Turbulence in the global banking system has not disrupted Morocco's plan to integrate further into financial markets by opening capital accounts and adopting a more flexible exchange rate, central bank officials said. The north African kingdom has begun relaxing restrictions on moving money abroad that helped avoid a flight of capital in the past when banks were hit by bad debts and the economy held hostage to a farm sector that suffers from cyclical droughts. Reforms have now strengthened the banking sector and non-performing loans have now tumbled to 6.5 percent of total loans from 19 percent in 2004, central bank officials said. Interest rates have dropped, non-farm economic growth is accelerating and foreign investment growing. With the government forecasting annual economic growth of 6.3 percent in coming years, policymakers have decided Morocco's economy is robust enough to accelerate a move to a more flexible dirham and opening of capital accounts. The Moroccan currency is now fixed with reference to other major world currencies, mostly the euro. Central Bank Governor Abdellatif Jouahri said in March a more flexible dirham, originally planned for 2010 at the earliest, could be pushed forward despite the uncertain outlook caused by the US subprime mortgage crisis. “Based on objective observation, we feel there is no reason to change this position,” the bank's Head of Banking Supervision Abderrahim Bouazza told Reuters on Friday. Preparations are still necessary including the roll-out of risk systems in banks and ensuring exports and importers improve management of exchange risks. But Moroccan banks are not exposed to the kind of products at the heart of the subprime crisis and are in a strong position after years of improving results, bank officials say. “Banks today are able to master their risks far better than a few years ago,” said Bouazza. The central bank has shifted to an independent, regulatory role in recent years with a focus on inflation targeting and the government plans further financial sector reforms. Economy and Finance Minister Salaheddine Mezouar said last week the government also wanted to make financial market regulator CDVM entirely independent and permit private investors to own 15 percent of once struggling state-controlled lender Credit Agricole du Maroc and its peer Banque Centrale Populaire. Bank officials said Morocco's banks were now strong enough to compete with foreign players. “If you look at return on investment in Morocco they are pretty high, higher than in Europe - that's what you'd expect for an economy growing faster from a lower base,” said Karim El Aynaoui, central bank Director of Economics and International Relations. Flush with money from a domestic lending boom, Morocco's top private sector banks Attijariwafabank and BMCE Bank have broadened their horizons by applying for banking licenses and acquiring lenders in other African countries.
