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

Fitch has also affirmed the bank's Viability Rating (VR) at 'bb'. At the same time, Fitch has upgraded AWB's National Long-Term Rating 'AA+(mar)' from 'AA(mar)'.

The upgrade of the National Long-Term rating reflects AWB's record of strong performance, which demonstrates the success and resilience of its business model, and an increase of its minimal internal capital target that we now see well suited for its risk profile. It also reflects its highly developed and robust risk management framework, and our view that AWB is firmly placed to benefit from the very large infrastructure projects Morocco has engaged in. In combination, these strengthen AWB's creditworthiness relative to other Moroccan issuers'.

Key Rating Drivers

AWB's 'BB' Long-Term IDR is driven by its VR and underpinned by potential support from the Moroccan authorities. AWB's IDRs and VR are the highest assigned by Fitch to any African bank. The VR reflects the bank's dominant market shares in Morocco's financial services sector and strong position among those large African banks that have expanded outside their home market. AWB has a record of strong risk management, a stable business model generating sound and recurring revenues, high management quality and solid execution. AWB's capitalisation is stronger than in the past and is not threatened by asset-quality weaknesses.

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

Stable Operating Environment Outlook: We forecast Morocco's real GDP to grow 3.2% in 2024 and 3.3% in 2025. However, growth remains vulnerable to a slowdown in the euro zone, Morocco's main trading partner, and to adverse weather conditions and high inflation. 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 markets.

Leader in Morocco: AWB is the leader in the Moroccan financial services industry, including in specialised financial services. This is complemented by a presence in 26 countries outside Morocco, half of which is in Africa, which underpins the diversification of its business model.

Strong Risk Management: AWB has a well-developed and very efficient risk management department. Growth in Morocco has been very prudent. 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, and regional growth has been very selective.

Improving Asset Quality: AWB's consolidated Stage 3 loans ratio improved to 7.2% at end-1H23 (end-2022: 7.6%) primarily due to strong recoveries. 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 decline slightly in 2024 as recoveries accelerate, both in Morocco and internationally.

Profitability Rebounds: Operating profit increased to 2.9% of risk-weighted assets (RWAs) in 1H23 from 2.5% in 2022 and return on equity reached 14%, both metrics exceeding sector averages. The improvement mainly stems from higher interest rates, which the bank was able to pass on to large corporates, while the cost of funding has not increased significantly. We expect this trend to continue in 2024 as recent new business has been booked at favourable rates. We expect AWB's performance to benefit strongly from the large domestic infrastructure projects to 2030.

Reasonable Capital Buffers: Capital ratios are supported by increasing profitability and the phasing-out of regulatory deductions (such as the implementation of IFRS), and are adequate for its risk profile. Its consolidated common equity Tier 1 (CET1) ratio was 9.8% at end-1H23 and AWB aims to maintain a 200bp buffer over the minimum Tier 1 regulatory requirement of 9%.

Strong Funding and Liquidity: Customer deposits formed 82% of total non-equity funding at end-3Q23, the bulk of which were sourced in Morocco. The high share of retail deposits (61% of total customer deposits in Morocco) translates into low concentration risk. The bank's liquidity is strong with a liquidity coverage ratio of 157% at end-1H23.

Government Support Rating: AWB's Government Support Rating (GSR) of 'bb' considers the bank's systemic importance as the largest Moroccan bank with a 26% market share of loans and 25% of 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 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 capital ratios. This could come from a sudden and sustained deterioration in the operating environment in Morocco or in 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 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 improvement in the operating environment in Morocco and sub-Sahara Africa. A better risk profile, notably through exposures outside Morocco, would support an upgrade of the VR.

An upgrade of the GSR would require an upgrade of the sovereign's IDR.

The National Rating has little scope for upgrade at the current level.

VR ADJUSTMENTS

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

The asset quality score of 'bb-' is above the 'b' category implied score, due to the following adjustment reason: collateral and reserves (positive).

The capitalisation and leverage score of 'bb-' is above the 'b' category implied score, due to the following adjustment reason: risk profile and business model (positive).

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

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

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