BANK CEO SAYS OPTIMISM JUSTIFIED IN MOROCCO

C O N F I D E N T I A L CASABLANCA 000066

SIPDIS

SIPDIS

STATE FOR NEA/MAG AND NEA/PI

E.O. 12958: DECL: 03/25/2017
TAGS: ECON EFIN KDEM MO
SUBJECT: BANK CEO SAYS OPTIMISM JUSTIFIED IN MOROCCO

Classified By: PRINCIPAL OFFICER DOUGLAS GREENE FOR REASONS 1.4 (B)
AND (D)

REF: A) 06 CASABLANCA 1325; B) 06 CASABLANCA 676


1. (C) SUMMARY: When it comes to Morocco, optimism characterizes the
view of Othman Benjelloun, chairman and CEO of BMCE Bank. He
attributes Morocco's positive environment to a healthy banking
sector, a cooperative-minded Central Bank, and a booming economy.
BMCE itself is doing well, and will soon launch a new strategy for
selling financial products, as well as limited Islamic banking
services. According to Benjelloun, neither upcoming parliamentary
elections, nor the March 11 suicide bombing in Casablanca, will
disrupt Morocco's positive environment. His deputy, however,
acknowledged the need for continued reform and suggested several
measures that he would like the GOM to implement. END SUMMARY.

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POSITIVE ECONOMIC OUTLOOK
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2. (U) On March 21, 2007, CG and Econoff met with Othman Benjelloun,
Chairman and CEO of BMCE Bank, Morocco's third largest bank and the
most internationally-focused. Jaloul Ayed, BMCE's Administrative
Director General, was also present. The two shared a very positive
view of Morocco's future, citing a growing economy and increased job
creation. Mr. Benjelloun went so far as to say that the situation in
Morocco has not been as favorable as it is now for several years, and
stated that, ?the optimism is justified.?


3. (U) When asked what accounts for Morocco's positive environment,
Benjelloun cited three factors. First, he said that several of
Morocco's previously state-controlled banks, including Credit
Agricole, Credit Immobilier et Hotelier (CIH) and Banque Centrale
Populaire (BCP),had been ailing, but have now recovered. Second, he
credited a much-improved relationship with the Central Bank for the
new, positive environment. He explained that Bank Al Maghrib used to
have a reputation for being punitive and aggressive, and for treating
banks as police would citizens. With the arrival of Bank Governor
Abdellatif Jouahri, however, Morocco's banks have developed a good
working partnership with Bank Al Maghrib, even meeting as a group
every six months. Benjelloun added that the Minister of Finance,
Fathallah Oualalou, has also been helpful, thanks in part to his
knowledge of banking and nine years experience as BMCE's president.


4. (U) The third factor contributing to Morocco's positive
environment is the simple fact of the economy's good health.
According to Benjelloun, there is a lot of liquidity in the market,
and projects in sectors including tourism, textiles and construction
continue to flow. He cited the lack of unskilled workers in
Marrakesh (as a result of the plethora of projects) and an official
unemployment rate of ten percent as evidence that things are on the
up and up. Benjelloun emphasized that the surfeit of activity in
Morocco is a reality, not just a phenomenon reported in the press.

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HANOUTI AND ISLAMIC BANKING AT BMCE
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5. (SBU) Just as the Moroccan economy is fairing well, so too is BMCE
Bank. Having reconfigured its domestic banking network, and
redefined its corporate bank, BMCE Capital, the bank plans to launch
an innovative strategy for selling financial products in mid-April.
To start, the bank will open one hundred ?hanouti,? or small shops,
which will operate like convenience stores where consumers can buy
not only coke, gum and newspapers, but also financial services such
as insurance plans and telecommunications packages. BMCE envisions
opening three thousand shops, later expanding to other parts of the
Maghreb and Africa. The bank has been looking ahead internationally
as well, as indicated by its recent purchase of thirty-five percent
of Bank of Africa, which has a presence in twelve African countries.


6. (SBU) BMCE, like its counterparts, will also begin to offer some
Islamic banking products. Recently, the Bank Al Maghrib and the
Professional Group of Banks of Morocco (of which Benjelloun is
President) agreed to allow Islamic banking in Morocco, though not
Islamic banks. Benjelloun stressed, however, that the Central Bank
and the banking association will refer to these services as
'alternative products,' and not as Islamic or sharia or halal. The
banks also agreed on specific names for the three products on offer,
and will use only these names to sell them. The hope is that such
products will increase banking participation.


7. (SBU) At the end of April, Bank Al Maghrib Governor Jouahri will
meet with the banks to discuss each one's public relations approach
to marketing their new services. While the GOM accepts that banks
will offer Islamic banking products, everyone involved (including the
king) is keenly aware that certain groups may try to politicize the
issue. According to Benjelloun, the banks will offer the new
products and reevaluate the decision to do so in six months.

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NOT WORRIED ABOUT ELECTIONS, TERRORISM
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8. (U) When asked for his opinion on upcoming parliamentary elections
in September 2007, Benjelloun said he believes they will bring no
significant change. He contends that even if the Justice and
Development Party (PJD) gains fifteen or twenty seats, they will not
win a majority, leaving the majority of parliament the same. He
mentioned that the constitution gives the king the right to name the
Prime Minister, implying that even a surprise in parliament would not
destabilize Morocco.


9. (U) Similarly, Benjelloun did not think that the March 11 suicide
bombing in Sidi Moumen would hurt the country. Though the event may
force Moroccans to become more vigilant, he said it has not stopped
people from investing or visiting, as evidenced by hotels and
restaurants that continue to be full.

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WISHLIST OF REFORMS
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10. (SBU) When asked what changes he would like to see from the GOM,
Benjelloun's Tunisian deputy, Jaloul Ayed, had several ideas for
reform. The need for greater foreign exchange flexibility topped his
list. He conceded that there has been some progress already, but
believes there is still a long way to go. He would also like to see
more flexible labor laws, and the total reform of the judicial
system.


11. (SBU) Ayed placed particular emphasis on two areas. First, he
observed that Morocco is very behind in reforming fiscal policy, with
banks paying six percent more in taxes than other corporate
businesses, which are already taxed heavily. He cited Egypt as a
prime example of how Morocco might solve its fiscal problems. When
Egypt halved taxes from over forty percent to about twenty, people
started paying and tax revenue increased. Ayed believes this
approach would be advantageous in Morocco. Not only would it benefit
investors, but it might also stem the tide of educated Moroccans who
opt to work abroad in part because their salaries at home are taxed
too heavily.


12. (SBU) Second, Ayed noted that while Morocco has done a good job
of reforming the financial system, banks such as BMCE face
difficulties as a result of the fact that the palace has its own bank
in Attijariwafa. According to Ayed, Attijariwafa's existence as a
quasi-public bank creates some irregularities in the market. He
admitted that while BMCE tries to establish professional and ethical
standards, the situation sometimes makes it hard to adhere to them.
Nonetheless, BMCE Bank has been able to profit from the current
positive environment and is proud of its role as a pioneer in
Morocco's banking sector.


13. (C) COMMENT: Benjelloun is optimistic about Morocco's future
prospects, but acknowledges that challenges remain. His comment that
?there are many Moroccos,? including a large, uneducated, rural
population, indicates he is aware that there is more to be done, as
does his significant involvement in an organization dedicated to
creating rural schools. Such efforts, along with the economic growth
Benjelloun celebrates, will be the key to long-term stability and
prosperity. END COMMENT.

GREENE