Can Moroccan banks freely sell bank guarantees to non-resident entities?

Can Moroccan banks freely sell bank guarantees to non-resident entities?
Can Moroccan banks freely sell bank guarantees to non-resident entities?
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The answers provided by O. Bakkou in this regard allowed us to grasp the subtleties of the regulatory framework established for these operations.

In this interview, we will question O. Bakkou about the provisions of the exchange regulations governing operations relating to “sales of guarantees” by Moroccan banks to non-resident entities.

In the previous interview, you stated that operations relating to “sales of guarantees” by Moroccan banks to non-resident entities are not completely free, could you clarify this for us further?

Operations relating to bank guarantees constitute financial services.iers.

These services should normally benefit from a totally liberal framework which allows Moroccan banks to freely export said services. However, this is not the case.

This is not the case! Would this mean that Moroccan banks cannot freely provide bank guarantees to non-resident entities?

Absolutely, the freedom granted to banks by foreign exchange regulations is a freedom that could be described as “conditional”.

“Parole”, what do you mean?

This is a freedom that I describe as conditional, for the following three main reasons:

-the first reason is that operations relating to bank guarantees issued by Moroccan banks (“sold to non-resident entities”) must obligatorily cover commitments made by these entities with regard to residents.

-The second reason is that these commitments must arise from transactions carried out in accordance with the provisions of exchange regulations.

-The third reason is that the surety operations issued by the aforementioned Moroccan banks must be against guarantees by foreign banks.

Transactions relating to bank guarantees “sold to non-residents” must cover commitments made to residents. Could you explain this to us in more detail?

This means that guarantees issued by Moroccan banks to non-resident entities (of the order of non-residents) must in principle must be carried out in favor of residents.

In favor of residents, what does this mean exactly?

This means that the beneficiaries of bank guarantees must be residents.

In other words, the beneficiaries of bank guarantees must not be non-residents.

Could you explain this to us further?

Concretely, the scheme drawn up by the exchange regulations in this regard implies that bank guarantees must include the following three parts:

-The first party is the Moroccan bank issuing the guarantee which plays the role of insurer;

The second party is the non-resident economic operator who “purchases” the security from a Moroccan bank;

The third party is the resident economic operator who is the beneficiary of the guarantee (the insured), i.e. the one who receives insurance against the non-performance or poor performance of a commercial or financial transaction carried out with the non-resident.

Could you give us a concrete example to better understand this transactional scheme presented above?

The common example concerns final guarantees guaranteeing the successful completion of service contracts relating to construction work.

In fact, Moroccan legal entities (private and public companies) are called upon as part of their investment projects (construction of factories, etc..) to organize calls for tenders for the selection of service providers.

These calls for tender may result in the award of the relevant contracts to foreign companies.

These markets must in principle be secured by Moroccan legal entities through the requirement of a bank guarantee from foreign companies.

These companies can request Moroccan banks to issue definitive guarantees in favor of Moroccan persons guaranteeing the successful completion of service provision contracts.

You used the word “in principle” above, does that mean that there are exceptions to this rule?

Yes indeed, there is only one case where exchange regulations allow Moroccan banks to issue non-resident order guarantees in favor of non-residents.

This case was explained by article 139 of the General Instruction of Foreign Exchange Operations-24.

Could you tell us more about it?

Yes, the aforementioned article authorizes Moroccan banks to issue guarantees in favor of foreign banks that grant medium and long-term foreign currency loans to non-residents intended for the acquisition of residences in Morocco.

A little complicated to understand, could you explain this operation to us more?

To better understand the specificity of this operation, we should refer to the notional diagram of the surety operations presented above.

As a reminder, this diagram includes a seller of the bank guarantee (the issuing bank), a buyer of the bank guarantee, and a beneficiary.

Indeed, the application of this diagram to this operation makes it possible to highlight a transactional architecture composed of the following three parts:

-The seller of the bond (the exporter of services) who is the Moroccan bank issuing the bond on behalf of the aforementioned non-resident person.

-The buyer of the deposit who is the non-resident person who takes out a loan from a foreign bank, intended to buy a house in Morocco.

-The beneficiary of the guarantee which is the foreign bank which grants a loan to the non-resident person.

You also say above that operations relating to bank guarantees “sold to non-residents” must necessarily cover commitments made to residents arising from transactions carried out in accordance with the provisions of the foreign exchange regulations. Could you explain this to us further?

This is a subsequent restriction to the previous one.

Indeed, the fact that foreign exchange regulations require that the beneficiary of the guarantee issued on behalf of non-residents be a resident entity has the implication that the transaction covered by the guarantee must be a transaction in compliance with these regulations.

How about the variety?

Perhaps this clarification aims to avoid a “legal” vacuum which risks being misinterpreted.

This interpretation will mean that banks can accept such guarantees without them being in breach of foreign exchange regulations.

The third reason is that the surety operation issued by the aforementioned Moroccan bank must be against a guarantee by a foreign bank. Could you explain this to us further?

Counter guarantee is similar to reinsurance.

In other words, the Moroccan bank must, under this provision, transfer the risk inherent in this operation to a foreign bank.

This means in concrete terms that in the event of default by the non-resident person who takes out the loan, it is the foreign bank which agrees to counter-guarantee the surety issued by the Moroccan bank which must reimburse the foreign bank which granted the loan to this person.

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