EU Banking Directive Threatens Moroccan Remittances and Financial Stability

In a new analysis note, BMI-Fitch Solutions points out that the application of this European directive is certainly a concern for Moroccan banks present in Europe, but even more so for Bank Al-Maghrib and the Moroccan government, due to its effects on the transfers of Moroccans residing abroad (MREs) which contribute to the financial and economic stability of the kingdom. This directive of May 31, 2024, was published in the "Official Journal of the EU" on June 19, 2024 and came into force on July 10, 2024. EU member states have until January 10, 2026 to transpose this EU text into their national legislation. CRD6 imposes a unified and stricter regulatory framework on third-country banks. Thus, the branches of foreign banks based in the EU will now be subject to the same standards and not to the national law of each Member State, recalls Le Matin.

Moroccan banks present in the EU will be affected by this change. According to BMI-Fitch Solutions experts, foreign branches deemed more sensitive will have to undergo stricter obligations in the event of non-equivalence with EU regulations. The European directive also gives European regulators the power to impose the conversion of branches into subsidiaries in the event of a risk to financial stability or the exceeding of asset thresholds (10 billion euros in a Member State, 40 billion at the EU level). Moroccan banks will also have to face a significant increase in their compliance costs (overhaul of internal systems, investments in new reporting technologies and restructuring of their European activities).

"In the short term, we believe these measures will increase strategic risk and could harm their reputation in the event of implementation difficulties. However, a potential advantage lies in the harmonization of rules across multiple European markets, which could, in the long run, facilitate cross-border expansion, despite the initial financial and structural challenges," analyze Fitch experts. Furthermore, the directive threatens the transfers of MREs to Morocco, estimated at 117.7 billion dirhams in 2024 compared to 115 billion the previous year. Moroccan authorities fear that the increase in compliance costs in Europe will push some Moroccan banks to leave the European markets, which could significantly reduce the flow of MRE transfers.

It is to limit these impacts that Bank Al-Maghrib, in collaboration with the ministries and the banks concerned, has set up a working group to defend Moroccan interests with the EU and each European country concerned. A bilateral meeting with the French Treasury, scheduled for last July, was supposed to allow the finalization of an agreement on the implementation of the directive. But to date, no final agreement has been announced. According to Fitch Solutions, Morocco’s economic growth should reach 4.5% in 2025, after a GDP growth of 4.8% in the first quarter. It could reach 4.8% in 2026, driven by more favorable credit conditions and the expected recovery in European demand.