Fitch Ratings has affirmed Attijariwafa Bank's (AWB) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'BB' with a Stable Outlook.

Fitch has also affirmed AWB's Viability Rating (VR) at 'bb' and National Long-Term Rating at 'AA(mar)' with a Stable Outlook.

Key Rating Drivers

AWB's 'BB' Long-Term IDR is driven by its VR and underpinned by potential support from the Moroccan authorities. The VR reflects the bank's dominant market share in Morocco's financial services sector, a leading domestic franchise, stable business model, high management quality and a good record of execution. It also considers some asset quality weaknesses and only modest core capitalisation given its risk profile.

AWB's VR is one notch above the 'bb-' implied rating due to the following adjustment reason: business profile (assessed by Fitch at 'bb+'), which reflects the bank's dominant market position (including a 25% market share in loans) and high market shares in key segments.

AWB's National Rating is one notch above direct local peers but below the subsidiaries of large French banking groups as these benefit from potential support from their foreign shareholders.

Operating Environment Outlook Stable: Morocco's real GDP is forecast to grow 2.8% in 2023 and 3.2% in 2024. Recession in the eurozone, Morocco's main trading partner, drought and high inflation will weigh on business activity. Banks are likely to remain resilient having come out of the pandemic in reasonable shape. AWB's operating environment score of 'bb-' is one notch lower than the standard score for domestic Moroccan banks due to its exposure to weaker and more volatile regional markets, although the performance of the bank's subsidiaries in these markets has remained resilient.

Strong Domestic Franchise: AWB has strong market shares across the domestic financial services industry and is a leader in corporate banking (45% of AWB's domestic loans at end-1H22). AWB's franchise benefits from a wide domestic network and a large regional presence in Africa that underpins the diversification of its business model.

Reasonable Risk Profile: Risks associated with AWB's exposures to Sub-Saharan Africa are mitigated by the bank's robust risk control framework and expertise in these markets. Regional growth has been selective, risk control tools are being harmonised, and the bank has tightened its underwriting standards in a number of specialised finance subsidiaries.

Asset Quality Weakening: The consolidated Stage 3 loans ratio eased to 7.9% at end-3Q22 (end-2021: 8.1%). The ratio remains the best in the sector owing to a high share of good quality corporate loans. We expect the bank's Stage 3 loans ratio to increase slightly in 2023..

Profitability Rebounds: The operating profit/risk-weighted assets (RWAs)ratio increased to 2.6% in 1H22(annualised) from 2.2% in 2021 and return on average equity jumped to 12.8% (2021: 10.9%). Both metrics were stronger than peer averages. The improving trend was confirmed in 9M22, supported by a higher net interest margin as higher rates start to feed through profits and by stronger fee generation. In 9M22, net income was up 24% compared with 9M21.

Reasonable Capital Buffers: AWB's common equity Tier 1 ratio reduced to 9.7% at end-1H22 from 10.1% at end-2021 due to 4.3% risk-weighted assets growth and MAD680 million losses in Other Comprehensive Income 1.1% of end-2021 common equity). We expect capitalisation to weaken slightly in 2023 due to growth and potential regulatory changes in some Sub-Saharan African jurisdictions.

Strong Funding and Liquidity: Customer deposits formed a high 82% of total non-equity funding at end-3Q22, the bulk of which were sourced in Morocco. The high share of retail deposits (75% of total customer deposits in Morocco) translates into low concentration risk. The bank's liquidity is strong, with a liquidity coverage ratio of 193% at end-3Q22.

Government Support Rating of 'bb': AWB's Government Support Rating (GSR) of 'bb' considers the bank's systemic importance as the largest Moroccan bank with about 25% market share of loans and deposits but also the limitations of the sovereign's financial flexibility.

Rating Sensitivities

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A downgrade of AWB's Long-Term IDR would require a simultaneous downgrade of the bank's VR and GSR. AWB's VR could be downgraded on asset-quality deterioration resulting in a marked weakening of profitability and capitalisation metrics. This could come from a marked and sustained deterioration in the operating environment in Morocco or sub-Saharan Africa, or both.

A downgrade of the Moroccan sovereign rating would trigger a downgrade of the GSR. A weaker sovereign propensity to support Moroccan banks could also lead to a downgrade of the GSR.

The National Rating could be downgraded if the bank's Local-Currency IDR was downgraded or if Fitch believes AWB's creditworthiness has weakened relative to other Moroccan issuers.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

An upgrade of AWB's Long-Term IDR would be driven by an upgrade of the VR or the GSR.

An upgrade of the VR is unlikely without a sustained and marked improvement in the operating environment and an upgrade of the sovereign rating.

An upgrade of the GSR would require an upgrade of the sovereign's IDR. This is not our base case given the Stable Outlook on Morocco's rating.

The National Rating could be upgraded if Fitch believes AWB's creditworthiness has improved relative to other Moroccan issuers.

VR ADJUSTMENTS

The operating environment score of 'bb-' has been assigned above the 'b' category implied score, due to the following adjustment reasons: sovereign rating (positive), macroeconomic stability (positive) and international operations (negative).

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on AWB, either due to their nature or the way in which they are being managed by AWB. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

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