(Bloomberg) -- Morocco will allow local banks to unload junk loans totaling almost $10 billion through a secondary market, a central bank official said, as the North African nation looks to boost funding for an economy grappling with the effects of climate change.
The kingdom has drafted a bill allowing banks “to clean up their balance sheets, release equity that strengthens their solvency and create new liquidity that can be reallocated to other financing activities,” Abderrahim Bouazza, Bank al-Maghrib’s managing director, said in a statement. The draft bill must still be approved by lawmakers.
It will establish an “efficient and transparent” market for “a new class” of specialized investors, with the aim of sparing local lenders from managing the bad loans whose size had doubled in the past decade, he said. Once active, the new market will ease a chronic liquidity shortage, estimated at 120 billion dirhams.
The move caomes as Morocco speeds up financial reforms to boost an economy that’s taken successive hits from the Covid-19 pandemic, the effects of climate change on its vital agriculture sector and a major earthquake.
Bad loans total 98 billion dirhams, or 8.6% of total loans and 7% of the kingdom’s economic output. The full impact of the “economic shocks of recent years” has yet to appear on local banks’ balance sheets, Bouazza said.
The project involved support from the World Bank’s International Finance Corp.
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