Morocco’s $11.3 billion bad-debt market set to attract first international investors

Morocco’s $11.3 billion market for troubled loans is set to attract its first international investors, with the International Finance Corporation and German debt specialist EOS Group preparing a €60 million facility to buy bad loans, Asharq Bloomberg reported.

The IFC, the World Bank’s private-sector investment arm, plans to enter Morocco’s distressed-debt market for the first time as the country moves closer to launching a regulated secondary market for nonperforming loans.

Under the planned facility, known as DARP NPL EOS Morocco, the IFC and EOS will each provide up to €30 million. The facility will target troubled loans held by Moroccan banks, covering individuals as well as small, medium-sized and large companies.

The facility will also target real estate assets that financial institutions have taken over as part of debt recovery efforts, giving banks another potential way to clear troubled assets from their balance sheets.

Morocco’s nonperforming loans have grown by about 6% a year on average over the past decade. The biggest jump came in 2020, when bad debt rose by around 15% as the Covid-19 pandemic, lockdowns and the economic slowdown put pressure on borrowers.

Nonperforming loans reached MAD 104.7 billion by the end of June, according to the latest data from Bank Al-Maghrib, up about 1.9% from a year earlier.

For banks, a functioning secondary market could provide a way to turn distressed loans into cash rather than keeping them on their books for years. That could free up funds for new lending and reduce pressure on bank balance sheets.

In March, the Economy and Finance Ministry released a draft law allowing banks to sell troubled loans owed by households and companies under a regulated system supervised by Bank Al-Maghrib.

A revised version of the draft is expected after authorities complete consultations.

Bank Al-Maghrib Governor Abdellatif Jouahri has previously cited difficult economic conditions, sector-specific problems, excessive borrowing, unexpected shocks and poor management among the factors driving bad debt.