Lhe banking sector faces a growing challenge: its growing exposure to public debt. This situation, observed for more than ten years, raises concerns about the ability of the financial system to withstand possible economic shocks. In 2024, this situation will worsen. According to the “Finance and Properity 2024” report published by the World Bank, the exposure of Moroccan banks to public debt increased by almost 40% between 2012 and 2024.
Banks now hold a considerable share of debt securities issued by the State, which makes them increasingly dependent on the latter as the main borrower. This situation, although apparent as a lever for stability in times of economic growth, turns into a source of risk in the event of a deterioration in public finances.
Hachimi Alaoui, expert in financial economics and professor at Ibn Zohr University in Agadir, explains that the risks are not limited to state debt, but also extend to public companies, particularly affected by rising prices. energy and food. The strong interconnection between banks and public debt could lead to a domino effect in the event of a budgetary shock, threatening overall financial stability. This increased dependence was also mentioned in the recent report from the American rating agency Moody’s Ratings: “a more marked and sustained increase in Moroccan public debt could exert downward pressure on credit. This could be the result of a future shock or larger spending demands than currently planned, linked to large-scale infrastructure projects or ambitious social security reforms. The crystallization of contingent liability risks emanating from public companies or the banking sector would also weaken Morocco’s budgetary solidity and weigh on the rating.
Current regulations encourage banks to hold Treasury bills, considered safe investments, against the backdrop of a financial system exposed to increased sovereign risk. “The evolution of public finances is crucial, because if the State experiences difficulties, the private sector could suffer a reduction in access to credit,” warns Professor Alaoui. The said report therefore warns against this increased dependence on public debt. One of the main criticisms leveled at Morocco is the lack of diversification of banking assets. Too much concentration on government securities, to the detriment of credit to the private sector, limits the ability of banks to support innovation and the growth of private companies, essential for boosting the economy.
Recommendations for a more resilient financial system
To mitigate these risks, the World Bank recommends a series of reforms. Transparency of public debt exposures must be strengthened, with an obligation for banks to regularly publish detailed information on their holdings of government securities. This would enable better risk assessment and more prudent management. In addition, it is essential to diversify banks’ assets. The development of new financial products, such as green bonds or climate risk insurance, could help banks reduce their dependence on government securities while supporting sustainable development goals.
Diversification would also make it possible to better absorb economic shocks while participating in long-term projects promoting the green economy. Promoting public-private partnerships for financing large infrastructure projects could also offer banks viable alternatives for balancing their portfolios. The relationship between public debt and the banking sector highlights the need for significant reforms in Morocco. “Public debt is a tool for financing development, but it must not become an Achilles heel for banks,” recalls Professor Hachimi Alaoui.
