Fitch Ratings: Dirham Liberalization Unlikely to Affect Moroccan Banks

Chaima Lahsini

Rabat - “The partial liberalization of the exchange rate regime in Morocco will have a limited impact on the country's banking sector,” Fitch Ratings said in a statement published today.

Morocco launched the process of Dirham liberalization this June, in accordance with an announcement made by the Central Bank’s governor, Abdellatif Jouahri, back in April.

In its latest report, Fitch Ratings analyzes the risks of this economic liberalization program on Moroccan Banks. The process to full exchange rate flexibility has been estimated at as long as 15 years.

“Banks are unlikely to face significantly higher risks related to greater volatility in the exchange rate regime because their exposure to foreign currencies is minimal in their domestic activities,” states the rating company.

According to Fitch, “foreign currency loans are almost entirely trade-related, while its deposits are scarce and use for international capital markets are minimal.”

Net open positions in foreign currencies are low and generally represent less than 5 percent of assets. “Thus, the liberalization of the dirham will likely have a limited impact on macroeconomic stability in the short and medium term,” the agency said.

Fitch expects the "new" exchange rate regime to be phased in gradually, resulting in a slight increase in the volatility of the dirham relative to the current basket of money.

For the agency, “the risks of a sharp adjustment of the dirham are low as the exchange rate is consistent with fundamentals, according to the IMF's latest assessment.”

Public finances and market access are not expected to be significantly affected as public debt is mainly denominated in dirhams and held by domestic investors.

“Morocco's reserves and the IMF's precautionary and liquidity line would provide an important buffer in the event of external stress,” something Fitch does not anticipate.

Moroccan small and medium-sized importers would be the most affected in the event of a weakening of the dirham, given their limited access to currency hedging instruments.

However, “these companies' forward purchase orders tend to be short term, so they can pass on the growing import costs to their customers.” In addition, Fitch does not expect the credit portfolio of banks to deteriorate as a result of this reform.

Large Moroccan companies are already actively using foreign exchange derivatives and banks do not expect borrowers to have problems managing their foreign currency loans once the exchange rate regime evolves.

Banks active in currency trading or able to offer hedging instruments to their clients may benefit from opportunities resulting from increased volatility in exchange rates. These banks, according to Fitch, include Attijariwafa Bank, “one of the largest banks with the most developed investment banking and investment franchise.” And the subsidiaries of major French banks, “which can tap into their parents' derivative expertise.”

For Fitch, although the authorities have advanced the date of June 2017 to start the reform, this scenario now seems unlikely. Rather, the rating agency expects deployment to begin in the second half of the year, with a long implementation period of up to 15 years.




  • The Moroccan Gold Eldorado

    The Moroccan Gold Eldorado, a Myth or a Reality?

    Rabat - Recently, a conspiracy theory video about a large gold discovery in Morocco is making rounds online. The video claims that a substantial gold reserve was discovered and is being extracted by a Canadian mining company called Maya Gold and Silver. We Moroccans are very proud human beings, we love our country and cherish...

  • Qatar's Emir Sheikh Tamim bin Hamad Al-Thani

    Qatar: How the Tables Are Turning in The Gulf

    Rabat - Amidst harsh sanctions and a long list of demands from its neighbors, Qatar’s ability to thrive under pressure may prove to be problematic for Saudi Arabia. As Saudi Arabia and its coalition attempt to wait out Qatar, the recent spat in the Gulf continues to become more and more global, and severely against...

  • FILE - In this Jan. 20, 2015 file photo, a plume of steam billows from the coal-fired Merrimack Station in Bow, N.H. If the nation doesn’t do more, the U.S. probably won’t quite meet the dramatic heat-trapping gas reduction goal it promised in last year’s Paris agreement to battle climate change, according to a new study. (AP Photo/Jim Cole, File)

    Climate Change : If You Can’t Measure It, You Can’t Fix It

    Chefchaouen - Climate change is happening at home and around the world. Chefchaouen is doing its part by embracing clean energy climate solutions and engaging its citizens in climate action. When it comes to fighting climate change, cities and local leaders are best positioned to lead that charge. Local leaders from coastal to landlocked communities are...

  • 20

    India Orders Internal Probe into Mistaken Use of Morocco-Spain Border Picture

    Hyderabad - The Indian Ministry of Interior on Wednesday ordered an internal investigation to find out how a picture of Morocco-Spain border was used in its annual report to show floodlights along the India-Pakistan border. What is most embarrassing is that the annual report of previous years was tabled during the Budget Session of Indian...

  • Amid Growing Tension, Thousands of Moroccans Stage Pro-Rif March in Rabat

    Neglect in Harsh Soil: The Deep Roots of the Rif Crisis

    Rabat - The ongoing protests in northern Morocco started almost eight months ago, but they have their origin in nearly a century of violent repression by the state. The Rif has, in spite of itself, got involved into a peaceful revolt since the death of the fishmonger Mohcine Fikri at the end of October 2016, a...

  • Tamim Bin Hamad al Thani emir of Qatar

    The Qatar Crisis: What Does It Mean?

    Rabat - The recent diplomatic fallout between Qatar and the rest of the Middle East could have serious economic and geopolitical consequences across the globe. Earlier this week, Qatar’s diplomatic crisis took an extreme turn as several Arab states severed diplomatic ties with the Gulf nation.  The original list of countries in the coalition against...

  • Moroccans spend Laylat al-Qadr, the 26th day of Ramadan, at the Hassan II mosque in Casablanca.

    Ramadan: Not just Abstinence from Daily Intakes 

    By Abdellatif Oudra Rabat - The observance of Ramadan, one of the five pillars of Islam, compels Muslims to fast from sunrise to sunset. But it is not just about abstaining from food or drink.  Ramadan, the ninth month of the Islamic calendar, is observed in commemoration of the revelation of Qur’an to the prophet Mohammad,...

  • Morocco Threatens to Terminate Agriculture Agreement with Europe

    Morocco and the EU: Managing the Future

    Rabat - Morocco enjoys proximity to Europe and is at an advantage of being favoured by the European Union as a close partner on political, economic, and cultural levels. Historical archives and political legacies tie Morocco directly with at least three influential European countries: France, Spain, and England. Demography, kinship, and immigration compel other EU...

  • The Educational and Cultural Implications of the Arab Spring

    The Educational and Cultural Implications of the Arab 'Spring'

    Rabat - In the last ten years or so, the Arab world has seen unprecedented collapses in the realms of politics and economy, among others. World NGOs regularly release area-specific rankings, in which Arab nations commonly rank at the bottom of lists in education, human rights, and income for instance while they top those of...

  • Thousands Hold Peaceful Demonstration in Memory of Mouhcine Fikri

    Al Hoceima and the Pedagogical Exercise

    Ottawa - What makes a democracy different from non-democracy? This is the classical and historical question asked by philosophers over the centuries and deeply questioned in the discipline of political science. Democracy cannot prevent inequality as the case in the United States where inequality is the highest globally. Democracy cannot stop corruption like in Brazil...