Highlights:

• Moody's confirms confidence in Bank of Africa's Moroccan operations but raises concerns over asset quality in Sub-Saharan Africa

• BOA's diversification supports profitability but exposes it to high-risk markets like Burkina Faso, Mali, and Niger

• Doubtful debts reach 10%, though 88% are provisioned, and profitability remains steady

Moody's has reaffirmed its confidence in the Bank of Africa (BOA), highlighting the bank's resilience in Morocco while also drawing attention to the vulnerabilities of its Sub-Saharan Africa subsidiaries due to an unstable economic and security landscape.

In recent times, amid intensive scrutiny of African banking sector weaknesses, Moody's positive reinforcement of BOA is a breath of fresh air for the Moroccan bank. Moody's affirmed the bank's long-term deposit rating at Ba1 with a stable outlook, expressing confidence in the institution's strength.

Behind this decision lies a delicate balance. On one hand, BOA displays solid fundamentals: a strong foothold in the Moroccan market, a well-established deposit base, and a liquidity cushion capable of withstanding economic shocks. By the end of 2024, the bank's liquid assets made up 44% of total assets, and the loans-to-deposits ratio was a controlled 88%—figures that are strong by continental standards. Customer deposits, comprising 67% of non-equity funding, reflect continued trust from a largely retail clientele.

However, Moody's adopts a cautious stance due to BOA's geographical diversification—a key source of its profitability. Around 27% of its loans are in Sub-Saharan Africa, primarily within the WAEMU region, exposing the bank to more volatile economic environments. Countries such as Burkina Faso, Mali, and Niger, which face significant political instability, affect the bank's portfolio quality, resulting in a high doubtful debts ratio of 10%, driven by risk concentration and exposure to fragile jurisdictions.

Despite these concerns, Moody's reassures that there is no immediate cause for alarm. The bank remains profitable, with 2.5% of its assets generating pre-provision operating revenue. This buffer is sustained by low-cost deposits and a well-diversified retail business, particularly in its West African subsidiaries. Net income, equivalent to 1.2% of total assets, is expected to remain stable over the next 12 to 18 months, supported by a projected reduction in risk costs in both Morocco and its African markets.

Another mitigating factor is the level of provisioning, with 88% of doubtful debts covered. This helps offset the impact of the bank’s relatively modest capital levels. Moody's estimates tangible equity at 7.2% of risk-weighted assets in 2024, a level that warrants caution but remains in line with sector norms on the continent.

BOA also benefits from implicit support from the Moroccan government. As a systemic bank recognized by the central bank, holding over 12% market share in deposits, BOA receives a three-notch uplift in its Moody’s rating due to the high probability of state support in case of financial distress.

In the short term, no major contractions or expansions are expected. The outlook will be shaped by upcoming events such as Morocco hosting the Africa Cup of Nations in 2025 and the World Cup in 2030, as well as a new wave of state-sponsored investments that present ample opportunities for lending, investment, and growth. WAEMU countries, however, must address their economic and security weaknesses to avoid hindering the group’s broader ambitions.