BMCE likely to maintain solid profits from pan-African operations, outweighing risks — Moodys

Casablanca, Morocco, Capital Markets in Africa — BMCE Bank’s (Banque Marocaine du Commerce Extérieur) rising profitability is increasingly mitigating the risks arising from its rapid pan-African expansion, says Moody’s Investors Service in a report published today.

Moody’s report, entitled “Banque Marocaine du Commerce Exterieur: Stronger Profits Increasingly Mitigate Risks of Rapid Pan-African Expansion”. The rating agency’s report is an update to the markets and does not constitute a rating action.

BMCE Bank (ba3/BCA, Ba1/Local Currency Deposits, stable) is one of three large Moroccan banks that have expanded ambitiously into Sub-Saharan Africa over the last 10 years.

“While the bank’s Sub-Saharan operation has increased its exposure to higher asset quality volatility, it has also resulted in rising profitability, well above Moroccan banking system average” says Olivier Panis, a VP-Senior Credit Officer at Moody’s. “This is primarily thanks to its lending growth opportunities, higher yields and a large deposit base that provides BMCE with a low-cost and fast-growing funding profile.”

Moody’s data shows that BMCE’s Sub-Saharan Africa portfolio, which represented 23.5% of the group’s total loans as of June 2015, contributed to almost half of the bank’s revenues and 28% of its net income. “The bank pioneered the regional expansion in 2007” says Olivier Panis. “This explains the relatively higher size of its Sub-Saharan portfolio compared with other Moroccan banks expanding in the region, such as Attijariwafa Bank or Banque Centrale Populaire, and the higher benefit for the bank’s return on equity.

BMCE’s exposure to weaker Sub-Saharan operating environments has nevertheless increased the bank’s asset risks, which we expect to remain higher than in Morocco, despite being diversified in 17 countries. Additionally, the bank’s modest capital buffers offer limited loss-absorption capacity against unforeseen distress

The rating agency expects that the contribution of Sub-Saharan portfolios to BMCE’s relatively higher profitability will be sustained over the longer term, provided the bank succeeds in consolidating its cross-border operations and continues enhancing its governance and risk management practices.