Fitch: Islamic Banking a Modest Deposit Stimulus in Morocco

Islamic banks, referred to as 'participation banks' in Morocco, are likely to provide a modest stimulus to deposit growth in the country, Fitch Ratings says. Morocco's central bank granted its first licences to Islamic banks last week.

Our discussions with Fitch-rated banks indicate that the ability to offer Islamic banking products could expand their deposit bases by 5% to 10%. The ability to grow the deposit base is positive for Morocco's economic development because deposits represent about 70% of banking sector funding.

We expect growth of participation banks will be high initially, as was the case following the introduction of Islamic banking in Turkey and Indonesia. The ability to access Islamic products will ensure that customers have access to a more comprehensive range of services. Customers who have avoided transacting with conventional banks for sharia-related reasons can now move into the formal banking sector.

However, banking penetration is already high in Morocco, with 70% of adults holding a bank account, suggesting that most Moroccans have not shied away from the banking sector on faith grounds. Participation banking is therefore unlikely to take a significant market share from the well-established conventional banks.

The growth of participation banks will be affected by several factors, including the spread of awareness of Islamic finance, the extent to which the government stimulates expansion, population growth rates and regulatory developments. Positively, the central bank has established a central sharia board of Islamic scholars to oversee the sector, which should help to provide a cohesive framework under which the banks can operate. Greater clarity on essential aspects, such as how participation banks will manage their liquidity in a sharia-compliant manner and how financing contracts will be drawn up, would help to stimulate the sector. However, delays in establishing a clear framework could hinder the development of participation banks, forcing up funding costs and resulting in insufficient depth in product offerings.

Growth rates in the Moroccan banking sector have been volatile in recent years, reflecting unsteady economic trends. Deposit growth (nearly 7% in 2016) has outstripped loan growth (3.9%) in recent years, but credit demand is set to accelerate in line with an improved economic outlook in 2017. This could force banks to compete more aggressively for deposits, putting pressure on margins at the conventional banks. The ability to offer participation banking services could broaden the pool of potential depositors in the country, mitigating the competitive pressure.

Only existing conventional banks have applied for participation banking licences and we are not aware of any independent Islamic banks making requests to operate in Morocco. Banks owned by domestic shareholders, such as Attijariwafa Bank, BMCE Bank, Groupe Banque Centrale Populaire and Credit Immobilier et Hotelier, have opted to establish separate participation banking subsidiaries, while subsidiaries controlled by French parents, such as Societe Generale Marocaine de Banques (controlled by Societe Generale), Banque Marocaine pour le Commerce et l'Industrie (BNP Paribas) and Credit du Maroc (Credit Agricole), have chosen to provide services through special Islamic banking 'windows'.