Investing in Moroccan NPLs: What Investors Need to Underwrite

Underwriting a Moroccan NPL portfolio is an exercise in converting incomplete information into defensible assumptions about future cash flows. The investor starts with a loan tape — a spreadsheet of balances, borrower names, collateral descriptions, and classification codes — and must determine what those claims are actually worth, what it will cost to recover them, how long that will take, and what can go wrong. This article sets out the underwriting disciplines required for Moroccan NPL investment, covering loan-tape analysis, borrower assessment, security verification, collateral valuation, legal enforceability, recovery strategy, servicing, timing, costs, pricing, and risk management.

The loan tape

The loan tape is the starting document for any portfolio transaction. It is also, typically, the source of most early errors.

A Moroccan loan tape will usually include: borrower identification, outstanding principal balance, accrued interest, classification status, security type, collateral description, and procedural stage. What it often lacks is: current collateral valuations, detailed procedural history, guarantor financial information, and reconciliation between tape figures and underlying file documentation.

The first underwriting task is to determine what the tape actually contains and what it does not. This is not a formatting exercise. It determines how much of the portfolio can be underwritten exposure by exposure and how much must be treated statistically.

Reconciliation to claim amounts

The tape balance is not necessarily the recoverable amount. It may include capitalised interest, penalties, and fees that exceed what is legally enforceable. It may also understate the claim if post-default interest has not been added.

For material exposures, the claim should be reconciled to the underlying loan documentation and any judgments or enforcement orders. The question is: what amount would survive a challenge by the borrower? That is the starting perimeter for the recovery analysis.

Identifying data gaps

Every tape has gaps. The discipline is to document them explicitly: which exposures lack current collateral valuations, which have incomplete procedural history, which carry security descriptions that cannot be verified from the tape alone.

That document serves two purposes. First, it defines the due-diligence work required to fill the gaps. Second, it becomes the basis for negotiating data-quality warranties or price adjustments if the gaps cannot be filled before closing.

Borrower assessment

The borrower's situation determines what recovery routes are available.

Corporate borrowers

For corporate exposures, the relevant questions are:

Is the company still operating? A company that has ceased trading presents no restructuring option; recovery depends entirely on security and enforcement.

Is it in formal insolvency proceedings? Moroccan insolvency law provides for rehabilitation (redressement judiciaire) and liquidation (liquidation judiciaire). The borrower's procedural status affects what claims can be enforced and when.

Are there other creditors? The investor's recovery depends on what other claims exist and how they rank. Trade creditors, tax authorities, employees, and secured creditors may all have claims that affect distribution.

Is there any going-concern value? For operating businesses, a restructured repayment plan may produce higher recoveries than liquidation. This requires analysis of the business's viability, which in turn requires financial information that the loan tape will not contain.

Individual borrowers

For individual exposures, particularly mortgage and consumer loans:

Is the borrower earning income? Income execution — garnishment of wages — is a recovery route for borrowers with regular employment.

Is there other wealth? Real estate, vehicles, and bank accounts can be attached, but only if they exist and can be identified.

Is the borrower cooperative? A borrower willing to negotiate a payment plan may produce faster and cheaper recoveries than one who must be pursued through enforcement.

Security verification

Secured lending is the norm in Moroccan corporate banking. Most NPL exposures of material size carry mortgage security over real estate, and the value of that security is typically the primary driver of recovery.

But security is only as good as its legal status. The underwriting task is to verify that the security exists, is valid, is registered, and ranks where the tape says it ranks.

Mortgage security

For real estate mortgages, the verification questions are:

Is the mortgage registered? Moroccan law requires registration against the land title (titre foncier) for a mortgage to be perfected. An unregistered mortgage may be unenforceable against third parties.

Is the registration correct? The mortgage must be registered against the correct title, covering the correct property. Errors in property identification — particularly where titles have been divided or consolidated — can impair the security.

What ranks ahead? The tape may show a first-ranking mortgage, but the register may show prior charges. Verification requires a title search, not reliance on the tape.

Is the underlying title clear? For registered land, title is relatively straightforward. For unregistered land (melk non-titré), the analysis is different: what exists is a claim based on possession and historical evidence, and disputes are common. Security over unregistered land should be underwritten with significant additional conservatism.

Other security types

Pledges over equipment, inventory, receivables, or financial instruments each have their own perfection requirements. Verification involves confirming that the required formalities were completed and that the pledged assets can be identified and accessed.

Guarantees

Personal and corporate guarantees are often carried in the tape at face amount, which tells you nothing about collectability.

The relevant analysis is the guarantor's ability to pay. What assets do they have? What other obligations? Is the guarantee enforceable as drafted, or does it contain limitations (amount caps, duration limits, conditions precedent) that affect recovery?

A guarantee from an individual with no visible assets, or from a company that is itself insolvent, has near-zero value regardless of the face amount. It should be modelled accordingly.

Collateral valuation

For secured exposures, recovery depends on what the collateral will realise in an enforcement sale. The methodology is described in detail in Collateral Value Is Not Recovery Value, but the key points for underwriting purposes are:

Appraised value is not recovery value. An appraisal estimates market value under normal sale conditions. Enforcement sales are not normal conditions. The recovery estimate must account for the forced-sale discount, which varies by asset type and liquidity.

Valuations age. A valuation conducted at loan origination may be five or more years old. Property values change; condition deteriorates. For material exposures, updated valuations should be obtained during due diligence.

Costs must be deducted. Enforcement costs, holding costs, disposal costs, and transfer taxes all reduce net recovery. These are not percentage adjustments to be guessed; they should be estimated based on the expected enforcement timeline and asset characteristics.

Prior claims rank first. What the investor recovers is the residual after senior claims are satisfied. If there are prior-ranking mortgages or statutory preferences, those amounts must be deducted.

The Serenor Credit™ methodology applies this deductive approach systematically: gross collateral value, minus prior-ranking claims, minus enforcement costs, minus holding costs, minus disposal costs, times the forced-sale factor, equals expected net recovery.

Legal enforceability

Underwriting requires assessing whether the claims and security can actually be enforced.

Procedural status

Where is each exposure in the enforcement process? The stages in Morocco are:

• Pre-litigation: no formal proceedings commenced
• Payment order (injonction de payer): fast-track procedure for uncontested monetary claims
• Ordinary litigation: full court proceedings, often contested
• Judgment obtained: liability established, amount determined
• Enforcement commenced: seizure and sale proceedings underway
• Sale pending: auction scheduled or imminent

The procedural stage determines what work remains, what costs will be incurred, and what timeline applies. A portfolio where most exposures are in early-stage litigation requires more time and expense than one where judgments have already been obtained.

Prescription

Claims can become time-barred. Moroccan prescription periods vary by claim type (typically five to fifteen years for commercial claims), and the relevant date is usually the last payment or acknowledgment. Older portfolios may include exposures where prescription has run.

Defences and disputes

Does the borrower have defences? Disputes over the amount claimed, the validity of the contract, or the enforceability of the security can delay recovery and reduce outcomes. Contested cases should be identified and underwritten separately from uncontested files.

Recovery strategy

Each exposure or segment should be assigned a recovery strategy — the route by which value will be extracted.

Amicable recovery: Negotiated payment, either in full or by instalments. Fastest and cheapest where the borrower is cooperative and has capacity to pay.

Restructuring: For operating businesses, a renegotiated repayment schedule may maximise recovery. This requires the borrower's participation and a viable business.

Enforcement against collateral: Seizure and sale of secured assets through court proceedings. The typical route for secured exposures where negotiation has failed.

Enforcement against guarantors: Pursuing personal or corporate guarantors for the shortfall after collateral realisation or as a parallel track.

Claim sale: Selling the claim to another investor rather than pursuing recovery directly. This provides immediate liquidity but typically at a discount to expected recovery.

The recovery strategy should reflect the specific characteristics of each exposure. Applying a single strategy to an entire portfolio — "we'll enforce on all of them" — ignores the heterogeneity that determines actual outcomes.

Servicing

NPL recovery requires active management. Someone must track each exposure, pursue the appropriate recovery route, manage legal proceedings, and ultimately collect the cash.

The servicing question is critical for Moroccan portfolios because the specialised servicing industry is less developed than in European markets.

Options include:

• Retaining the selling bank as servicer under a servicing agreement
• Engaging a third-party servicer (limited options in Morocco)
• Building in-house servicing capability
• Partnering with a local firm (law firm, collection agency) to provide servicing functions

Each option involves trade-offs among cost, control, capability, and alignment of incentives. The servicing arrangement should be agreed before acquisition, not after.

Timing

Recovery timing drives present value. The underwriting task is to estimate when cash flows will arrive.

For Moroccan portfolios, the main timing drivers are:

Court capacity: The Moroccan judicial system operates under significant case-load pressure. Enforcement proceedings take time, and the variation between courts is substantial.

Procedural stage: Exposures already in advanced enforcement will recover sooner than those where litigation has not started.

Borrower behaviour: Cooperative borrowers resolve faster than those who contest every step.

Asset liquidity: Properties in active markets sell faster than specialised industrial assets or rural land.

As a planning assumption, expect five to seven years from acquisition to full realisation for secured portfolios that require enforcement. Individual exposures will vary — some will resolve in two years, others in ten — but portfolio-level projections should reflect realistic average timelines.

See Recovery Timing and Recovery Rate for detailed analysis of the timing drivers.

Costs

Recovery is not free. The costs of obtaining recoveries must be deducted from gross amounts to arrive at net investor cash flows.

Servicing costs: Monthly or quarterly fees for portfolio management, typically a fixed fee per exposure plus a success fee on recoveries.

Legal costs: Litigation and enforcement fees, which accrue over time and vary by procedural complexity.

Court and bailiff costs: Filing fees, seizure costs, auction expenses.

Holding costs: For assets taken into possession — taxes, insurance, security, maintenance.

Disposal costs: Brokerage, marketing, transfer taxes.

These costs should be modelled period by period, not as a single percentage deduction. A portfolio with a long enforcement timeline will incur more costs than one that resolves quickly, and the model should reflect that.

Pricing

Underwriting culminates in a price — the maximum the investor can pay while achieving the required return.

The methodology is described in Pricing an NPL Portfolio: From Face Value to Cash Flows and How to Value a Non-Performing Loan Portfolio in Morocco. The key points are:

• Price is derived from expected cash flows, not from a percentage of face value
• Cash flows must be positioned in time and discounted at the required return
• The discount rate reflects the investor's cost of capital and risk appetite
• Downside scenarios should be modelled to understand the price's sensitivity to key assumptions

The output of underwriting is not a single number but a range: the base-case price at which the expected return is achieved, and the downside price at which loss is avoided even if things go wrong. The distance between them measures the risk being taken.

Concentration and risk management

Portfolio-level risk depends on concentration. A portfolio where the top five exposures account for 50% of expected recovery is a bet on those five exposures. If one fails to perform, the portfolio result suffers materially.

Concentration analysis should cover:

Exposure concentration: What proportion of expected recovery comes from the largest exposures?

Borrower concentration: Are multiple exposures to the same borrower or borrower group?

Sector concentration: Is recovery dependent on the performance of a single industry?

Geographic concentration: Is collateral concentrated in one region or city?

Collateral-type concentration: Is the portfolio dependent on residential property, commercial property, or a single asset class?

For concentrated portfolios, the underwriting on the top exposures must be rigorous because those exposures drive the result. For diversified portfolios, segment-level analysis may be sufficient for the long tail.

Sources and references

• Bank Al-Maghrib, Rapport Annuel sur la Supervision Bancaire — Exercice 2025 (June 2026): https://www.bkam.ma/content/download/847887/9165409/Rapport%20DSB%202025.pdf
• For market overview, see Morocco's Emerging NPL Market: A Guide for Investors
• For valuation methodology, see How to Value a Non-Performing Loan Portfolio in Morocco
• For collateral analysis, see Collateral Value Is Not Recovery Value
• For pricing approach, see Pricing an NPL Portfolio: From Face Value to Cash Flows