North African banks: Financials BankFocus Research

12 January 2021
weaken despite high growth Irakli Pipia
Ziva Vidovic

The analysis of the main financial ratios of the largest

North African banks1 indicates divergent trends since
2017. Profitability came under pressure despite
double digit growth in assets. Asset quality and non-
risk weighted capitalisation declined. However,
liquidity remains high, balancing growing ROAA, YE 2017 – H1 2020
dependence on wholesale funding. 2.5%

2.0%
• The North African banks showed rapid growth in Total assets in
1.5%
local currency since 2017. The Egyptian banks were ahead of
the peers with the average growth rates exceeding 20% in both 1.0%

local currency and the USD terms. 0.5%

• The analysis of RWA trends suggests that the North African banks 0.0%
Egypt Algeria Tunisia Morocco
followed different approach to managing the risk content of their
2017 2018 2019 H1 2020
assets since 2017. The RWA intensity declined for the Moroccan
and increased for the Algerian peers. The Egyptian banks
reported broadly stable RWA intensity ratios since 2017.
• Net profitability declined in all North African peers. However, net
interest margins (NIMs) showed mixed trends. The latter remained
stable in Egypt, increased in Tunisian banks and decreased in
other two peers.
• The North African peers reported diverse capitalisation trends
since 2017. While the Egyptian and Tunisian banks
strengthened their regulatory capital ratios, the Algerian and
Moroccan banks reported a decline. However, non -risk weighted
capitalisation worsened for the majority of peers, except Tunisia.
• The analysis of asset quality suggests weakening trends since
2017. The average impaired loan ratios increased and
provisioning coverage of impaired loans declined across the board.
However, provisioning coverage ratio was relatively high
among the North African peers, with the exception of the Algerian Listen to an executive summary from the
banks. Bureau van Dijk Podcast

• Wholesale funding dependency remained high in Morocco and

Tunisia, with growing trends in Algeria. On average all peers had
a strong liquidity cushion exceeding 30% of total assets over the
observed period.
• Overall, the financial indicators of the North African banks came This report has been created using
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1 Moody’s Analytics BankFocus Research

Moody’s Analytics BankFocus Research 12 January 2021

Double digit growth in LC in North African banks

We analysed the leading commercial banks in Algeria, Egypt, Morocco and Tunisia and compared their
f inancial trends since 20172.

We started with looking at the average Total asset growth as indicators of lending policies. All f our peer
countries reported a double-digit growth in local currency (LC). However, the growth in USD terms was
somewhat lower due to currency depreciation, as Morocco and Tunisia reported only single digit growth for
the same period (Appendix I). The average CAGR f or the peer group was 15% in LC vs 13% in USD equivalent
since 2017.

The Egyptian banks reported the highest level of growth with LC CAGR: 21.5% since 2017. The Algerian
banks also showed above average growth with LC CAGR 15%.

The Tunisian banks reported only slightly higher growth of their Total assets than the Moroccan banks with
LC CAGR at 11.6% vs 11.4%, respectively. However, Tunisian growth rates were worse in the USD terms,
implying that these banks’ balance sheets were most affected by the currency depreciation compared to the
North Af rican peers.

Exhibit 1: Average Total assets CAGR (LC), YE 2017 – H1 2020*

Egypt

Algeria

Average

Tunisia

Morocco

0% 5% 10% 15% 20% 25%

*Tunisian and Algerian CAGRs calculated based on YE 2017 – YE 2019.

RWA trends indicate diverse risk appetite

The analysis of RWA trends suggests that the North African banks f ollowed different approach to managing
the risk content of their assets since 2017. The RWA intensity3 declined f or the Moroccan banks and increased
f or the Algerian peers during this period. The Egyptian banks reported broadly stable RWA intensity ratios
(H1 2020: 57%), despite very high growth rates in total assets, as noted above. The reporting of RWA data by
the Tunisian banks was insufficient for the analysis.

The RWA intensity was overall moderate in North African countries with the Algerian banks having the highest
average ratio at 63% as at end-2019. The Moroccan banks had the lowest RWA intensity at 50% as at H1
2020, which improved at the highest rate since 2017.

2
Financial statements for Egypt and Morocco are as at H1 2020, for Algeria and Tunisia as at end-2019
3
Defined as Risk weighted assets as a percent of Total assets

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Moody’s Analytics BankFocus Research 12 January 2021

Exhibit 2: RWA Intensity, YE 2017 - H1 2020

80%
75%
70%
65%
60%
55%
50%
45%
40%

Morocco Egypt Algeria

The banks with the highest and lowest RWA intensity were: Credit du Maroc (Morocco) at 75% and Al Barid
Bank (Morocco) at 25% as at H1 2020.

Declining net profitability with Egypt most resilient

Net prof itability (expressed by ROAA) declined at various rates in all North African peers. However, net interest
margin (NIM)4 showed diverse trends. The latter remained stable in Egypt, increased in Tunisian banks and
decreased in other two peers.

The Egyptian banks’ net profitability was most affected with the average ROAA declining to 1.8% as at H1
2020. The highest decrease was at Credit Agricole Egypt, which reported a drop in net profitability to 2.7%
as at H1 2020 f rom 4.5% as at end-2019 due to lower interim operating profit. However, the Egyptian banks
continue to benefit from the highest average NIMs among the peers (2020: c. 6%).
The Algerian banks also became less profitable with lower NIMs as at end-2019. However, their latest ROAAs
at 1.6% were at the same level as in 2017.

The Moroccan banks had the lowest the net profitability among the peers at 0.4% as at H1 2020 combined
with the second lowest NIM (3.7% as at H1 2020).
The Tunisian banks had somewhat better net profitability with ROAA above 1%. They also managed to
increase their NIMs to 3.2% as at end-2019, albeit from the lowest level among the peers.

Exhibit 3: ROAA (left) and Net interest margin (right), YE 2017 – H1 2020
2.5% 8%
7%
2.0%
6%

1.5% 5%
4%
1.0% 3%
2%
0.5%
1%
0.0% 0%
Egypt Algeria Tunisia Morocco Egypt Algeria Morocco Tunisia

2017 2018 2019 H1 2020 2017 2018 2019 H1 2020

The banks with the highest and lowest ROAAs were: Credit Agricole Egypt (Egypt) at 2.7% and Credit du
Maroc (Morocco) at 0.1% as at H1 2020.
The banks with the highest and lowest NIMs were: Bank of Alexandria (Egypt) at 11% and Al Barid Bank
(Morocco) at 2% as at H1 2020.

4
Calculated as Net interest income as a percentage of average interest earning assets.

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Moody’s Analytics BankFocus Research 12 January 2021

Diverse trends in capital with Algerian banks leading the peers

The North African peers reported diverse capitalisation trends since 2017. While the Egyptian and Tunisian
banks strengthened their regulatory capital ratios, the Algerian and Moroccan banks reported a decline.
However, the non-risk weighted capitalisation slightly worsened for the majority of peers over the same period,
with the exception of Tunisia.

The Egyptian banks increased the regulatory total capital adequacy ratio to 20% as at H1 2020. They also
kept steady internal CET1 capital creation rates at 13% since 2018, which was the highest ratio among the
peers (Appendix IV). Overall, the Egyptian banks kept their equity growth rates comparable with the rapid
growth in total assets since 2017.

The Tunisian banks managed to build up the total capital adequacy ratio the most. It increased by 6 pp to 17%
as at end-2019. The simple leverage ratio did not increase at the same pace, but still ranked the second
highest among peers at 12% as at end-2019.

The Algerian banks reported the highest total capital adequacy and simple leverage ratios among the peer
group. The total capital adequacy remained high at 22% despite decrease by 2 pp as at end-2019. The simple
leverage ratio declined at the same rate to 17% as at end-2019.

The Moroccan banks had on average the lowest capital adequacy (14% as at H1 2020) and simple leverage
ratios (9% as at H1 2020) among the peers. In addition, their internal CET 1 capital creation was one of the
lowest among peers in the range of 2%-3%, except in 2019.

Exhibit 4: Total capital adequacy ratio (left) and Total equity/Total assets (right), YE 2017 - H1 2020
30% 30%

25% 25%

20% 20%

15% 15%

10% 10%

5% 5%

0% 0%
Algeria Egypt Tunisia Morocco Algeria Tunisia Egypt Morocco

2017 2018 2019 H1 2020 2017 2018 2019 H1 2020

The banks with the highest and lowest Tier 1 ratios were: BLOM Bank Egypt (Egypt) at 21% and Al Barid
Bank (Morocco) at 9% as at H1 2020.
The banks with the highest and lowest simple leverage ratios were: Arab African International Bank (Egypt)
at 15% and Al Barid Bank (Morocco) at 4% as at H1 2020.

Weakening impaired loan ratios with Tunisian banks ranking lowest

The analysis of asset quality ratios suggests weakening trends for the majority of peers since 2017. The
average proportion of impairment loans to gross loans increased and the provisioning coverage of impaired
loans declined as at end-2019. However, provisioning coverage ratio remained relatively high among the
peers, with the exception of the Algerian banks.
The Egyptian banks showed the strongest asset quality metrics among the peers with the lowest impaired
loan ratio (5% as at H1 2020) and the highest provisioning coverage (121% as at H1 2020). Both ratios had
positive trends since 2017.
Contrary, the Tunisian banks had negative trends in both ratios. They had the highest impairment ratio (18%
as at end-2019), with a rapid increase since 2017. Although provisioning coverage was high in the range of
90% - 100%, it decreased slightly since 2017.

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Moody’s Analytics BankFocus Research 12 January 2021

The Moroccan banks showed negative trend in impaired loan ratios at 8.1% as at end-2019. However, they
were able to improve the provisioning coverage ratio to 92% for the same period.
The Algerian banks had the most consistent asset quality metrics with the impaired loan ratio in the range of
8%-9% and the LLR coverage in the range of 63%-68% since 2017. However, they had the lowest provisioning
coverage among the peers, exposing them to additional cost in legacy impaired loans.

Exhibit 5: Impaired Loans / Gross loans (left) and Loan Loss Reserves / Impaired Loans (right), YE
2017 – H1 2019

20% 180%
18% 160%
16% 140%
14% 120%
12%
100%
10%
80%
8%
6% 60%
4% 40%
2% 20%
0% 0%
Tunisia Algeria Morocco Egypt Tunisia Algeria Morocco Egypt
2017 2018 2019 H1 2020 2017 2018 2019 H1 2020

The banks with the highest and lowest impaired loans ratios were: Suez Canal Bank (Egypt) at 17% and The
National Bank of Kuwait – Egypt sae (Egypt) 2% as at H1 2020.

The banks with the highest and lowest provisioning coverage of impaired loans ratios were: Commercial
International Bank (Egypt) at 256% and Credit Agricole du Maroc (Morocco) at 64% as at H1 2020.

Strong liquidity position with growing wholesale funding dependency

Wholesale f unding dependency stayed high f or Morocco and Tunisia, with growing trends in Algeria. On
average all peer banks had a strong liquidity cushion exceeding 30% of total assets over the observed period.

The Egyptian banks had the lowest wholesale funding ratio at 9% as at end-2019 which decreased by 2 pp.
At the same time, they had a high liquidity ratio at 52% as at H1 2020. This position was due to the
accumulation of high-yield government securities. Their f unding position was also supported by a strong loan-
to-deposit ratios at c. 52% (Appendix V).

The Tunisian banks’ wholesale funding dependency was the highest in the peer group at 29% as at end-2019
and overall liquidity was relatively low (30% as at end-2019). Their average loan-to-deposit ratio was above
100%, the only country that exceeded this benchmark among the peers.

The Moroccan and Algerian banks showed higher dependency on wholesale funding with decreasing liquid
asset ratios. The Moroccan banks historically had the second highest wholesale funding ratio among the peer
group at 30% as at H1 2020. Their liquid asset decreased to 30% from 35% in the first 6 months of 2020.

The Algerian banks increased the proportion of wholesale funding by 5pp to 18% as at end -2019. However,
their liquidity position was the second highest among the peers, despite the slight decrease in proportion of
liquid assets to total assets to 35% as at end-2019.

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Moody’s Analytics BankFocus Research 12 January 2021

Exhibit 6: Wholesale funding (left) and Liquid assets / Total assets ratios (right), YE 2017 – H1 2020

35%
60%
30%
50%
25%
40%
20%
30%
15%
20%
10%
10%
5%

0% 0%
Egypt Algeria Morocco Tunisia
Egypt Algeria Morocco Tunisia
2017 2018 2019 H1 2020
2017 2018 2019 H1 2020

The banks with the highest and lowest wholesale f unding ratios were: AXA Credit (Morocco) at 97% and
BLOM Bank Egypt (Egypt) at 1.2% as at H1 2020.

The banks with the highest and lowest liquidity ratios were: Al Barid Bank (Morocco) at 87% and AXA Credit
(Morocco) at 0.5% as at H1 2020.

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Moody’s Analytics BankFocus Research 12 January 2021

Appendix I: Average Total assets CAGR (USD), YE 2017 – H1

2020

Egypt

Algeria

Average

Morocco

Tunisia

0% 5% 10% 15% 20% 25%

Appendix II: Average ROAE, YE 2017 – H1 2020

30%

25%

20%

15%

10%

5%

0%
Egypt Tunisia Morocco Algeria

2017 2018 2019 H1 2020

Appendix III: Recurring earning power, YE 2017 – H1 2020

4%
4%
3%
3%
2%
2%
1%
1%
0%
Egypt Algeria Tunisia Morocco

2017 2018 2019 H1 2020

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Moody’s Analytics BankFocus Research 12 January 2021

Appendix IV: Average CET1 capital generation (net income -

dividends / total equity), YE 2017 – H1 2020
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%

Morocco Egypt Tunisia Algeria

Appendix V: Average Gross loans / Customer deposits, YE 2017 –

H1 2020

Appendix VI: Average Customer deposits / Total funding, YE 2017

– H1 2020
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Egypt Algeria Morocco Tunisia

2017 2018 2019 H1 2020

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Moody’s Analytics BankFocus Research 12 January 2021

Research methodology and scope

Using BankFocus search steps we analysed the following financial factors: Asset Quality, Profitability, Capitalization,
Liquidity and Funding for the period of financial end-2017 to H1 2020, whenever available, otherwise as at end-2019.

Principal Ratio definitions:

For more detailed definitions refer to Bank Focus Global detailed format – data and ratio definitions in the Help
section of Popular guides, Financial data.

We analysed the top 66 commercial banks and bank holdings:

- Algeria: 15 commercial banks and bank holdings,

- Egypt: 23 commercial banks and bank holdings,
- Morocco: 13 commercial banks and bank holdings,
- Tunisia: 15 commercial banks and bank holdings.

Get in touch if you have any analytical questions

Irakli Pipia Ziva Vidovic

Director – Senior Research Analyst Research Analyst
BankFocus Research BankFocus Research
44 20 7772 1690 44 20 7772 1256
irakli.pipia@moodys.com ziva.vidovic@moodys.com

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Moody’s Analytics BankFocus Research 12 January 2021

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Moody’s Analytics BankFocus Research 12 January 2021

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