The financial crisis that the world is encountering now is describes as the worst of all times. It has affected almost every country in the world; creating recessions, increasing unemployment and the government’s deficits. However, Morocco in considered as one of the few exceptions. Unlike the other world’s power, Morocco has known an economic growth of 2% since the beginning of the crisis (The financial times, The Sunday times.
) Most financial analysts relate this Moroccan exception to the Moroccan central bank (Bank Al Maghreb) and its banking system. So how does the banking system in Morocco works, how does the central bank supervises this system within the financial institutions, and what role did it play in facing the world’s financial crisis. Bank Al Maghreb, which is the Moroccan central bank, was founded in 1959; right after Morocco took its independence.
Since that time, this system was responsible of the most important financial decision in the kingdom, such as implementing the monetary policies instruments, managing the public exchanges reserves as well as advising the government on financial issues and taking part in the negotiations and implementations of international financial agreements (Bank Al Maghreb website). In order to have a deeper understanding about the central’s bank strategies and policies and its banking system, we must first of all take an overview about its banking laws.
The Banking laws in Morocco, which are of course determined and implemented by the central bank consists of 8 major points: -Scope and institutional framework: This part of the banking law consists on recognizing and distinguishing between the types of financial institutions ( banks, loans agency…), recognizing loans and distinguishing between the different parts of them ( Leasing, Bank loans…) and also stating who are the people that are legitimate to receive loans and the financial institution that are allowed to give them.
-Granting approval, conditions and withdrawal of authorization to credit institutions: This part of the banking law focuses only on the financial institutions, by stating the requirement for creating a financial institution and getting the agreement from the central bank, the obligation and rules that this institution has to follow , and the conditions under which the financial institution will be taken away its authorization .
-Accounting and prudential: The first part of this law consists on the accounting laws and regulations that the central bank imposes to any financial institutions, concerning their accounting documents, how they have to be made and when. The second part is more focused on the obligation of any financial institution to have an internal control system that controls of all the risks that they can encounter and preparing strategies that can estimates their profitability from their operations. -Supervision of financial institutions: This law states the right of the central bank to control that the other banks are respecting all the regulations.
This can be made by demanding any documents from any financial institution, intervening if this institution has any kind of problem that the central bank sees it as important. -Temporary administrations and liquidation of financial institutions: The first part of this law gives the right to the central bank to assign a temporary administration to any financial institution, if the central bank deduct that this institution has serious financial problems, or didn’t follow the rules of the banking law.
In this case, the temporary administration is determined by the governor of the central bank for a specific period of time, in order to determine whether this institution can redress or not. The second part is about the actions that the central bank will take if the financial institution in no longer functional (Taking the authorization away, liquidation of these institutions…) -Protecting customers from financial institution: As the name of this law says, the priority is the customer, and protecting him from any form of abuse from any financial institution.
In other words, it gives the central bank the right to interact between the customer-institution relationship and control any transaction or operation that occurs between them. -Disciplinary actions and penalties: This bound is about the actions that the central bank will take against any institutions that do not respect the previous engagement. These actions can vary taking the authorization away, a fine or jail.
-Divers and transitional dispositions: The last part of the banking laws just confirms the previous ones and obliges the financial institutions created under the previous banking law to follow this one. The main advantages of those banking laws are that first of all, it has given a greater authority to the central bank over the financial institutions, which strengthened the banking supervision and control and has improved the risk management practices in the banking sector. Another advantage of these new laws is that it gave the central bank more autonomy and independence from the government.
One of the major effects of these laws is that it has clearly reduced the number of monopolies within the Moroccan banking system “the export insurance activities of the Moroccan Bank for Foreign Trade (BMCE BANK), which have now been transferred to an independent company” Another component of the banking system in morocco is the monetary laws and policies. The monetary law is a number of laws and policies created by the central bank in order to control the supply, availability and cost of money, which is directly oriented toward the growth and stability of the economy.
In order to achieve its goal, the monetary policies use a lot of tools. As shown later in Appendix 1. 1, the main tools and operations used by the central bank in implementing its monetary policy are: -The principal operations: Those operations are composed of “des avances a 7 jours sur appel d’offres”, which consists on injecting money on the economy when there is a shortage of liquidity. On the opposite side, the “ Reprise de liquidites” consists on taking away money from the economy when there is an excess of liquidity by giving incentives to banks to put there excess reserves into the central banks.
-Open market operations: Consists mostly on buying or selling government securities depending on the monetary situation. -“ Swaps de change”: This tool consist on incenting banks to buy or sell the MAD in exchange of another currency, depending on the economic situation . -The required reserve: Witch is the minimum reserve that the central bank obliges other banks to hold from any deposit. This reserve can either increase or decrease depending on the needs of money within the economy.
Of course, in order to check the efficiency of those policies and to make sure that they are implemented within the country, the central bank has developed some supervision systems, illustrated primarily in the controlling systems that the central bank had created with the banking laws. Bank Al-Maghrib has also developed an analytical framework for analyzing the transmission mechanism of monetary policy in Morocco. It is a macroeconomic model for a small open economy with fixed exchange rate.
This model pays special attention to the functioning of the banking sector, which occupies a central place in the Moroccan financial system. With this framework, we can also analyze and monitor the effects of various shocks, including monetary policy, may affect the economy. The last part of the banking system in Morocco, and which is the major cause why Morocco wasn’t so much affected by the financial crisis, is its loan system. Unlike in the US before the crisis, the process of getting loans in Morocco isn’t that easy.
Before getting a loan, the bank makes sure that you have the ability to pay you debts in the future, and also makes sure that what you own (wealth) will be enough to pay to total amount of the debt (mortgage). The main reason of the crisis is that, besides the adjustable interest rate, the banks didn’t make a good estimations of the borrower’s assets, which made them incur huge loses when the borrower was no longer able to pay his debts “We are not affected by the housing crisis and our banks don’t carry this type of credit which was responsible for the loss of the prestigious American bank,” Said Mr Jouahri to the newspaper le Matin.
However, we cannot say that Morocco wasn’t 100% affected by the financial crisis, the main effects of this crisis was related to the fear of people from what happened to the other countries, which laid to the decrease in the stock market indicators; “We are not in a catastrophic situation, nor are we in a euphoric one,” Jouahri stressed during a press conference. Morocco, he explained, is in a privileged situation, with a growth rate standing around 5%(http://www. moroccobusinessnews. com) . In order to make Morocco avoid the effects of this crisis, the central bank implemented new rules, like cutting the interbank loans interest rate from 3.
5% to 3. 25%. According to Mr Jouahri “To avoid any stock market drift or panic, it is up to the government, the regulators, the executive board of the Stock Exchange, the associations of the stock exchange societies to step forward to communicate and provide information concerning the ins and outs of the stock exchange and market developments,” Unlike the world’s strongest economies (USA, France…) Morocco wasn’t affected by the world’s financial crisis, because of the Moroccan banking system.
From this situation, we can deduct and say that the banking system in Morocco is fairly modern and well developed. The strict banking laws, the monetary policies, the loan policies… made Morocco safe from this crisis, and with an economic growth of 5% . In a report published by the international monetary fund (IMF), Morocco was classified as well-positioned to weather today’s more difficult global economic and financial climate (http://www. moroccobusinessnews. com/).
Moreover, with a more diversified economy, stronger public finances… Morocco can largely avoid the negative effects from the current economic situation, and maintain its economic growth. Appendix 1. 1 Bank Al Maghreb monetary policies tools: Works Cited Bank Al Maghreb. Bank Al Maghreb. 13 July 2009 . Invest in Morocco. Animaweb. 13 July 2009 . Moroccan Banking sector. The freee Library. 13 July 2009 . Morocco Buisness News. Centre marocain de conjoncture. 13 July 2009 . Morocco Buisness News. CMC. 13 July 2009 .