Concerns mount over 'cash shock;' liquidity during Eid al-Fitr

As Eid al-Fitr approaches, concerns are rising over a potential cash shock that could negatively affect liquidity in banks. 

This is due to the expected surge in customers withdrawing cash from bank ATMs, with a record turnout anticipated.

A statement issued by the Professional Group of Moroccan Banks announced an exceptional halt of operations next Friday if Eid falls on Wednesday.

During the extended bank closure period, pressure is expected to intensify on ATMs as people seek cash withdrawals to finance their holiday purchases. This coincides with the school break and inter-city travel period. 

Statistics from the Moroccan Currency Center revealed 301 million cash withdrawals totaling MAD 299.1 billion between January and September last year.

These new concerns come amid a significant liquidity shortage in banks, leading some branches to discourage cash withdrawals above 40,000 dirhams using cashier’s checks. 

 ATM services in various neighborhoods of Casablanca were suspended last weekend due to cash shortages.

Demand for cash increases significantly during holidays and various consumption occasions, such as Ramadan, Eid al-Adha, summer vacations, Moroccan expatriates’ return, and the back-to-school season. Customers often withdraw cash from their accounts to finance purchases.

Financial advisor Salim Shihabi emphasized the worsening liquidity situation in banks, attributing it to increased cash circulation. 

The financial advisor pointed out that cash circulation reached MAD 394.8 billion last February, posing risks of monetary inflation due to the faster growth of circulating cash compared to GDP.

Shihabi stated that banks face a dilemma between legal obligations to provide immediate access to deposited funds and curbing cash drain from ATMs. 

The advisor noted that card-based transactions at ATMs remain low, with customers primarily using them for cash withdrawals.

Despite closing 145 bank branches last year, banks have been unable to reduce the number of ATMs. The total now stands at 8,176, with Casablanca having the highest number at 1,593. 

The increasing preference for cash worries Abdellatif Jouahri, the Governor of Bank Al-Maghrib, who expressed concern about its effects on market liquidity. Jouahri emphasized the need for monitoring and urgent solutions to the problem.

Financial markets expert Abdelatif Wejman believes that digital channels have shown limitations despite years of development and awareness campaigns. 

Wejma pointed out that other Arab countries like Saudi Arabia and the UAE have taken significant steps to reduce cash usage, which costs the national economy billions annually.

Wejman suggested that encouraging mobile banking and mandating electronic settlement of transactions, regardless of value, could curb cash usage. This, he believes, would significantly contribute to formal sector development.

The trend of cash preference extends to financial instruments like checks, which still dominate commercial transactions despite concerns about their reliability. 

Even with the introduction of instant transfer services through banking apps, checks continue to prevail, slowing down transactions.