Morocco is preparing to establish a secondary market for non-performing loans (NPLs), a move that is expected to relieve mounting pressure on the country’s banking system, Bank Al-Maghrib (BAM) Director General Abderrahim Bouazza announced Thursday at a conference in Casablanca.
The development comes as “bad loans” (those that are delinquent) continue to grow within Morocco’s banking system. In the first nine months of 2024, NPLs reached a whopping MAD 98 billion (USD 9.8 billion)— equivalent to 7% of Morocco’s GDP.
NPLs are defined as loans in which the borrower has stopped making required payments for an extended period, typically 90 days or more. They have almost doubled over the past decade and currently makeup 8.6% of all loans, according to central bank data.
Bouazza flagged risks to the banking sector, warning that global economic headwinds and a series of domestic crises could push the NPL ratio even higher.
Banks have responded by bolstering their coverage ratios to 68.6%, or MAD 67.2 billion (USD 6.7 billion), in a bid to cushion the impact of these toxic assets. Coverage ratios refer to the reserves banks put aside to absorb potential losses from bad loans.
Morocco’s proposed bill would streamline the transfer of NPLs. By removing debtor consent requirements and simplifying notification procedures for recovery notices, the draft law would lower the barriers to creating a viable secondary market.
Bouazza said that this measure would complement existing tools such as securitizing collateral, offering banks a less costly and less regulatory-intensive option.
As liquidity demands across Moroccan banks covered by the central bank have surged to MAD 120 billion (USD 12 billion), Bouazza underscored the importance of diversifying tools to manage financial pressures. A robust secondary market could help banks offload bad debts more efficiently, freeing up capital for lending and stabilizing the sector, he said.