Maghreb Rating, Fitch Ratings' affiliate in North Africa, has upgraded Morocco's Credit Eqdom long-term national rating to A from A-, and its short-term national rating to F1 from F2, and removed it from Rating Watch Positive where it was placed on March 11, 2002.
Eqdom's National ratings are being upgraded following its recent entry in the French Societe Generale banking group. Eqdom's capital is currently controlled 52.8 percent by Societe Generale (SG).
Although this control is indirect, as it was obtained through the addition of the 34.95 percent Genefitec share, a financial holding held 99.9 percent by SG, and the 17.85 percnet share held by the Societe Generale Marocaine de Banques, Maghreb Ratings believes these shareholders work in concert and could provide Eqdom with the necessary financial support, should it be required. However, in the absence of written confirmation, this cannot be considered certain.
The acquisition of Eqdom is part of SG's strategy to strengthen its regional presence in North Africa, especially in Morocco where SG group is already a majority shareholder in SGMB. This same strategy led to SG acquiring a majority holding in the capital of the Union Internationale de Banques in Tunisia in October 2002, where it also previously had no presence.
Apart from the financial support mentioned above, Eqdom's entry into the SG group should lead to considerable benefits, both from a technical and a commercial standpoint. Key management positions are filled by SG appointees and credit and market risk controls systems are being imported from the French banking group.
However, Eqdom's rating is constrained by some intrinsic weaknesses and the fragile situation of the consumer finance sector. After several years of strong but disorganized growth, the Moroccan consumer finance sector started 1997 facing serious difficulties. As over-indebtedness expanded among Moroccan households, notably among public sector employees, Eqdom's target market, the authorities adopted measures regarding tighter regulation and controls for consumer credit sector lenders and borrowers. This has brought to light the problem of a high number of doubtful loans previously not disclosed in consumer finance companies.
As for its peers, Eqdom's asset quality recently deteriorated and non-performing-loans (NPLs) reached 14.7 percent of gross outstanding loans at the end-June 2002. Nevertheless, Eqdom has improved its loan loss reserve ratio, which reached a high 90.2 percent at this date. As net NPLs represent only seven percent of equity, Maghreb Rating considers Eqdom's provisioning criteria to be amongst the strictest in Morocco.
Though decreasing, Eqdom continues to enjoy a high level of profitability. Expectations are that profitability will continue to deteriorate throughout the industry but in order to counter this, Eqdom's management has set up a strategy designed to selectively develop its lending while controlling operating costs and credit risk. The future will be the judge of the success of this strategy, and how well it has been monitored by Eqdom in a negative economic environment. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
