A draft proposal for the introduction of covered bond legislation in Morocco will be published for public consultation in the next couple of weeks, according to an official at the ministry of finance, and the enactment of the law is expected this year, meaning Morocco is set to become the first African country to introduce the financial instrument.

Nouaman Al Aissami

Nouaman Al Aissami, head of the credit division at Morocco’s ministry of economy and finance, said that legislative work on the covered bond proposal started in 2011, (see here for previous coverage) and the bill was finalised in the second half of 2012.

“However, in 2012 the legal agenda was full, as the ministry initiated the approval of several reforms in the field of capital markets and the insurance industry, and a new banking law,” said Al Aissami, “so the adoption of the covered bond law was postponed to 2013.”

Al Aissami said that in compliance with Morocco’s legislative processes, the law, once finalised, needs to be published on the website of the Secrétariat Général du Gouvernement (Government General Secretariat) for feedback from the public. The public consultation process is set to last for a month, and the law will proceed to parliament afterwards.

“We set ourselves the target of passing the law in 2013,” said Al Aissami. “The next parliamentary session will start in April and end in August.”

The regulation follows the German Pfandbriefe model, he said, with high quality residential mortgages and local government and public sector loans contemplated as asset classes eligible for cover pools.

“Covered bonds will fill the gap between senior issuance and government bond issuance,” he said. “They will help in diversifying risks and provide the country with a high quality financial instrument.”

Morocco was the first African country to introduce a securitisation law, which was drafted in 1999 and finalised in 2002, when the first securitisation transaction took place.

If covered bonds are introduced, the first issuance will probably attract mainly Moroccan investors, said Al Aissami.

“We have a large base of domestic investors, and we believe that there is appetite for covered bonds,” he said.

The draft Moroccan covered bond legislation has been put together with the technical support of the World Bank and German development bank KfW.

According to Al Aissami, KfW is looking with interest at the progress of the law and could potentially be willing to participate in first covered bond transaction as an investor.