Competitive conditions at home are driving banks based in one of Africa’s most developed countries, Morocco, to invest in some of the continent’s poorest states. Mali, for example, is among the world’s 10 poorest nations, but that has not deterred Morocco’s largest finance house, Attijariwafa Bank, from investing in the country as a market of long-term promise and potentially lucrative revenues.

On 7 November, it completed the $80m
takeover of Banque Internationale du Mali (BIM), after a hard-fought bidding round with rivals such as France’s Societe Generale (SocGen), Cote d’Ivoire’s United Bank for Africa, Togo-based Ecobank and, not least, fellow Moroccan bank Banque Marocaine du Commerce Exterieur (BMCE).

The Mali government says it wants BIM’s new Moroccan owner to extend access to formal bank credit and other services to a wider range of the population, in an economy that is still heavily reliant on agriculture.

BMCE is ahead of Attijariwafa in developing its sub-Saharan network and has set the goal of becoming a regional leader within 10 years.

Its breakthrough was the acquisition in 2007 of a 35 per cent stake in Mali-based Bank of Africa, complementing earlier investments in the country and the Republic of Congo.

Targeting expansion

International expansion is not an issue for the Moroccan subsidiaries of the big French banks - Banque Marocaine du Commerce et de l’Industrie is an offshoot of BNP, while Credit du Maroc is a subsidiary of Credit Agricole.

But local bank Attijariwafa and BMCE have had to diversify geographically through targeted expansion. They are both present in European markets, but through specialist offerings. In November 2007, BMCE set up London-based MediCapital Bank as a specialist investment and corporate banking unit.

Attijariwafa has a European network of offices in Belgium, France, Germany, Italy, the Netherlands and Spain.

The scope for growth in EU markets is limited, as they are dominated by other international finance houses. Moroccan banks are there to back up the foreign operations of their domestic business clients and service the needs of the expatriate Moroccan community. But Europe is not where the brightest prospects lie.

BMCE and Attijariwafa have identified Africa as the region where they can realistically hope to emerge with a significant market share in the medium term. In July 2007,
Attijariwafa merged its Senegal bank, Attijariwafa Bank Senegal, with Banque Senegalo-Tunisienne to create a substantial local
offshoot, Attijari Bank Senegal, the fifth-largest bank in the country, with 19 branches and a 71 per cent market share of deposits.

In November that year, Attijariwafa took over Compagnie Bancaire de l’Afrique Occidentale (CBAO), the second-largest bank in Senegal, thus further strengthening its position in West Africa. Attijariwafa has also been given permission to open an offshoot in Mauritania.

Similar to Morocco’s national carrier Royal Air Maroc (Ram), the kingdom’s indigenous banks have identified Africa as a market where, with careful management, it is possible to carve out a strong service franchise, competing with local finance houses and the big European banks.

Close ties

Senegal was a natural starting point for Attijariwafa because it is relatively close to Morocco and has established bilateral economic ties - Air Senegal is an offshoot of Ram.

There is a shared French-speaking administrative and financial culture, common economic interests such as phosphates, tourism and fisheries, and a strong tradition of trade and small business.

Just as they have done at home, Moroccan banks overseas have learned how to deliver service to small and not always affluent communities at relatively low cost.

They have also learned to provide services for small businesses in an economy that is still substantially informal and agricultural. At its launch in 2006, Attijari Bank Senegal demonstrated its determination to cater for the needs of small and medium-size enterprises by offering micro-finance to new businesses.

If the Moroccan banks can sustain this approach over time, they could attract a lot of new sub-Saharan business.

In African markets, many of the traditional post-colonial foreign affiliated banks have in the past 15 years retreated from any attempt at full network coverage. They have chosen instead to focus on bigger business clients and the more affluent upper-middle class in cities and large towns. Local banks, often state-owned and short of modern systems and strong management, have not always filled the gap.

However, expansion beyond Senegal into a more diverse, and often much poorer, range of countries offers real challenges as well as revenue opportunities.

BMCE is now the biggest shareholder in Bank of Africa (BOA), a well-established bank that is one of a small band of indigenous sub-Saharan institutions that has developed a viable and well-managed multinational network. It is present in six of the eight member states of the West African franc zone, Madagascar and four of the five member countries of the East African Community.

Revenue generation

BMCE clearly has faith in the potential of low-income sub-Saharan markets as generators of revenue. Besides its stake in BOA, it holds a 27.38 per cent holding in Banque de Developpement du Mali - the country’s biggest bank - and a 25 per cent stake in Congolaise de Banque in the Republic of Congo, a country now enjoying an oil boom, albeit after years of poor governance and violence.

At home, Moroccan banks have been expanding vigorously in the past decade, seeking to extend their franchise among middle-income earners and in smaller communities through the opening of numerous, lightly staffed local branches that generate a heavy inflow of deposits.

From middle and high-income customers, there has been rapid growth in demand for consumer finance products such as mortgages, credit cards and car loans.

On the face of it, the middle-income market remains a buoyant environment, despite the difficult global financial climate. BMCE reported a 14.4 per cent rise in net income for the first half of this year, compared with January to June 2007, on a like-for-like basis, excluding acquisitions.

In the summer, Morocco’s leading finance houses reported strongly upbeat full-year
2007 results. Rises in net income ranged from 24 per cent at Banque Marocaine pour le Commerce et l’Industrie (BMCI) to 55 per cent at BMCE and 66.4 per cent at SocGen’s Moroccan offshoot.

For its part, Attijariwafa has strong minority shareholders with an enduring interest in its success. The biggest investor, with a 33.21 per cent stake, is Moroccan conglomerate ONA, while Spain’s Santander, one of Europe’s major banks, has 14.56 per cent. Small shareholdings are retained by three other EU banking groups: Caja Madrid, Credit Agricole and Unicredito of Italy.

Despite this backing, the rapid expansion of foreign-affiliated rival banks - SocGen, for example, opened 29 new outlets last year - has generated intense competition in Morocco’s domestic banking sector and the banks know rely on past performance.

The new entrants have squeezed margins for the established banks and, because of this, managers at the biggest home-grown institutions know they cannot be sure of a rapid acceleration of earnings growth at their mainstream domestic operations, even as these
continue to expand.

One priority, therefore, has been the development of specialist businesses that generate niche income flows from narrow segments of the business market, complementing the revenue from core retail, commercial and investment banking operations.

This strategy has begun to pay off. BMCE has a MD2.3bn ($263m) portfolio of 56 subsidiary or offshoot companies, active mainly in finance sectors such as leasing or fund management, but also including stakes in the tourism, commercial real estate, chemicals and agro-food sectors. These account for 43 per cent of its total business.

Business grew by more than one-third in 2007 at BMCE’s finance companies, of which Maghrebail and BMCE Capital Gestion are among the most important. Maghrebail’s property leasing and finance business grew by 70 per cent and BMCE Gestion reported a rise in net income of 49 per cent, compared with the same period in 2007.

This year, the group also made a net return on investments of MD624m from the sale of its stake in insurer RMA Wataniya and the partial initial public offering of 20 per cent of consumer finance subsidiary Salafin. Half-year results for Salafin show net earnings are up by more than a quarter, at MD54m.

Admittedly, the operations of these companies do generate some significant international exchange rate exposure in euros, dollars, sterling and West African CFA francs - for which BMCE set aside provisions of MD53m last year. But this is a minor consideration when set against the scale of the benefits they bring to the group in terms of risk and income diversification.

BMCE, in the same way as Attijariwafa, has already accepted the overall case for international engagement. While this may be a peripheral factor for the specialist subsidiaries, it has become one of the major themes of the core banking operation at both groups, as they seek to diversify their sources of revenue.

But it is Africa that presents the greatest diversification opportunity. The Moroccan banks have spotted what many sceptical outsiders often miss: when it is well-managed, banking in sub-Saharan Africa can be relatively low-risk and highly remunerative.

By using mainly local staff, and focusing on practical mainstream services, reliably delivered, supplemented with a steady stream of fee income from trade finance and other specialist activities, it is possible for a foreign bank to do well.

Moreover, the franc-zone countries, where the Moroccan banks have placed greatest emphasis, have a currency that is linked to the euro. And the results are already coming through. In the first half of 2008, BOA generated a net income of MD326m, outstripping the profits achieved by every other subsidiary of the BMCE group.