Fifth Meeting of the Systemic Risk Coordination and Monitoring Committee (CCSRS)

The Committee for Coordination and Surveillance of Systemic Risks, entrusted by Law No. 103-12 on Credit Institutions and Related Organizations to Assess Systemic Risks for the Financial Sector, held on June 23^rd, its fifth meeting at the headquarters of Bank Al-Maghrib (BAM) in Rabat.

At this meeting, the Committee approved the financial stability report for the 2016 financial year and the analysis of the financial system risk map as well as the review of the progress of the inter-governmental financial stability roadmap for the 2016-2018 period.

The analysis of the financial system's situation with regard to observed and expected economic and financial trends has enabled the Committee to identify the following main findings:

- Macroeconomic risks have generally been at a moderate level. In fact, the risk arising from the international investment position remains limited with net international reserves providing coverage of more than six months of imports of goods and services. On the domestic front, the national economy was affected in 2016 by the below-average performance of the agricultural sector and the persistent lifelessness of non-agricultural activities.

In terms of macroeconomic outlook, the evolution remains favorable in relation to the expected strengthening of the global economic activity and the expected spurt in 2017 of the national growth led, mainly, by the rebound of the agricultural sector and the progressive recovery of the non-agricultural activities. At the same time, the current account deficit and budget deficit are expected to decrease by 2018.

- The bank loan to non-financial companies has returned to growth after a decline recorded in 2015. The rate of outstanding debts has, however, recorded a new increase related to certain sectors in difficulty.

- On the basis of a study by Bank Al-Maghrib, covering a sample of nearly 14,000 private and public non-financial enterprises, the deadlines for the payment of inter-company receivables have again been extended, in

particular for very small and medium-sized enterprises and for certain sectors of activity. The rapid implementation of the reform of the legislative and regulatory framework relating to payment deadlines, finalized in the second half of 2016, should help to alleviate this situation.

- Bank balance sheets have been affected by the effects of the national economic situation. Banks have thus experienced a decline in their interest margins, combined with a further rise in credit risk on their operations in Morocco. Their banking activities operated abroad recorded good performances. Overall, banks continue to have a good level of capitalization. The prudential framework is also being strengthened in order to build the sector's resilience.

- The insurance sector continues to generate a solvency margin to hedge the underwriting risk, well above the regulatory minimum. Considering, however, the future move towards the risk-based solvency regime, margin surpluses are likely to be significantly reduced. In addition, the unrealized gains that may be generated by the asset portfolios of these institutions have increased in relation to the performance of the stock market.

- The parametric reform of the civil pension system has improved its financial situation by balancing the pricing of this scheme for the future rights of its affiliates without reducing its significant commitments for past rights.

- When it comes to the stock market, its liquidity was in an uptrend. It remains, however, insufficient mainly because of the insufficiency of the free float. Variability remains moderate and declines during the first four months of 2017 after two years of successive increases. Despite a correction of prices at the beginning of the year, the valuation of the Casablanca Stock Exchange is at a high level, driven by investors looking for profitability in a context of declining interest rates.

- At the level of the private debt market, despite the difficulties encountered by some issuers, credit risk remains generally moderate. The market has seen the issue of perpetual subordinated bonds of a new type (contingent convertible bonds) with a risk profile different from usual issues, but whose overall volume remains limited.

The Committee also reviewed the implementation of the roadmap on the contribution of the Moroccan financial sector to the promotion of sustainable development. It also examined the challenges of digital finance and the risks associated with cybercrime.