Product 1/		100.0	100.0	100.0
Operating costs		-53.5	-52.0	-65.1
Provisions		-22.6	-20.6	-38.4
Taxes on profits		-8.5	-9.0	-4.0
Miscellaneous charges		4.0	3.9	4.1
Net result 2/		19.4	22.3	-3.4

Source: BAM and staff estimates.

^1/Net banking product: the sum of the interest margin and other banking income.

^2/Net result: the difference between the sum of all revenues and the sum of all costs.

View Table

Table 15.

Analysis of the Profitability of the Banking System, 2001

		Banking system	Commercial banks	Specialized banks
		(In percent of Net Banking Product)
Interest margin		84.2	83.6	89.3
	Of which: public debt	28.1	30.1	12.2
Margin on commissions		10.0	10.4	7.0
Earnings from market operations		2.5	2.2	4.7
Miscellaneous earnings		3.3	3.8	-1.0
Net Banking Product 1/		100.0	100.0	100.0
Operating costs		-53.5	-52.0	-65.1
Provisions		-22.6	-20.6	-38.4
Taxes on profits		-8.5	-9.0	-4.0
Miscellaneous charges		4.0	3.9	4.1
Net result 2/		19.4	22.3	-3.4

Source: BAM and staff estimates.

^1/Net banking product: the sum of the interest margin and other banking income.

^2/Net result: the difference between the sum of all revenues and the sum of all costs.

Table 16.

Aggregate Balance Sheet for the Banking System at End December 2001

Table 16.

Aggregate Balance Sheet for the Banking System at End December 2001

Assets						Liabilities
			Millions of dirhams	Percent of total			Millions of dirhams	Percent of total
Cash and similar			3,242	0.9		Central bank	0	0.0
Central bank			21,881	6.1
						Interbank debts and similar	19,295	5.4
Interbank deposits and similar			30,531	8.5		Customer deposits	268,185	74.9
Loans to customers			177,464	49.6		Debt securities issued	21,432	6.0
	Of which:
		net NPLs	17,663	4.9		Other liabilities	15,458	4.3
Debt securities			101,116	28.2
	Of which:
		Treasury bills	73,170	20.4
Other assets			23,760	6.6		Equity capital	32,914	9.2
Total assets			357,994	100.0		Total liabilities	357,994	100.0
Total off- balance sheet items			127,120	35.5

View Table

Table 16.

Aggregate Balance Sheet for the Banking System at End December 2001

Assets						Liabilities
			Millions of dirhams	Percent of total			Millions of dirhams	Percent of total
Cash and similar			3,242	0.9		Central bank	0	0.0
Central bank			21,881	6.1
						Interbank debts and similar	19,295	5.4
Interbank deposits and similar			30,531	8.5		Customer deposits	268,185	74.9
Loans to customers			177,464	49.6		Debt securities issued	21,432	6.0
	Of which:
		net NPLs	17,663	4.9		Other liabilities	15,458	4.3
Debt securities			101,116	28.2
	Of which:
		Treasury bills	73,170	20.4
Other assets			23,760	6.6		Equity capital	32,914	9.2
Total assets			357,994	100.0		Total liabilities	357,994	100.0
Total off- balance sheet items			127,120	35.5

Table 17.

Morocco: Selected Macroeconomic Indicators

(Quota = SDR 588.2 million)

Sources: Ministry of Finance; Bank Al-Maghrib; and Fund staff estimates and projections.

^1/From 1997 to 1999, data refer to fiscal years starting on July 1 of that year. From 2000, data refer to calendar year.

^2/Excluding privatization and GSM license receipts.

^3/Including the balance of special treasury accounts not included in revenue and expenditure.

^4/Public and publicly guaranteed debt.

Table 17.

Morocco: Selected Macroeconomic Indicators

(Quota = SDR 588.2 million)

Population: 29.2 million (2001 estimate)
Per capita GDP: US$1,160 (2001 estimate)
							Proj.
	1997	1998	1999	2000	2001	2002	2003
	(Percent change; unless otherwise indicated)
National income and prices
Nominal GDP (billions of US dollar)	33.4	35.8	35.2	33.3	33.9	37.1	42.0
Nominal GDP (billions of Dirhams)	318.3	344.0	345.6	354.1	382.9	409.4	440.5
Real GDP	-2.2	7.7	-0.1	1.0	6.5	4.5	5.5
CPI period average	1.0	2.7	0.7	1.9	0.6	2.8	2.0
	(Percent of GDP)
Central government finances 1/
Revenue 2/	25.4	27.2	26.9	26.2	24.9	24.0	23.2
Expenditure	28.4	29.8	31.4	32.4	31.1	29.1	28.0
Overall balance 3/	-3.4	-2.6	-4.5	-6.4	-5.7	-4.5	-4.3
Overall balance (including privatization receipts) 3/	-3.1	-2.5	-1.3	-6.4	0.4	-4.3	-2.7
	(Changes in percent of broad money at the beginning of the period)
Money and credit
Broad money	9.0	5.8	10.3	8.4	14.2	6.6	7.0
Domestic credit	7.1	6.5	3.4	9.4	0.4	5.1	4.7
Net credit to government	2.3	-0.8	-3.9	3.9	-2.4	1.8	0.7
Credit to private sector	4.8	7.3	7.3	5.5	2.8	3.4	4.0
Interest rate (52-week treasury bills, in percent)	6.7	6.6	4.7	5.3	3.2	2.9	…
	(In billions of US dollar; unless otherwise indicated)
Balance of payments
Exports, f.o.b.	7.0	7.1	7.5	7.4	7.1	7.7	8.5
Imports, f.o.b.	8.9	9.5	10.0	10.7	10.2	10.7	11.8
Net services	-0.4	-0.2	0.1	0.3	1.1	0.4	0.2
Current account	-0.1	-0.1	-0.2	-0.5	1.6	1.1	0.8
Current account (in percent of GDP)	-0.3	-0.4	-0.5	-1.4	4.8	2.9	1.8
Overall balance (deficit -)	0.6	0.2	1.6	-0.4	3.8	0.6	0.8
Reserves
Gross official reserves (end of period)	4.2	4.6	5.7	4.8	8.4	10.1	10.8
(In months of imports of goods and nonfactor services)	4.7	4.8	5.7	4.6	8.3	9.4	9.0
Debt
External debt (including use of Fund credit) 4/	19.1	20.6	19.8	18.0	15.9	16.1	15.2
External debt (in percent of GDP) 4/	57.1	57.5	56.1	53.9	47.0	43.7	36.1
Domestic government debt (in percent of GDP)	38.2	38.1	41.3	42.2	45.9	47.9	49.4
Total government debt (in percent of GDP)	78.0	74.3	76.9	76.4	74.8	70.7	68.2
	(In millions of SDR; unless otherwise indicated)
Use of Fund resources
Repurchases	2.3	0.0	0.0	0.0	0.0	0.0	0.0
Fund credit outstanding	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	(Percent change unless otherwise indicated)
Exchange rate
Exchange rate (dirham/US dollar; period average)	9.53	9.60	9.80	10.63	11.30	11.02	…
Real effective exchange rate (appreciation +)	0.9	2.4	1.0	2.8	-4.1	-0.7	…
Terms of trade (deterioration -)	0.4	11.7	-3.4	-11.2	0.4	3.0	-1.5…

Sources: Ministry of Finance; Bank Al-Maghrib; and Fund staff estimates and projections.

^1/From 1997 to 1999, data refer to fiscal years starting on July 1 of that year. From 2000, data refer to calendar year.

^2/Excluding privatization and GSM license receipts.

^3/Including the balance of special treasury accounts not included in revenue and expenditure.

^4/Public and publicly guaranteed debt.

View Table

Table 17.

Morocco: Selected Macroeconomic Indicators

(Quota = SDR 588.2 million)

Population: 29.2 million (2001 estimate)
Per capita GDP: US$1,160 (2001 estimate)
							Proj.
	1997	1998	1999	2000	2001	2002	2003
	(Percent change; unless otherwise indicated)
National income and prices
Nominal GDP (billions of US dollar)	33.4	35.8	35.2	33.3	33.9	37.1	42.0
Nominal GDP (billions of Dirhams)	318.3	344.0	345.6	354.1	382.9	409.4	440.5
Real GDP	-2.2	7.7	-0.1	1.0	6.5	4.5	5.5
CPI period average	1.0	2.7	0.7	1.9	0.6	2.8	2.0
	(Percent of GDP)
Central government finances 1/
Revenue 2/	25.4	27.2	26.9	26.2	24.9	24.0	23.2
Expenditure	28.4	29.8	31.4	32.4	31.1	29.1	28.0
Overall balance 3/	-3.4	-2.6	-4.5	-6.4	-5.7	-4.5	-4.3
Overall balance (including privatization receipts) 3/	-3.1	-2.5	-1.3	-6.4	0.4	-4.3	-2.7
	(Changes in percent of broad money at the beginning of the period)
Money and credit
Broad money	9.0	5.8	10.3	8.4	14.2	6.6	7.0
Domestic credit	7.1	6.5	3.4	9.4	0.4	5.1	4.7
Net credit to government	2.3	-0.8	-3.9	3.9	-2.4	1.8	0.7
Credit to private sector	4.8	7.3	7.3	5.5	2.8	3.4	4.0
Interest rate (52-week treasury bills, in percent)	6.7	6.6	4.7	5.3	3.2	2.9	…
	(In billions of US dollar; unless otherwise indicated)
Balance of payments
Exports, f.o.b.	7.0	7.1	7.5	7.4	7.1	7.7	8.5
Imports, f.o.b.	8.9	9.5	10.0	10.7	10.2	10.7	11.8
Net services	-0.4	-0.2	0.1	0.3	1.1	0.4	0.2
Current account	-0.1	-0.1	-0.2	-0.5	1.6	1.1	0.8
Current account (in percent of GDP)	-0.3	-0.4	-0.5	-1.4	4.8	2.9	1.8
Overall balance (deficit -)	0.6	0.2	1.6	-0.4	3.8	0.6	0.8
Reserves
Gross official reserves (end of period)	4.2	4.6	5.7	4.8	8.4	10.1	10.8
(In months of imports of goods and nonfactor services)	4.7	4.8	5.7	4.6	8.3	9.4	9.0
Debt
External debt (including use of Fund credit) 4/	19.1	20.6	19.8	18.0	15.9	16.1	15.2
External debt (in percent of GDP) 4/	57.1	57.5	56.1	53.9	47.0	43.7	36.1
Domestic government debt (in percent of GDP)	38.2	38.1	41.3	42.2	45.9	47.9	49.4
Total government debt (in percent of GDP)	78.0	74.3	76.9	76.4	74.8	70.7	68.2
	(In millions of SDR; unless otherwise indicated)
Use of Fund resources
Repurchases	2.3	0.0	0.0	0.0	0.0	0.0	0.0
Fund credit outstanding	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	(Percent change unless otherwise indicated)
Exchange rate
Exchange rate (dirham/US dollar; period average)	9.53	9.60	9.80	10.63	11.30	11.02	…
Real effective exchange rate (appreciation +)	0.9	2.4	1.0	2.8	-4.1	-0.7	…
Terms of trade (deterioration -)	0.4	11.7	-3.4	-11.2	0.4	3.0	-1.5…

Sources: Ministry of Finance; Bank Al-Maghrib; and Fund staff estimates and projections.

^1/From 1997 to 1999, data refer to fiscal years starting on July 1 of that year. From 2000, data refer to calendar year.

^2/Excluding privatization and GSM license receipts.

^3/Including the balance of special treasury accounts not included in revenue and expenditure.

^4/Public and publicly guaranteed debt.