Addressing banking difficulties
Bank Al-Maghrib is responsible for dealing with the difficulties of credit institutions in accordance with a legal framework based in particular on the provisions of Law No 103-12 on credit institutions and similar bodies and those of the Commercial Code. This legal framework provides for:
- Preventive measures through the preparation of an ex-ante recovery plan by institutions of systemic importance or significant size
- the presentation, in the event of major difficulties, of ad-hoc restructuring plans under the aegis of the management and shareholders
- the nomination, if necessary, of an interim administrator
- legal instruments at the disposal of authorities for the restructuring of credit institutions
- coordination between the supervisors of the financial system in crisis management
- the intervention of a collective deposit guarantee fund ti indemnify depositors 'compensation or exceptionally for the addressing credit institutions' difficulties
- the withdrawal of licenses, if need be, and the nomination of a liquidator.
1 - Ex-ante bank restructuring plans
The Banking Law No. 103-12 requires banks to prepare ex-ante “internal crisis» recovery plans. These plans describe in hypothetical crisis situations, the options that these banks intend to implement to restore their situation so as to limit the impact on the financial system and without creating additional costs for the State and the taxpayer.
A circular of Bank Al-Maghrib defines the preparation and transmission methods of this plan and its content.
2 - Ad hoc plans for the recovery of credit institutions under the auspices of the management and shareholders
When Bank Al-Maghrib concludes that the management or financial condition of a credit institution does not provide sufficient guarantees in terms of solvency, liquidity or profitability, or that its internal control system has serious flaws, it issues an injunction and requires the disclosure of a recovery plan.
It calls upon the financial support of shareholders or members holding, directly or indirectly, an interest equal to or greater than 5 percent of the capital and forming part of the administrative, executive or managerial bodies of the institution concerned.
Bank Al-Maghrib may, without applying the injunction or calling on shareholders or members, directly issue a warning to the credit institution in order to comply with the provisions of the Law on credit institutions and similar bodies and its implementing provisions, to improve its management methods, strengthen its financial situation or redress the anomalies identified in the internal control system.
Where the warning addressed to the credit institution remains ineffective, the Governor of Bank Al-Maghrib after obtaining the opinion of the Disciplinary Committee of Credit Institutions, which is a legal body consisting of a representative of Bank Al-Maghrib, two representatives of the Ministry of Finance and two magistrates, may:
- suspend one or more managers
- prohibit or restrict the exercise of some operations by the credit institution
- appoint an interim administrator
- declare the withdrawal of license
3- Appointment of an interim administrator
The appointment of an interim administrator takes place when:
- it appears that the functioning of the deliberation, supervision or management bodies of the credit institution can no longer be ensured in a normal way
- the measures envisaged in the recovery plan are deemed insufficient to ensure the viability of the credit institution
- the warning remained ineffective.
The interim administrator is appointed by the Governor of Bank Al-Maghrib after receiving the opinion of the Disciplinary Commission of Credit Institutions.
In case of emergency and when circumstances threatening the stability of the banking system so require, the Governor of Bank Al-Maghrib is entitled to appoint directly an interim administrator without seeking the opinion of the Disciplinary Committee.
The appointment of an interim administrator leads to a suspension of the deliberative bodies. The latter shall draw up a diagnosis which specifies the nature, origin and extent of the difficulties faced by the institution and propose measures to ensure its recovery.
He submits a periodic report to Bank Al-Maghrib on the restructuring process of the credit institution.
4 - Deposit Guarantee Fund Intervention
The primary objective of the Deposit Guarantee Fund is to protect the interests of depositors in the event of a bank bankruptcy and exceptionally to participate in the restructuring process of a member credit institution in difficulty.
The banking law has since 2015 conferred the management of this fund to a public limited company known as the Moroccan “Société de Gestion de Fonds de Guarantee des Dépôts Bancaires "SGFG" held by Bank Al-Maghrib and member credit institutions. The company is entrusted with:
- managing the Collective Deposit Guarantee Fund as well as the Deposit Guarantee Fund of Participating Banks
- collecting annual contributions from member institutions
- indemnifying depositors in the event of unavailability of their funds up to a maximum amount per depositor
- participating in preserving the stability of the banking system through (1) the granting of financial assistance, as a precautionary and exceptional measure, to credit institutions experiencing difficulties likely to eventually lead to an unavailability of deposits, (2) equity investments in the said institutions, (3) designation as interim administrator.
The SGFG has a board of directors chaired by the Governor of Bank Al-Maghrib, and consists of 3 representatives of the banking profession and 2 independent directors.
5 - Legal instruments for the restructuring of credit institutions
The banking law defines the restructuring instruments of credit institutions in difficulty made available to the interim administrator or, as the case may be, Bank Al-Maghrib. These are :
- total or partial sale to another institution
- the sale, to an ad hoc structure recognized as of right a credit institution, of the assets of the institution, considered impaired.
- the splitting up of the institution. The entities resulting from the break-up may be licensed as a credit institution upon a prior authorization from the Governor of Bank Al-Maghrib.
Implementation of these instruments may be proposed by the interim administrator or decided directly by the Governor of Bank Al-Maghrib in case of emergency and when circumstances threatening the stability of the banking system so require.
6 - Coordination with the supervisors of the financial system in crisis management
An agreement on the management of financial crises is concluded between the Ministry of Finance, Bank Al-Maghrib and the Moroccan Capital Market Authority. The purpose of this agreement is to coordinate actions between the financial authorities in the event of a crisis, based on the following principles:
- sharing information and analysis among its members in a timely, integral and regular manner
- a coordinated choice of the most appropriate and least costly policy for public finances
- the allocation of costs resulting from the resolution of the crisis to shareholders and managers of defaulting institutions in the first place
- the consistency of measures taken to manage financial crises by ensuring equality in dealing with the parties concerned
A crisis committee is established by virtue of the aforementioned convention. It is chaired by the Minister of Finance, and is composed of the Governor of Bank Al-Maghrib and the presidents of the insurance and social welfare authority and the the capital market authority. Its mission is to coordinate the action of its constituent authorities in the management of financial crises that may require financial assistance from the State.
In terms of cross-border cooperation, Bank Al-Maghrib has signed with the competent authorities of countries hosting the subsidiaries of Moroccan banks Memorandums of Understanding, particularly on coordinating cross-border crisis management.
7 - Withdrawal of license and appointment of a liquidator
The winding-up of a credit institution systematically entails the withdrawal of the license and is carried out in accordance with the provisions of the Commercial Code, except for the appointment of the liquidator and the declaration of loans which remain governed by the banking law.
The liquidator is appointed by the court on a proposal of the Governor of Bank Al-Maghrib and depositors are exempt from the declaration of their claims.
The liquidator should submit a quarterly report to Bank Al-Maghrib on the winding-up operations.