Financial Sector Development Policy Loan

closed

The main development objective of the Government financial sector reform program, and of the Financial Sector Development Policy Loan (DPL) Project, is to strengthen the enabling legal and institutional environment for financial intermediation and risk management, and to increase the private sector role and participation in the provision of financial services. The project will support these objectives under three components aimed at: 1) implementing an effective and modern legal, regulatory and supervisory framework, in line with international standards, across the banking, insurance, and securities markets, so as to improve financial intermediation and risk-taking behaviors, and, foster a more efficient mobilization of savings; 2) restructuring weak public financial institutions, particularly in addressing their stock of non-performing assets, and streamlining their role and activities in the financial sector; and, 3) developing as needed the financial sector infrastructure in modernizing the payments system, improving the integrity of the financial sector through better anti-money laundering policies, and, enhancing the quality of financial information in upgrading accounting and auditing standards. However, main risks could include a slowdown of the reform momentum, to a path that would not allow for a genuine move towards market-based, risk-taking business patterns in the specialized public banking institutions (moral hazard issue). This is of particular concern to the restructuring of the Credit Agricole du Maroc, the pace of this restructuring, and, the burden-sharing of costs.