Banks Under Liquidity Pressure

A slowdown in deposits combined with rising credit volumes and mounting liquidity pressures… This is the situation facing the banking sector. While 2024 ended with lackluster results for the sector, 2025 is following the same trajectory. 

Indeed, total outstanding loans increased by 4.4% to 1,164 billion dirhams (BHD), though with notable disparities among borrower categories. Private financial institutions saw their loan volumes stagnate (+0.6%), while public enterprises’ loans surged by 7.3%, reaching 453 BHD and 84 BHD, respectively. In contrast, household loans declined by 1.1% to 382 BHD. 

As of the end of January this year, on an annual basis, the same trend persists. The public sector continues to drive its loan volumes to new heights, with an 8.6% increase. This growth is fueled by the government’s ongoing efforts to finance strategic projects in infrastructure, renewable energy, industry, and more—aligned both with preparations for major sporting events and with boosting national growth and reviving employment. 

This is further evidenced by the 8.4% growth in equipment financing. Investment efforts are clear, and banks are responding by easing lending conditions for working capital, equipment loans, and credit to both SMEs and large enterprises. 

This is the key takeaway from BAM’s (Bank Al-Maghrib) latest survey. This momentum is expected to strengthen further, given substantial investment budgets allocated across sectors. Notably, Fitch Ratings had previously projected investments of $100 billion by 2030, including $34 billion as early as 2025. 

Credit Growth: A Strong Momentum

It is true that, on a year-over-year basis, a significant rebound in household credit has been observed, with outstanding loans rising by 8.3% following a 1.1% decline in 2024. This reflects the gradual impact of successive cuts to the benchmark interest rate.

Moreover, household consumption is slowly recovering, as evidenced by the revival of domestic demand. According to data from the Ministry of Finance, this demand continues to benefit from government measures to support purchasing power, alongside moderate inflation (2% in January and 2.6% in February).

It is also important to note that banks have eased lending criteria, whether for housing loans or consumer loans, both of which saw their outstanding volumes rise by 2% each as of the end of January, year-over-year. The monetary easing policy has played a role here, as it has helped reignite—albeit modestly—the engine of consumption.

Indeed, reductions in the benchmark interest rate have led to a slight but encouraging decline in loan rates. Further cuts are anticipated following the latest 25-basis-point reduction in the key rate, bringing it down to 2.25%.

Spontaneous Regularization Effect

The issue is that, on the other side, deposits—though rising—are experiencing a continuous slowdown. For instance, demand deposits alone stood at 881 billion dirhams (BHD) as of the end of January this year, down 2.7% compared to 2024 but up 10.3% compared to January 2024.

This decline should be nuanced, however, as outstanding deposits increased by 11.5% between 2023 and 2024, primarily due to the voluntary fiscal regularization initiative, which injected approximately 35 BHD into bank accounts. Specialists describe this as ‘a return to normative levels.’

One consequence of this situation is the widening liquidity needs of banks. Bank treasuries are indeed under growing pressure. In 2024, the average weekly liquidity deficit expanded to 123.7 BHD, up from 83.3 BHD the previous year—a nearly 50% annual increase. The deficit eased slightly to 125.5 BHD in January this year, thanks to the temporary relief banks gained from the tax amnesty, but rose again to 130 BHD in February.

Furthermore, the growth rate of fiduciary circulation (physical currency in circulation) slowed between December and January, rising only 1.7% to 421.5 BHD, compared to 5.2% growth between 2023 and 2024. Most recently, from March 13 to 19, liquidity needs reached 138.6 BHD.

Significant Liquidity Demand

This underscores that banks continue to express sharply rising demand for refinancing from BAM (Bank Al-Maghrib). According to the central bank, this demand is projected to peak at 164.6 BHD in 2025 and rise further to 192.3 BHD in 2026.

To address these banking needs and support growth and job creation, Abdellatif Jouahri (Governor of BAM) believes there remains sufficient room to maneuver by lowering the key rate to 2.25%. Recall that during the central bank’s first policy meeting this year, the Governor stated: ‘The rate cut further reinforces Bank Al-Maghrib’s accommodative policy, which aims to meet banks’ demand.’

While the outlook is clear, it should be noted that the banking sector remains robust and stable despite persistent global uncertainties, according to international rating agencies. The central bank regularly conducts stress tests to assess the sector’s resilience, concluding that banks are prepared for even the most severe crises.

This is also why BAM continues to tighten risk management frameworks for banks through measures such as: adopting the long-term Net Stable Funding Ratio (NSFR), implementing additional liquidity indicators, enforcing an internal Internal Liquidity Adequacy Assessment Process (ILAAP), and establishing protocols for managing climate-related and environmental financial risks.

Non-Performing Loans Remain Under Control

In this banking context, non-performing loans (NPLs) continue to rise. They reached 97.4 billion dirhams (BHD) by the end of January, marking a 4% year-over-year increase—driven primarily by an 11.8% surge in household NPLs, which now total nearly 40 BHD.

The risk rate remains around 8.5%, with variations ranging from 10.5% for households to 12.8% for the private sector. This is one of the weaknesses highlighted by Fitch Rating. However, Abdellatif Jouahri (Governor of BAM) disputes this assessment, noting that other rating agencies, and even the IMF, do not share such a critical view.

In any case, one of BAM’s flagship initiatives is the establishment of a secondary market for non-performing loans. This aims to alleviate pressure on banks by allowing them to offload NPLs, thereby freeing up capacity to extend new credit.