The Moorish Wanderer

For a few banking bucks

Posted in Dismal Economics, Moroccan Politics & Economics, Moroccanology, The Wanderer by Zouhair ABH on September 25, 2010

Put it in another way: how is the Moroccan financial capitalism performing? not too bad as the data shows, though it comes to the expense -no pun intended- of the consumers. It is their plight to submit to the high fees and expenses their banks charge them, while service quality and innovation are clearly not worth it. And it is not like one can benefit from competition: banking market behaves more like a cooperative oligopoly, and each bank treasures a much lucrative rent, each one prefers to keep living on it, rather than go on the market for the kill to get some market shares. So there you are: an oligopolistic market and little benefits for the consumer. Or does it? One might think that these high fees are just a sort of a levy, a way to channel the money to fund and some productive investments. Not necessarily public-oriented, but investments that could create jobs and drive the economy forward. Again, nothing is further from the facts. Let there be no misunderstanding: the Moroccan banking system has accomplished wonders, whether in updating its laws and regulations system, as well as its extension, even beyond domestic market, in less than a decade. This progress however, did not benefit to the many, only to the few, contrary to what was expected.
Consumers do pay high fees, but that does not get to the bottom of our issue: are our banks really fat cats? do they enjoy high margins, do they deliver high earnings? Do they deliver them to a small and inward-looking group of shareholders? I tried to gather some figures, and the results are quite puzzling. Some were expected, others less so. Let us go through the whole thing step by step.
The Banking market in Morocco is, in terms of number of players, clearly an oligopolistic market: according to the Casablanca Stock Exchange website, there are 6 banks on the secondary market, with about 30% direct market capitalization of the overall listed shares:
Attijari Wafabank,
Crédit du Maroc (CDM),
Crédit Hôtellier et Industriel (CIH),
Banque Marocaine du Commerce Extérieur (BMCE)
Banque Marocaine du Commerce et d’Industrie (BMCI)
Banque Centrale Populaire (BCP),

To these 6 banks, there must be added the state-owned Crédit Agricole (CAM) and the Moroccan subsidy of the French bank Société Générale (SGMB). according to their financial statements for 2009, these banks (save perhaps the CIH, due to its past financial difficulties) have delivered quite satisfactory results, as indeed the table on the right-hand side clearly show. Being a bank shareholder surely is quite lucrative. In 2009, the main CSE index, the MASI (Moroccan All Shares Index), delivered on average a rate of return of about 5%. Following the data I got from their respective financial statements, only two banks (CAM and CIH) delivered a lower rate of return compared to the average index return. One of them, CIH, has the handicap of past shady business deals, the other is a Public Bank, and is not constrained by the same required rate of return in a financial market.This is only a first sketch of results. Indeed, the idea is to compare the pattern of behaviour of the banks’ stocks to the rest of the market. This is just to have an idea of how correlated their value is to the other non-banking stocks. This is achieved by plotting the day-to-day bank stock performances vs the MASI index, through a customized composite bank index (a very basic indicator that is computed with respect to each bank’s share weight and their performance) January 2009 is considered base day. In other words, the Composite Banks Index (CBI) is computed as follows:

The result on the graph is a bit messy, so we shall keep only the CBI vs MASI, and the graphic result is quite odd. Odd because the overall Bank share of the CSE amounts, as computed before, to less than 30% (according to the MASI weightings, the banking sector accounts for 29.51% of the overall index capitalization, while IAM alone accounts for 20%). The interpretation of it is that the day-to-day valuation of bank shares does not differ significantly from the other stocks, while on average, these deliver higher dividends, ceteris paribus.

the evidence shows strong correlation between the banks' index and the MASI.

The index has however a setback, for it fails to compute the daily fluctuations of both SGMB and CAM, though it would be safe to presume that the first one will most probably behave in a comparable manner, and the second does not fit to any financial comparison. On the whole, the index comparison results hold. The routine tests one could run on the data set do confirm a very close correlation between both series (to name only one, the correlation coefficient is .95, regression R-square .91). The level of dividends is however quite different. Although there is no immediate available data, the preliminary results show that the banks deliver dividends at a higher rate and more often than comparable companies in size and profits. While it is perfectly understandable that Moroccan banks have to create value for their shareholders, they seem to achieve this objective not through investing and lending money to businesses, but quite often by levying high fees on their customers, which induces less risk and immediate profit for them. On the long run, such strategy destroys actual value.

It is therefore agreed that the banks deliver high dividends. But do they? By computing both time series, on can get an overall β of 1.0818 for the banking sector. The βeta measures the sensitivity to market returns, and the computed Beta confirms the close relation admitted earlier on. Let us now take a look at the following formula: where r(b) is the required rate of return for banks, β the banking sector beta, r(f) the risk-free return(which amounts to the the real interest the Treasury bonds service, around 1.4% on domestic markets, much less abroad) and E(Rm) is the expected market return, which, in our case, amounts to the MASI return (5% in 2009).

The banks, on average, have outperformed their sector/own required rate of return, and managed to deliver high value to their shareholders

The average required return for the banking sector in Morocco was, in 2009, of 5.49%, a required return easily beaten by all but two banks (Not Applicable to the Crédit Agricole and s for CIH the share value took a beating and lost 20% over 2009 YoY). Even when computed with each bank’s own required rate (the SGMB‘s was computed with the sector Beta), the main result remained unchanged, the banks are very profitable enterprise in Morocco indeed.

Next question is, where does the money come from? the graph shows high margin commission rates; intuitively, that could be interpreted as a very profitable fee structure, that makes up for about a tenth of the net banking income. It is definitely lucrative for the banks to levy high fees and charge their customers for their miscellaneous operations, arguably something the banks should not be very keen on, since it is quite difficult to justify the present level of banking fees with respect to the quality of service. On the other hand, the banks spend relatively little money on investment instruments. The consolidated financial statements provide good evidence on the matter: While the total banking gross revenue was around MAD 40 Bn, the aggregate margin on commissions reached MAD 5.1 Bn, a ratio rate of 12%.

On the upper side of the balance sheets, the total customers’ deposits amounted to MAD 655 Bn opposite to a total lending of MAD 400 Bn (the total national lendings amount to MAD 597 billion). The lending makes up for 82% of the total M3 aggregate (MAD 792.87 Bn, Q4 2009). These lendings are weight-biased towards specific types: Housing mortgage (MAD 103 Bn) Equipment lendings (MAD 119 Bn) Overdraft facilities (MAD 139 Bn). Arguably, it is understandable to charge high fees for overdraft (no need to fuel monetary inflation) but it seems contradictory that housing mortgage (which makes up for a third of the overall economic debt) should be positively discriminate in the high fees policy, especially when the central banks lowers the monetary rate to keep the money flowing in: although it is quite difficult to get to fine details (or rather, I am getting a bit tired going through columns and columns of balance sheets), it is reasonable to suggest that the levy on mortgage is quite important, a policy which contradicts, as mentioned before, the official public policy. So there you go: the banks are unambiguously benefiting from high profits, which do not come from financial operations. The permanently available financial instruments (for sale) account for MAD 50 Bn, 20% more than the annual gross revenue, which gives a fair idea of how comparatively important the day-to-day -thus fee lucrative- operations are for the banks. Last but not least, most of the banks are under-capitalized (total market cap of MAD 30 Bn) that might be good for business, but it just gives them an unfair leveraged advantage which might turn against the customers in the event of a stronger negative shock.

One last thing: the shareholders of these banks, those who benefit from flowing cash (the net after dividend total available cash for 2009 was around MAD 20 Bn) are not individuals with small stakes on the markets, nor pension or mutual funds: large companies, with powerful political and economic connections control these banks, and certainly not to the benefit of the consumer, and therefore, the common citizen. Are the bankers Fat Cats? yes they are. domestic entities such as SNI-ONA or, and foreign (mostly French) companies such as Groupe Crédit Agricole, or Société Générale are the one that are making good use of deposited money – and making people paying dearly for it.

Put it in another form: how is Moroccan financial capitalism performing? It is a plight for Moroccan consumers to submit to the high fees and expenses their banks charge them, while service quality and innovation are clearly not worth it. And it is not like one can benefit from competition: banking market behaves more like a cooperative oligipoly, and each bank treasures a much lucrative rent, prefers to keep living on it, rather than go on the market for the kill to get some market shares. So there you are: an oligopolistic market and little benefit for the consumer. Or does it?Consumers do pay high fees, but that does not get to the bottom of our issue: are our banks really fat cats? do they enjoy high margins, do they deliver high earnings? I tried to gather some figures, and the results are quite puzzling. Let us go through the whole thing step by step.The Banking market in Morocco is, in terms of number of players, clearly an oligopolistic market: according to the Casablanca Stock Exchange (, the

A Socialist Economy For All

In Economic terms, Social Democracy has defined itself de facto. It has led, indirectly or not, to the financial meltdown the world is struggling with today. Democratic socialism, or even Communism are yet to redefine their terms, economic policies-wise.

Allow me to dismiss the old-fashioned economic stereotypes on Communists and Left-Wingers. The stereotypes that they are pro-Statu quo, still clinging on to an evaporated ideal of a centralized, planned economy. These days were over well before the Berlin Wall came down. If anything, New Communism, with its Alter-Globalization stance, embraces a different way of dealing with economics. Not as yet refined as Capitalist economics is in theoretical terms, but I am quite confident a generation of young economists can find a way through.

In any case, it is essential for the reader to bear in mind that the “mother source” of Communism, i.e. Karl Marx, never stated that communist economy should be planned, it was never mentioned how it should be organized, save perhaps for the motto “From each according to his ability, to each according to his needs“. In facts, most of Marx’s work was mainly a scientific attempt to produce a wholesome criticism of the capitalist production mode. Later in his life, he took interest in the mathematical aspect of economics, something that would have been of great use if his great mind was put to it. In any case, his criticism never got round the idea of “banning” markets, that’s for sure.

I promised my friend a post on how I can claim being a socialist, and still uphold the essential aspects of a capitalist economy. How I can find striking similarities in the theoretical groundwork of pure market and pure centralized economies. I shall give my best in this in two parts. First, the basic principles that are common to the two models, and then, a timid attempt to give a simple model of what I believe to be a socialist and democratic economy.

First, I have to say that the statement about Market vs Centralized economies is a bit over the top. When I first came across it, I did not believe it at first. Then, when the canvass of economic formulae was laid before my eyes, I hit upon it. In simple terms, the essential common points are as follow:
– The main economists that shaped the neo-classical models, those that are the core theory of market economics, where mainly (save perhaps for the Fascist Vilfredo Pareto, who, later in his life, accepted a Senator’s position in Mussolini’s Italy) of positivist stance.

And in the late 19th century, being positivist meant, in a way, being in favour of social harmony and progress. That was the case for Walras, but also for Jevons. These defined themselves as social-democrats, which, before 1904, meant they were much more left-wing than those today. The very idea of a Homo Economicus, an iron balance of pain and pleasure is the ideal of a Übermenschen, but in a “good way”. I put the brackets on advisedly, because I mean the Superhuman can be any body, and not an elite among the commons, all of which has a certain flavour of left-wing.

– The intrinsic determination of price market: Smith may have fathered to image of invisible hand, but Walras’ own image is more interesting: He talks of an “Auctioneer” (Commissaire Priseur). In his mind, there is an invisible actor that centralizes prices on both sides (Demand and Supply) then equates them all so that each one’s wealth is maximized. In addition to that, the Price of all prices, i.e. money, is defined as the last recipient of the remaining surplus (what is left of everyone’s maximized utility). I think I went a bit fast, so let me sum it up through mathematical formulae.
1. At the beginning, there is an assumption of universal initial endowment of goods.



Not just money, goods too. That means for households their labour force, and occasionally some money with unknown value. (Each agent in the market has m-1 goods and a sum of money as initial endowment) That also means for firms some capital or some money, equally of unknown value (value will be determined further on through price clearing mechanisms). The Auctioneer then centralizes all available data, including what everyone asks as a price (how these are determined is something economists did not fully answered until Arrow & Debreu came along, and even their explanation remains incomplete) The Auctioneer, through maximization under constraints of available resources, displays prices, market prices that is, for all individuals and firms to make their deals.

2. Centralized economies, in their theoretical models, differ very little from that scheme. The difference is that prices are not determined through each one’s utility, these are defined as a whole. Here, the Law of Large Numbers makes individual and collective wealth converge into one single item, all of which makes market and centralized economies look alike. The actual economies that we witnessed throughout history are, of course, quite different. Planned Economies failed not because of their own nature of Planning. They failed (and I must stress this is only my opinion) because they kept on producing non-productive goods and spoling the labour force. Non-productive goods means here Arms and Space industry. Capitalist economies, on the other hand, in order to kick out an possibility of communist subversion, managed, or made the impression to manage, an economy devoted to human capital, the so-called “Society of Mass Consumption“.

The Soviet Union, for instance, had experienced a brief period of that kind of economy, when Khrushchev came to power and tried to strengthen the Communist Party’s hold by producing more consumption goods. Same goes along for China after they abandoned Mao’s dogma. There are other factors of course, and my statement remains doubtful until some serious econometric study was carried out, but I am quite confident the theoretical parameter, i.e. the idea of planned economy, is of little consequence over the whole outcome.

The next bit is going to be a bit far-fetched, I am afraid I am going to stretch my knowledge of economic models to its limits. In a nutshell, my model allows for the following players to make their bidding in two times on the economy: The Firms (Banks and Goods-producing firms alike) that rally within employers’ union, and the Workforce that rallies behind trade-unions. These two groups of players are shadowed by the State and the Central Bank. Each player (including the authorities) have incentives and their own maximization program, which might come to the expense of others. Nonetheless, an optimum must be reached. I hold all players to be rational and all of them accept the idea of a cooperative set of games.

The workforce has the following system to solve:





Where W is the wage sought for a period t.

The wage W* is the equilibrium wage and is function of the equilibrium inflation rate π*.

Indeed, if the workforce asks for a large rise (meaning a large C) they would end up fuelling inflation, and thus effectively damaging their real income. Alternatively, they choose between a wage rise on their labour (with a fraction α), or they could cash in the dividends from the companies they own (with a fraction 1-α).

Here lies an idea I am very fond of: the extensive use of cooperatives as a form of socialist enterprise. All the aspects of a free market economy remain, save for the property regime, under which all workers have shares in their companies.

The dividends, on the other hands, do not have an impact on inflation, because of some further aspects that are to be discussed later on. Finally, I must admit there is at least something incongruous about the said model. Usually workers do not foresee inflation, but because these gather within trade-unions, the assumption holds, as the trade-union forecasts it for the benefit of its members. On the basis of these forecasts, the trade-unions claim a certain wage rise following constraints on output, inflation and interest rates.

The GDP is broken down as follows:


Where the Gross Domestic Product is the sum of each player’s contribution: Wages as marginal labour productivity, Profits as marginal output productivity, governement spendings (function of net wages and profits) and last, the sum of Liquidity Loss functions. These are the “lazy” way for the Central Bank to do its job by manufacturing inflation, instead of increasing interest rates. A job I referred to in a post earlier on.

In any case, my vision of a socialist economy remains, as someone puts it, very “moderate”: an open-Market economy where long-term stability on unemployment, inflation and growth is achieved through mass private ownership of one’s company, and the systematic involvement of unions (employees and employers alike) in defining the targets to meet.

Then there’s a bunch of other ideas, like free public transports to reduce the number of private cars (reducing thus effectively CO2 emissions) slimming down the civil service to an efficient corps of dedicated and professional civil servants (ideally, administrative costs relative to that of investment should be of 1 to 4 ratio), the abolition of VAT, and levy taxes on the large fortunes, while getting small amounts of taxes from a wider base.

There are other things I cannot afford to enumerate pêle-mêle, I need time and skill to study these policies a bit further. I know it is quite blur, but I am working on getting the necessary skills to describe it further.  In any case, the policies I support have one crucial criterion: the need to address any privilege, any inequality that is likely to degenerate into a rent.

I am well aware inequalities cannot be fully addressed, but there is a wide margin on narrowing these to a state such, as Tocqueville stated: “Among a democratic people, where there is no hereditary wealth, every man works to earn a living. Labour is held in honor; the prejudice is not against but in its favour“.