I- Types of banks

There are various types of banks, which operate in our country to meet the financial
requirements of different categories of people engaged in agriculture, business, profession,
etc.
On the basis of functions, the banking institutions in Morocco may be divided into the
following types:

Central Bank:
Central Bank is the issuance of currency notes, regulating their circulation in the country by different
methods. No other bank than the Central Bank can issue currency.
Maintain deposit accounts of all other banks and advances money to other banks
Maintains record of Government revenue and expenditure under various heads.
Advises the Government on monetary and credit policies and decides on the interest rates for bank
deposits and bank loans
Bank Al-Maghreb is the central bank of the Kingdom of Morocco, created in 1959 and resides in
Rabat to replace the former Moroccan central bank Banque d'Etat du Maroc (State Bank of
Morocco), which was founded in 1907 and had its headquarters in Tangiers.
In 1974, the Banque du Maroc commenced issuing the centime as a fraction of the dirham, replacing
the franc.
In March 1987, the bank adopted the name Bank Al-Maghreb. That same month, the bank
established Dar As-Sikkah, the unit that would be responsible for printing bank notes and minting
coins.
A new banking act in July 1993 that strengthened its role of regulating and supervising credit
institutions in Morocco
The new law established the bank as a public legal entity, controlled by the account commissioner,
the government commissioner, and the Court of Auditors.
Commercial Banks
Banking institutions that accept deposits, grant short-term loans and advances to their customers.
In addition to giving short-term loans, commercial banks also give medium-term and long-term loan to
business enterprises.
Now a day some of the commercial banks are also providing housing loan on a long-term basis to
individuals.
Commercial banks are of three types:
Public sector banks
Banks where majority stake is held by the Government of Morocco ex: Credit Agricole du Maroc.
Private sector banks (where the majority of share capital of the bank is held by private individuals.
Ex: Attijari Wafa bank, BMCE Bank of Africa)
Foreign banks.
Banks are registered and have their headquarters in a foreign country. E.G. BMCI - Credit du Maroc -
SGMB (Société Générale)
Development Banks
Business and government institutions often require medium and long-term capital for
purchase of machinery and equipment or for expansion and modernization. For example:
Fonds d'équipement communal (FEC)

Co-operative Banks
Cooperative banking is retail and commercial banking organized on a cooperative basis
Owned by their customers and follow the cooperative principle of one person, one vote. Co-
operative banks are often regulated under both banking and cooperative legislation.
E.G. The Groupe Banque Populaire
Participatory banks
Banks that claim to Islamic finance, which provide Islamic compatible financial services such
as / Murabaha (Islamic financing for both real estate and automobile customers); sukuks
(Islamic bonds); takaful (Islamic insurance)… E.G. Umnia Bank – Najmah

Investment banks
Financial services company or corporate division that engages in advisory-based financial
transactions on behalf of individuals, corporations, and governments
All investment banking activity is classed as either "sell side" or "buy side". The "sell side"
involves trading securities for cash or for other securities (e.g. facilitating transactions,
market making), or the promotion of securities (e.g. underwriting, research, etc.). The "buy
side" involves the provision of advice to institutions that buy investment services. Private
equity funds, mutual funds, life insurance companies, unit trusts, and hedge funds are the
most common types of buy-side entities. E.g. CFG Bank

II- Fundamental issues in banking

• The banks are innovative and create new products continually, because of the competitive
nature of banking, making the task of the regulator / supervisor challenging.
• There exist substantial barriers to entry into banking – systems and capital.
• Banks exist because of the information costs they carry and because of the d emand for
liquidity by deposit clients.
•Because the requirements of lenders / depositors and borrowers are so diverse, banks are
exposed to diverse financial and other risks. The management of risk is at the core of
banking, and this is what differentiates them from other companies. They are risk managers.
•The main threat to banking is the securities markets.
•The most unique function of banks is their money creating ability; by extending new loans
they create new deposits (= money). The central bank plays the role of referee in this aspect.
•Interest rates have their genesis in the relationship between the private sector banks and
the central bank.

III- Basic raison d’être for banks

1-Information costs
Surplus economic unit does not have the time or the inclination or the skill to gather
information, verify the information, monitor client behavior or enforce legal contracts, and
delegates this function to the bank – which is skilled in this area
Search costs are incurred whenever a transaction between two parties is done. The
borrower is not concerned with the quality of the lender, but the lender is concerned with
the quality of the borrower.
Search costs include negotiation and the gathering of information,
Verification costs are incurred because the bank is obliged to verify the information
gathered. Banks are concerned with the well-known problem of asymmetric information
Monitoring costs are incurred by the bank because once the money is lent, the bank has an
incentive to monitor the client
Enforcement costs are incurred when borrowers do not adhere to the terms of the contract-
Therefore. Legal actions
2- Asymmetry in liquidity preference
Lenders and borrowers have different requirements in terms of liquidity, which essentially
means term to maturity of the loan or deposit
Borrowers usually borrow for projects that have long lives and consequently long-term
repayment schedules, whereas lenders usually require deposits that are liquid, i.e. deposits
that are available immediately or in the short-term.
To satisfy both parties, Depositors earn a rate of interest and have liquidity, and they accept
a low rate of interest compared with the loan rate for this convenience. Whereas the
borrowers are prepared to pay a higher rate of interest than that available to the lenders
because of the convenience,
OTC versus securities markets
Banks mainly operate in the informal (over-the-counter – OTC) financial market: taking of
deposits from and making loans to individuals and smaller companies in the main.
IV- Broad functions of banks
1-Facilitation of flow of funds
Financial intermediaries facilitate the flow of funds from surplus economic units to deficit
economic units. Without sound financial intermediaries, much of the savings of the ultimate
lenders will not be available to the ultimate borrowers
2- Efficient allocation of funds
Banks (not all though) have the expertise to ensure that the flow of funds is allocated in the
most efficient manner.
They are aware of the existence of asymmetric information and its two by-products, the
problems of adverse selection and moral hazard. Asymmetric information means that the
potential borrower has more information than the bank does about his/her business. In
addition, this ensures that available funds are allocated to borrowers that will utilize the
funds prudently, which in turn will lead to an increase in economic activity.
3- Assistance in price discovery
Closely allied with efficient allocation of funds is price discovery. The banks are the
professionals / experts in the financial system and are therefore keenly involved in price
discovery. They are actively involved in the pricing of financial services and securities.
4- Money creation
Also closely allied with the efficient allocation of funds is money creation. This function may
also be termed the credit or loan function.
5- Enhanced liquidity
Enhanced liquidity is created for the depositor with a bank. If an individual purchases the
securities of the ultimate lenders (such as making a loan to a company), liquidity is low or
almost zero. Banks are in the business of purchasing less marketable primary securities, and
offering liquid investments to the ultimate lenders
6- Price risk lessened for the ultimate lender
Flowing from the above is that banks take on price risk and offer products that have little or
zero price risk. Banks have a diverse portfolio of non-marketable loans, bonds and share
investments that carry price risk (also called market risk), and offer products that have zero
price risk, such as fixed deposits