(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 Banque Nationale Agricole (BNA or the Bank) at ‘C+’ and ‘C’, respectively. The Outlook for the LT FCR has been revised to Stable from Negative. At the same time, CI Ratings has affirmed BNA’s Bank Standalone Rating (BSR) of ‘c’, Core Financial Strength (CFS) rating of ‘b’ and Extraordinary Support Level (ESL) of Moderate. The Outlook for the BSR has been revised to Stable.

BNA’s LT FCR is constrained by CI’s internal assessment of sovereign credit risk for Tunisia. The Stable Outlook for the LT FCR is in line with CI’s internal assessment of sovereign risk for Tunisia, reflecting tentative signs of stabilising sovereign risk factors, albeit still at a very high level. These signs reflect the government’s capacity to honour in a timely manner its domestic and external debt service despite limited financing venues and low foreign exchange reserves. The outlook takes into consideration the narrowing current account deficit, supported by the increase in agricultural exports and tourism receipts. However, external refinancing risks remain high, aggravated by still large, albeit declining, external financing needs and limited financing venues given the absence of direct access to capital markets. Political risk remains elevated and public finances weak. The operating environment and economy remain very challenging for the banking sector, but there has been some improvement.

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

BNA’s ESL of Moderate balances the weak financial strength of the sovereign against the strong willingness of the government to assist the Bank in the event of need. The latter reflects the government’s majority ownership of BNA and its systemic importance, controlling a significant share of sector assets.

BNA’s significant market franchise in the Tunisian banking sector as the second-largest bank in the country is considered a credit strength. The CFS is also underpinned by BNA’s satisfactory level of operating income and profitability. Operating income is at a good level relative to average assets, driven by interest income from the loan book and the government securities portfolio; the latter has risen over the past two years, in line with the increased government securities portfolio. The Bank’s net interest margin (NIM) is reasonable despite narrowing in 2024 due to the cost of funds, which is the highest in the peer group. The headline NIM is distorted by interest income from the investment securities portfolio booked in gains from securities, as is the accounting norm in Tunisia. The ROAA is satisfactory and rose last year. The ROAA is obviously subject to the provision charges taken in respect of loans, and the moderate coverage of NPLs should be borne in mind.

Bank-only figures at end-June 2025 showed net profit rising by 17% against the corresponding period of 2024. The performance was aided by a fall in the provision charge. Operating income rose, led by interest income from the securities portfolio. We expect reasonable results for full-year 2025. However, certain Central Bank of Tunisia rules introduced in 2024 and this year may create headwinds. These regulations include interest rate reductions for certain existing customers and the requirement to provide interest-free loans amounting to 8% of a bank’s 2024 net profit to micro, small and medium-sized enterprises. Additionally, the tax rate for banks has been lifted to 40%, from 35%, from 2025. Improved GDP growth should also lift credit demand, albeit modestly.

BNA’s principal credit challenges include the very high level of NPLs, tight liquidity and low loan-loss coverage. NPLs are significant, the NPL ratio is very high (twice that of the sector NPL ratio), and loan asset quality remains very weak. NPL coverage by provisions remains very modest. partly due to the availability of official guarantees and collateral. The large stock of NPLs reflects the weak economy and government-directed lending, together with exposure to problematic sectors such as manufacturing, agriculture and tourism. CI expects pressure on BNA’s loan asset quality metrics to remain despite some recovery and stability in the Tunisian economy.

Marketable securities, which comprised a much higher 34% of total assets in 2024, include government debt securities, but a breakdown is not provided. We estimate that Tunisian government treasury bonds and bills represent 80% (around TND6,560mn) of total marketable securities. Hence, Tunisian government securities were around 28% of total assets at end-2024, or a high 259% of total equity, and thus there is concentration exposure to the low-rated sovereign. The share of government claims in total banking assets rose to 21.0% at end-2024 (up from 13.5% in 2023), as the banking sector increased its lending to the government and the sovereign-bank nexus rose in Tunisia.

The Bank’s other principal challenge is weak liquidity, although higher customer growth in 2024 improved the loans to customer deposits ratio. BNA has reliance on central bank funding facilities. For bank-only figures (consolidated figures are not provided on an interim basis) as at H1 25, central bank funding formed one-quarter of assets with funding directed to Tunisian government securities. The liquidity coverage ratio was 207% at end-June 2025.

The Tier 1 CAR was 19.2% and total CAR 21.8% at end-June 2025, considerably above minimum requirements, although eroded by the shortfall in loan-loss provisions against NPLs, and hence buffers are limited. The CAR is based on Basel I methodology for credit risk, hence favourable risk weights, and Basel II standardised for market and operational risks. Moreover, capital to total assets is lower at 11%.

Rating Outlook

The Outlook for LT FCR is Stable and is in line with CI’s internal assessment of sovereign credit risk for Tunisia. CI expects BNA to maintain its overall financials commensurate with its current ratings.

Rating Dynamics: Upside Scenario

A revision of the Outlook to Positive, or a rating upgrade, 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

The Outlook could be revised to Negative or the ratings reduced by one notch in the next 12 months if the operating environment and/or economy deteriorate beyond our base line scenario, negatively impacting the Bank’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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