Attijari Bank – Ratings Affirmed

(MENAFN- Capital Intelligence Ltd) Capital Intelligence Ratings (CI Ratings or CI) today announced that it has affirmed the Long-Term Foreign Currency Rating (LT FCR) and Short-Term Foreign Currency Rating (ST FCR) of Attijari Bank (AB) at ‘C+’ and ‘C’, respectively. The Outlook for the LT FCR remains Negative. At the same time, CI Ratings has affirmed AB’s Bank Standalone Rating (BSR) of ‘c’, Core financial Strength (CFS) rating of ‘bb-’ and Extraordinary Support Level (ESL) of Moderate.

AB’s LT FCR is constrained by CI’s internal assessment of sovereign credit risk for Tunisia. The Negative Outlook for AB’s FCRs is in line with CI’s internal assessment of sovereign risk for Tunisia, reflecting the continued very challenging operating environment and economy. The Outlook also reflects very high external refinancing risks, aggravated by still large external financing needs and limited financing revenues given the absence of direct access to capital markets. It also takes into consideration elevated political risk and weak public financing, as well as increased monetisation of the central government budget deficit by the central bank amid declining capacity of the banking system to lend to the government. External strength is low due to high external financing needs and the modest – albeit resilient – level of foreign exchange reserves. Downside risks for the banking sector remain high and pressure on the banks’ credit profiles is elevated due to financial stability risks and macroeconomic vulnerabilities.

AB’s BSR of ‘c’ (CI does not append ‘+/-’ modifiers to BSRs in the ‘c’ category) is constrained by the LT FCR which is at ‘C+’, and is derived from a CFS rating of ‘bb-’ and an Operating Environment Risk Anchor (OPERA) of ‘c+’ with the latter indicating significant risk. The BSR incorporates CI’s assessment of AB’s capacity to withstand sovereign-linked economic and financial stress. In a sovereign event, the Bank’s liquidity, capital and asset quality would be negatively impacted.

Although the ESL is assessed as Moderate, the assumption of parent support has not resulted in any rating uplift given the level of the BSR and our internal assessment of sovereign risk. AB’s parent bank, Attijariwafa Bank (AWB), is a large financial institution operating across the African continent but with the majority of assets in Morocco. AWB displays a satisfactory financial profile and therefore support for the smaller AB would be expected.

AB’s CFS incorporates the financial credit strengths of good loan-loss provision coverage, lower than peer and sector NPL ratio despite its somewhat elevated level, solid liquidity, sound profitability, and majority ownership by AWB – Morocco’s largest bank. The CFS also takes into account the difficult operating environment, a moderately low capital position, and limited financial disclosure with accounting based on Tunisian standards (as is the case for the sector).

Earnings strength in terms of revenue is solid. The ROAA is good and the third highest in the peer group of eight CI-rated banks in Tunisia, and operating profit is at a sound level. The Bank’s operating efficiency is satisfactory and the cost of risk very low. AB’s profitability performance has for many years been amongst the best in the sector. The Bank’s performance has been driven by increased revenue on the back of growth in both net and non-interest income, aided by a low cost of funds relative to the market. Results for the bank-only figures in H1 24 showed a good performance. Net profit was higher with operating income supported by increased net interest income. We expect sound results for 2024 barring any sovereign event.

Loan asset quality is considered satisfactory with the NPL ratio some way below that of the sector NPL ratio (. Loan-loss reserves remain in excess of NPLs. The introduction of some elements of IFRS 9 in Tunisia in 2023 has not led to any significant increase in NPLs (Stage 3) for most banks, but Stage 2 loans could be high due to the amount of loan restructuring in Tunisia. Although banks have moved to IFRS 9, disclosures of Stage 1, 2 and 3 loans are not provided. CI expects some pressure on AB’s loan asset quality metrics this year due to continued weakness in the Tunisian economy, high interest rates, and the impact of lacklustre global (particularly European) economic growth. The CBT increased its key interest rate to 8% in 2023 and it remains at this level. Despite the tough operating environment, AB has done well, maintaining reasonably good loan asset quality.

AB’s solid liquidity alongside its sound funding position is an important rating driver. The Bank’s stock of liquid assets is at a good level and higher than that of most peer banks and the sector overall. The loan-based liquidity ratios are good, including the loan to deposit and stable funds ratios. AB’s balance sheet is funded mainly by core customer deposits – and at a level much higher than peer banks. Most banks in Tunisia access funding from the Central Bank of Tunisia. However, AB’s level of central bank funding remained nil at H1 24, as has been the case for the past eighteen months. In prior years it has been minimal. Funding diversification is supported by subordinated debt, including a facility from the IFC.

AB’s other CFS constraint is a moderate capital position. The overall capital position of the Bank currently provides only limited capacity to absorb shocks. A higher core capital ratio would be beneficial in CI’s view given the challenging operating environment and heightened credit risks.

Rating Outlook

The Negative Outlook indicates that the LT FCR is likely to be lowered by one notch in the next 12 months and is in line with CI’s internal assessment of sovereign credit risk for Tunisia.

Rating Dynamics: Upside Scenario

There is limited upside to AB’s ratings as indicated by the Negative Outlook. A revision of the Outlook to Stable would need to be preceded by an upward revision of our internal assessment of sovereign credit risk for Tunisia, all other factors remaining unchanged.

Rating Dynamics: Downside Scenario

Although not our base case, the LT FCR could be downgraded by more than one notch in the next 12 months if CI’s internal assessment of the sovereign’s creditworthiness weakens by more than expected, resulting in a rating change of more than one notch over the period, or if the operating environment and/or economy deteriorate further, negatively impacting AB’s financial profile.

Contact

Primary Analyst: Darren Stubing, Senior Credit Analyst; E-mail: ...
Secondary Analyst: Karti Inamdar, Senior Credit Analyst
Committee Chairperson: Morris Helal, Senior Credit Analyst


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