(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 Internationale Arabe de Tunisie (BIAT 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 BIAT’s Bank Standalone Rating (BSR) of ‘c’, Core Financial Strength (CFS) rating of ‘bb-’ and Extraordinary Support Level (ESL) of Moderate. The Outlook for the BSR has been revised to Stable.

BIAT’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 remain weak. The operating environment and economy remain very challenging for the banking sector, but there has been some improvement.

BIAT’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 BIAT’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 Tunisian banking sector.

The ESL of Moderate balances the weak financial strength of the sovereign against the strong willingness of the government to support the Bank, particularly since it is the largest in the country with a substantial customer deposit base. Ownership is diverse, but the main reference shareholder is the well-known Tunisian group Mabrouk.

The CFS is underpinned by the Bank’s strong domestic franchise, good revenue stream and high profitability, as well as a satisfactory funding base. BIAT is the largest bank in Tunisia, with a solid and defendable franchise, and its market share of customer deposits is the highest by some margin. Credit challenges are a very difficult operating environment and associated credit risk, a moderate capital buffer, and inadequate financial disclosures. In addition, exposure to the sovereign is high, equivalent to an estimated 1.5x equity.

BIAT’s earnings strength in terms of revenue is good, as is profitability. The Bank has the second-highest operating profitability ratio and amongst the highest ROAAs in the peer group. Operating income on average assets is at a strong level. BIAT’s cost of funds is the lowest in the peer group, margins are adequate, and operating efficiency is satisfactory. Net profit for bank-only in H1 25 was higher, boosted by interest income from the securities portfolio. The cost of risk was higher in H1 25. We expect reasonable results for full-year 2025. However, certain Central Bank of Tunisia (CBT) rules introduced in 2024 and this year will 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 January 2025. Improved GDP growth should also lift credit demand, albeit modestly.

Loan asset quality is satisfactory by Tunisian standards. The NPL ratio rose in 2024 to 8.6%, but the rate of growth in classified credits has slowed. BIAT’s NPL ratio is below the sector NPL ratio of around 14%. Banks have moved partly to IFRS 9, but disclosure of Stage 1, 2 and 3 loans is not provided. Credit risks will remain elevated due to the still challenging Tunisian economy. Despite the tough operating environment, BIAT has done well, maintaining reasonably good loan asset quality. The Bank’s credit management has been good, and management has been vigilant in both the granting and monitoring of loans.

The investment portfolio details are not provided in the accounts but mainly comprise Tunisian dinar-denominated government securities. The investment portfolio represented 21% of assets at end-2024, with growth of over one-third y-o-y. The share of government claims in total banking assets rose to around 21.0% at end-2024 (up from 13.5% in 2023), as banks helped financed the sovereign. We estimate around 85% (1.7x equity) of the securities investment portfolio are Tunisian government treasury bills and bonds, and thus there is concentration risk to the sovereign. Treasury bills/bonds are all Tunisian dinar-denominated. They can be repurchased through the CBT’s discount window, but there is a limited secondary market and thus not considered highly liquid.

BIAT’s capital ratios are satisfactory in CI’s view, and ratios are amongst the highest in the peer group. That said, the overall capital position of the Bank currently provides a fairly limited capacity to absorb shocks. Despite good profitability, the internal capital generation rate has been only moderate over recent years due to a high dividend payout ratio.

Liquidity and funding are viewed as satisfactory. Liquid assets are at an adequate level, and the growth in customer deposits was robust and above that of the banking sector. BIAT’s liquidity coverage ratio is very good, and loan-based funding ratios are satisfactory. The Bank has the largest share of customer deposits in the market. BIAT has had nil to immaterial central bank funding over the past five years, including H1 25, unlike most peer banks. The liquidity position for the bank-only balance sheet at end-June 2025 remained sound.

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 BIAT to maintain its overall financials at a satisfactory level this year. Credit risk will remain the main challenge. 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 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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