OREANDA-NEWS. Fitch Ratings has affirmed Morocco-based BMCE Bank's (BMCE) Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB+', Long-Term Local Currency IDR at 'BBB-', National Long-Term Rating at 'AA-(mar)', Viability Rating (VR) at 'b+' and Support Rating (SR) at '3'. The Outlook on the Long-Term ratings is Stable.

A full list of rating actions is available at the end of this commentary.

KEY RATING DRIVERS

IDRS, NATIONAL RATINGS, SUPPORT RATING AND SUPPORT RATING FLOOR

BMCE's IDRs, National Ratings, SR and Support Rating Floor (SRF) reflect Fitch's view of the moderate probability of support from the Moroccan authorities, if needed. BMCE is among the leading corporate and retail banks in Morocco.

Fitch believes that the Moroccan authorities would have a high propensity to support BMCE if needed, given the bank's systemic importance in the country. BMCE is the third-largest banking group in assets in Morocco. It has about a 14% domestic market shares. However, Fitch views the probability of support as only moderate given Morocco's financial strength (BBB-/Stable). The Stable Outlook on BMCE's Long-Term IDRs reflects that on the Moroccan sovereign rating.

The 'BB+' Support Rating Floor is at the Moroccan banks' Support Rating Floor for domestic systemically important banks (D-SIB)', reflecting BMCE's high systemic importance.

BMCE is largely owned by FinanceCom, a local private company (36.4% stake at end-2015), and France's Banque Federative du Credit Mutuel (BFCM; A+/Stable), which holds a 26.2% stake. FinanceCom's ability or willingness to support BMCE cannot be assessed and Fitch has therefore assumed that BFCM is unlikely to provide support to BMCE, if required, although its ability to do so is high.

VR

Fitch views the combination of BMCE's modest capital ratios and high risk appetite - as evidenced by its significant exposures towards sub-Saharan Africa - as having a higher influence on the bank's VR than other factors. The VR also factors in BMCE's solid franchise in Morocco, modest asset quality, overall solid funding and liquidity profile and sound profitability.

BMCE's risk appetite is higher than Moroccan peers', as reflected by the bank's substantial activities in sub-Saharan Africa (24% of BMCE's loans book at end-2015) and rapid lending growth in and outside Morocco compared with peers. BMCE is present in 18 countries in west and east sub-Saharan Africa mainly through its 75% stake in the holding company Bank of Africa (BoA).

BMCE's capital ratios are only acceptable (9.5% Tier 1 ratio at end-2015) for the bank's exposure to volatile markets in sub-Saharan African countries, which introduces an additional source of credit and operational risk. Net impaired loans represented a substantial and growing 24.3% of equity at end-2015. Fitch believes that capital buffers above minimum regulatory requirements will remain limited.

Fitch views BMCE's asset quality as vulnerable given the bank's exposures to fragile domestic corporates and the weak credit quality of the loan portfolios in the sub-Saharan African subsidiaries. Its impaired loans ratio is modest (7.8% at end-2014) although Fitch believes that it may be underestimated compared with international standards. Asset quality metrics are expected to remain affected in 2016 by the absence of solid economic growth in Morocco and persistent economic uncertainties in sub-Saharan Africa.

Fitch views BMCE's funding and liquidity profile as solid. Stable retail deposits are BMCE's main funding source (about three quarters of total funding excluding equity at end-2015). Liquidity is satisfactory with a loan-to-deposit ratio of 92% at end-2015. All sub-Saharan subsidiaries are self-funded. The liquidity buffer is satisfactory, covering short-term market funding maturing over one year.

BMCE's profitability is sound and largely supported by profitable lending activity in sub-Saharan Africa (about 31% of net profit net of minority interests in 2015). Fitch expects BMCE's operating profit to remain affected by high loan impairment charges (93bp of gross loans in 2015), driven by high loan growth in the higher-risk sub-Saharan African countries and a still subdued economic environment in Morocco, which affects domestic SMEs and corporates. Limited cost efficiencies - notably in the sub-Saharan subsidiaries - will continue to weigh on operating profitability in 2016.

RATING SENSITIVITIES

IDRS, NATIONAL RATINGS, SUPPORT RATING AND SUPPORT RATING FLOOR

The IDRs, SR and SRF would be sensitive to a change in Fitch's view of the Moroccan state's willingness or ability to support the bank. These ratings are also sensitive to a change in Fitch's assumptions around the availability of sovereign support for Moroccan financial institutions should any progress be made towards providing a framework for resolving banks, including a bail-in tool.

BMCE's National Ratings would be downgraded if the sovereign is severely downgraded or if the Moroccan state's willingness to support BMCE diminishes, most probably as a consequence of reduced systemic importance of the bank. Both scenarios are unlikely in the near future.

VR

Higher risk appetite with a significant deterioration of asset quality leading to deterioration in capital ratios could put pressure on BMCE's VR. Conversely, the VR would benefit from a more cautious expansion into sub-Saharan Africa and stronger capital ratios.

The rating actions are as follows:

BMCE Bank

Long-Term Foreign Currency IDR: affirmed at 'BB+'; Outlook Stable

Short-Term Foreign Currency IDR: affirmed at 'B'

Long-Term Local Currency IDR: affirmed at 'BBB-'; Outlook Stable

Short-Term Local Currency IDR: affirmed at 'F3'

National Long-Term Rating: affirmed at 'AA-(mar)'; Outlook Stable

National Short-Term Rating: affirmed at 'F1+ (mar)'

Support Rating: affirmed at '3'

Support Rating Floor: affirmed at 'BB+'

Viability Rating: affirmed at 'b+'