Morocco’s ministry of economy and finance is preparing covered bond legislation that it is aiming to have finalised and ready to present to parliament by the end of this year, an official at the ministry told The Covered Bond Report, promising the first covered bonds from Africa.

Nouaman Al Aissami, head of the credit division at the ministry of economy and finance, said that work on the project began more than a year ago. A draft prepared by the ministry was submitted to a technical committee – comprising ministry officials, central bank representatives, representatives of Morocco’s main banks, and legal, accounting and securitisation specialists – which finalised a draft law by the end of June this year.

This has been submitted for review to the central bank, institutional investors and the country’s banks, he said.

“Our objective is to have concluded the review by the end of this year,” said Al Aissami.

Morocco's Parliament, Rabat

Morocco has legislative elections on 25 November. Market participants hope that the legislation will be presented to parliament in 2012.

The initiative to set up a dedicated legal framework for issuance of covered bonds (obligations sécurisées) was driven by a rapid expansion of Morocco’s mortgage market, according to Al Aissami, which has grown more than 20% per year over the past five years. A presentation on the draft law noted a “remarkable” development of mortgage lending, which has grown from Dh54bn in 2005 to Dh188bn (Eu16.8bn) in 2010.

Morocco has had a securitisation law in place since 2002, when the first transaction took place. The law was amended in late 2008 to broaden the range of assets that can be securitised – which had initially been restricted to residential mortgage loans – and to adopt a more secure and developed framework. Related regulations necessary for the implementation of the amendment were adopted last year.

Al Aissami said that the international financial crisis had brought covered bonds to the Moroccan government’s attention and prompted it to use the instrument to add to the funding sources available.

Nouaman Al Aissami

“We began thinking that we needed to put in place an instrument for asset-liability management and to provide long term funding for banks,” he said.

The ministry therefore turned its attention to covered bonds and began working on legislation – initially alone, and then with some input from the World Bank, according to Al Aissami.

“The World Bank was interested in our project,” he said, “and is providing mainly technical assistance, such as in reviewing the law and also with respect to the implementation regulations.”

Boudewijn Dierick, head of structured covered bonds at BNP Paribas, is familiar with the project and said that it is in the early stages and part of wider efforts to develop Morocco’s finance sector.

“Covered bonds will in the first instance be an asset class for domestic investors,” he said.

Al Aissami said that issuance is likely to take place primarily in the domestic market, but that there may be some issuance aimed at institutional investors. The ministry has already had contact with bilateral institutions that are interested in the product, he said.

Interest in issuing covered bonds stems mainly from Morocco’s largest banks, he added.

Fouad Bendi, deputy director at Maghreb Titrisation, Morocco’s first securitisation company and the first in north Africa, told The Covered Bond Report that he sees covered bonds and securitisation as complementary funding instruments, in particular as covered bonds will only be allowed to be backed by mortgage or public sector assets.

“There are not many financing instruments in Morocco, so any additional one is a bonus,” he said.

Any Moroccan covered bond could be the first from an African country. South African banks have lobbied to be able to issue covered bonds, but the country’s central bank has prohibited them from doing so.