MOROCCAN banking is changing fast as the private sector replaces government as the dominant force in the sector. Banque Marocaine du Commerce Exterieure (BMCE) has been privatised and a new generation of financial institutions is emerging. There is confident talk of major mergers ahead. And the World Bank and African Development Bank are oiling the wheels of financial liberalisation and change with several hundred million dollars worth of loans.

'Morocco is a country which benefits, to a high degree, from support and involvement from the West,' says Jenny Clei, risk analyst at French export credit agency Coface. 'We see Morocco as a moderately high risk, but with strong points in its favour.'

New products are very much in vogue in this changing market, as are new institutions set up to develop the new opportunities. Media Finance, for example, is aiming at Morocco's new secondary market and has attracted a battery of blue chip supporters. Investors in the venture include newly- privatised BMCE, Banque Commerciale Populaire (BCP), state holding company Caisse de Depot & de Gestion (CDG) and Societe Generale Marocaine de Banques (SGMB), which is part French-owned. France's Caisse Parisienne de Reescompte and the International Finance Corporation (IFC) have also taken stakes.

Foreign institutional interest is wide-ranging. France's Banque Indosuez, developing a long-standing association, has entered a new joint venture with the local Wafabank. This has launched, among other products, Wafa Patrimoine, a private banking service, which is managed from Casablanca. Such alliances are a major innovation for Wafabank, a privately-owned bank controlled by the Kettani family.

Among other initiatives, France's GP Banque has established a local subsidiary, Mediterranean Finance (Medifin), with local investor Omar Slaoui to manage investment funds. Medifin will manage the Dublin-based Medfund.

The next bank to be privatised, Banque Nationale de Developpement Economique (BNDE), should also arouse some international interest. Potential buyers include Banco Exterior de Espana (BEX), which sold its 6.11 per cent stake in BMCE after privatisation in September in readiness for a bid for BNDE.

But many foreign banks are unconvinced of the need to buy local shareholdings to develop business. 'There's no need to make an investment to continue to work in Morocco,' said an executive of Banque Francaise du Commerce Exterieur (BFCE), the French state bank which sold its stake in BMCE in September. BFCE itself is to be privatised in France, as is Credit Lyonnais, which may have implications for its 43.2 per cent stake in Credit du Maroc.

BMCE is now the focus of local attention as it reorganises after privatisation. It has a new chairman, Othmane Benjelloun, who heads one of the kingdom's leading family-owned conglomerates and controls a core stake in BMCE through Royale Marocaine d'Assurance (RAM).

Benjelloun's appointment has given BMCE, already into an upswing before it was privatised, additional momentum. It reported a consolidated profit of MD 252.5 million in 1994, a 26 per cent increase in its last year as a state bank.

Benjelloun is keen to shake up BMCE, rationalise its structure and improve its appeal to customers, even if ideas like extended opening hours risk offending the work force. 'Privatisation must not upset them,' he said soon after the handover. 'There is no reason why the 2,700 employees (today) should not become 4,000 at the end of the century.' This means growth. 'BMCE already has a critical size allowing it to be a universal bank in the domestic market,' says the new chairman. He has ambitions to make it 'the number one Moroccan and North African financial services group.'

Going for a GDR

Shareholders must now decide whether to issue Morocco's first global depository receipt (GDR) to boost BMCE's share capital. The GDR issue, planned for early 1996, is opposed by some shareholders who do not wish to dilute their holdings and awaits final confirmation. A GDR issue would give Morocco more international credibility and help rebuild confidence after the recession brought on by drought in 1994-95.

Many banks have weathered the downturn well. Indeed, Banque Commerciale du Maroc (BCM) was the best performer among the 31 listed companies to publish half-year results to June 1995. Troubled banks have been turned around. Banque Marocaine pour le Commerce & de l'Industrie (BMCI) has undergone restructuring, supervised by part-owner Banque Nationale de Paris (BNP), and produced an MD 18.48 million profit for the first half of 1995.

In common with many developing economies Morocco seems to have a surfeit of banks. There are no fewer than 14 commercial banks, seven specialised banking institutions, plus offshore banks and other institutions. Changes to prudential requirements in 1993 have revealed an unhealthy burden of bad debt and raised doubts about the future viability of the weaker banks. According to the Moroccan Banking Association (GPBM), bad or doubtful loans accounted for 10.2 per cent of total lending in 1994. Bad or doubtful debts at Morocco's five smallest banks are much higher, at 20.3 per cent of total loans in 1994, the GPBM says.

These banks also fail to meet the Cooke ratio criteria. Forty-one per cent of the five smallest banks' gross profits went into provisions. And these figures may not reveal the full picture. According to bankers, bad and non-performing debts are hidden by accounting, rescheduling and other internal procedures.

There have also been reports of problems in the Tangier offshore zone, which has only attracted a handful of local/European banking ventures. BCM has conceded that its Tijari Offshore subsidiary has failed to meet targets. Talk of management problems and lack of business led two French banks, BNP and Credit Lyonnais, to issue official statements to say they would not be pulling out. Credit Lyonnais in Tangier said activity was growing. BNP has been considering handing its Tangier-based venture over to its BMCI subsidiary.

Further liberalisation may help improve perceptions. Major reforms planned for 1996 include interest rate liberalisation, the creation of an interbank secondary market and stock exchange modernisation.

Bankers also want to see more movement towards the creation of a guarantee fund to protect depositors and the lifting of controls on external credits. According to GPBM officials, such controls 'cause difficulties with foreign correspondent banks.'

Liberalisation is bringing Morocco into the global economy and the kingdom's banks into a new era of intermediation. But the pace of innovation is still painfully slow even among those banks keen to introduce derivatives and other new instruments. Says BMCI's Mostapha Chenbout, 'We have opted for petroleum products because it is currently the only import sector subject to a real liberalisation.'

The kingdom's stronger banks want to be freed of constraints to explore new opportunities. This could see even bigger banks emerge and there are market rumours that BCM and BMCE are discussing a union. Smaller, weaker institutions look to the future with less confidence.

Exchange rate: $1 = MD 8.599