The Bank of Morocco is betting on the formation of banking frameworks in the face of climate change

New data revealed that the size of the financial impact and economic losses that Morocco will bear due to the risks of climate change, especially drought and floods, respectively, will reach 3.5 percent of the gross domestic product and 2 percent by 2050, if the Kingdom does not take decisive decisions and measures to integrate this type of climate change. Risks in its financing and credit policies and the compatibility of its banking and commercial system with the requirements of the transition towards a green economy.

Abderrahim Bouazza, Director General of the Bank of Morocco, said in his speech during the opening of the workshop on the contents of the joint report between the Bank of Morocco and the World Bank on climate risks in the banking sector in the Kingdom, today, Thursday in Casablanca, that Morocco is aware of the importance of the impact of climate risks on financial policies. He expressed his involvement in the green transition process since the “COP 22” climate summit, and confirmed his international commitments in this regard at the “COP 28” summit, explaining that the Central Bank is concerned with implementing these international commitments, especially with the World Bank, and coordinating efforts at the level. Local with commercial banks in the market.

Bouazza added that the Bank of Morocco has taken multiple initiatives to confront the effects of climate risks, as it engaged during 2016 and 2017 in the road map to put the financial sector on the path of sustainable development, before launching in 2019 a green financial unit in the context of the Central Bank’s general support for TCFD standards.

The Director General of the Bank of Morocco explained that during 2021, this institution took a more decisive path in this regard, by issuing a circular with instructions on managing financial, climate and environmental risks, and then issuing an assessment of climate risks during the current year.

Bank mobilization

Jesco Hentschel, Director of the Morocco Office at the World Bank, highlighted aspects of cooperation between his institution and the World Bank in sensitizing the Moroccan financial sector to the importance of integrating climate risks into credit risk management policies, especially when financing companies. Given the extent of the constraints and challenges awaiting the Kingdom, Europe’s first trading partner, it is expected to be affected by the standards for reducing carbon emissions that will be applied on the borders of European Union countries soon, as well as achieving the goals of clean energy and the energy mix by 2030.

For his part, Nabil Badr, Assistant Director of the Directorate of Banking Control and Supervision at Bank Al-Maghrib, stressed that the central and international banks are in the process of moving to the second phase of cooperation regarding the generalization of measures directed at climate risks, explaining that the coming period will witness the launch of trainings for the benefit of the frameworks of banking groups in the market, In order to raise their level of awareness about the importance of this type of risk and the strategy for including it in credit policies, then after that, issuing regulatory texts and legislation in order to complete the legal arsenal framing the risks associated with drought, floods and other climate phenomena.

In the same context, Shukri Omdina, Risk Director at Attijariwafa Bank Group, stressed the importance of green transition projects for banks, noting the leadership of his banking group in this regard, as it accounts for 30 percent of the green financing market, also noting Noting that the risks of climate change will greatly affect exporters in Morocco; This is because measures to reduce carbon emissions on European borders will affect 65 percent of Moroccan exports, and therefore customers, especially companies, must be sensitized about the importance of the impact of climate risks on their activities and their ability to access and exploit financing.

Moroccan leadership

According to John Bessem, Director of General Practices in the Financial Sector at the World Bank, Morocco is required to share its experience in confronting climate risks with neighboring countries and the African continent, given the regulatory path and the efforts made by its institutions, especially the Bank of Morocco, during the past years.

Bassem stressed that the approach adopted by the Kingdom was participatory, and focused on the involvement of all concerned parties in the financial market in order to raise the challenge related to this type of risk, which indirectly affects, according to the joint report between the central and international banks, the exacerbation of the indebtedness of bank customers, especially enterprises. .

In this context, Reda Abu Taj Al-Din, an economist and pioneer in the climate finance agenda in Morocco, during his review of the contents of the aforementioned report, focused on the assessment of vulnerabilities, showing that imposing a carbon tax of $75/metric ton of carbon dioxide could increase credit risks. by 8.4 percent of corporate and institutional loans, equivalent to 3.1 percent of the banking sector’s assets, warning that the results of the climate risk analysis due to uncertainties in the estimates and methodological limitations, as the effects of climate change on the banking sector may be understated in association with Issues related to modeling climate tipping points, and the intersection between macroeconomic, financial and climate impacts.

In addition, Nader Mohamed, director in charge of the Middle East and North Africa region, noted the major role played by the Bank of Morocco in regulating the financial market in the face of the risks that threaten it, especially climate ones.

The same speaker, in his closing speech for the workshop, praised the efforts made by the institution in preparing regulatory and legal texts that facilitate the implementation of work strategies and plans related to confronting the risks of brotherhood, and their effects on the banking sector, which faces a set of challenges and constraints related to financing development and structural projects, in Facing multiple crises of inflation and geopolitical tensions.

It is noteworthy that the joint report issued by the Bank of Morocco and the World Bank on assessing climate risks in the Moroccan banking sector revealed the concentration of credit risks within a narrow geographical scope in the Kingdom. This is because more than 60 percent of the total loans are limited to Casablanca, where the economic capital, Rabat, and Marrakesh together account for 77 percent of the total loans. In contrast, only 3.5 percent of loans are concentrated in the 50 smallest regions.