(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 Union Bancaire pour le Commerce et I’Industrie (UBCI 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 UBCI’s Bank Standalone Rating (BSR) of ‘c’, Core Financial Strength (CFS) rating of ‘b+’ and Extraordinary Support Level (ESL) of Uncertain. The Outlook for the BSR has been revised to Stable.

UBCI’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 signs of stabilising sovereign risk factors – albeit still at a very high level. These signs reflect the government’s capacity to timely and fully honour 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 is elevated and public finances are weak. The operating environment and economy remain very challenging for the banking sector, but there has been some improvement.

UBCI’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 ‘b+’ and an Operating Environment Risk Anchor (OPERA) of ‘c+’ (with the latter indicating significant risk). The BSR incorporates CI’s assessment of UBCI’s capacity to withstand sovereign-linked economic and financial stress. In a sovereign event, the Bank’s liquidity position would be negatively impacted, as would that of the banking sector.

The CFS is underpinned by credit strengths of satisfactory asset quality together with good loan-loss reserve (LLR) coverage, adequate liquidity and a good level of operating income relative to the balance sheet. The CFS also incorporates a very challenging operating environment, with the Tunisian economy remaining weak due to refinancing pressure, a modest capital position, a high operating expense base, limited financial disclosure with accounting based on Tunisian standards (as is the case for the sector), and increased exposure to the sovereign through government securities. The latter was equivalent to an estimated 1.1x equity.

The ESL is assessed as Uncertain. In CI’s opinion, the likelihood of the Bank receiving timely and sufficient extraordinary support from the reference shareholder, the Carte Group, is uncertain. Although Carte may be willing to support the Bank in case of need, CI is unsure of its capacity to provide sufficient and timely support. Moreover, as only the 11th-largest bank in Tunisia, we do not consider UBCI to be of systemic importance to the sector. Thus, the likelihood of support from the authorities is also unclear. Carte is a key player in the Tunisian insurance sector. Although insurance is its focus, Carte is also active in real estate, tourism, industry, media and IT through subsidiaries and participations.

UBCI’s loan asset quality is satisfactory and has been quite steady for some years despite challenging economic conditions in Tunisia. The Bank’s NPL ratio of 5% is well below the sector NPL ratio (around 14%). Although some provisioning elements of IFRS 9 are now followed, disclosure of Stage 1, 2 and 3 loans is not provided. We expect most Tunisian banks to have a large stock of Stage 2 loans, although UBCI may have a lower level than many peer banks. UBCI’s credit loss absorption capacity is viewed as satisfactory. LLR coverage was good at 114% at end-2024. The Bank generates a sound level of operating profits that has some capacity to absorb more provisioning expenses.

Earnings strength in terms of revenue has been solid for some years. UBCI achieved satisfactory results in 2024, with both operating and net profit up slightly, although asset-based returns dipped. Operating income on average assets is at a good level, and margins are high. UBCI’s cost of funds is the lowest in the CI-rated Tunisian bank peer group. However, the operating cost base, on the other hand, is very high, and UBCI’s cost-to-income ratio is the highest in the peer group. The banking sector is facing some regulatory 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 January 2025. Improved GDP growth should also lift credit demand, albeit modestly.

Net profit for the bank only in H1 25 was 20% higher at TND27.4mn. There was a rise in operating income, driven by interest income from the securities portfolio. We expect sound results for full-year 2025.

UBCI’s liquidity position is satisfactory, as is the funding profile. However, the Bank’s stock of liquid assets is at a low level, but the broad liquid asset ratio is satisfactory. Central bank funding (sourced by most banks in the sector) increased to June 2025. Loan-based funding ratios are satisfactory, and three-quarters of the balance sheet is funded by customer deposits.

A major constraint on the CFS is the Bank’s modest capital position. In our view, the CAR at 12.1%, although above regulatory requirements, does not provide a significant buffer to absorb shocks. Internal capital generation has been moderate, reflecting the Bank’s quite high dividend payout.

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 UBCI to maintain its overall financials at a satisfactory level this year. Credit risk will remain the main challenges. Profitability and liquidity are expected to remain adequate.

Rating Dynamics: Upside Scenario

The Outlook may be revised to Positive, but this would require further improvement in the operating environment and would need to be preceded by a similar rating action on the sovereign, 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 UBCI’s financial profile.


Ratings

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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