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

BT’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 stabilising sovereign risk factors, albeit still at a 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 challenging for the banking sector, but there has been some improvement.

BT’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 BT’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.

The ESL is assessed as Moderate. We expect the Bank’s private shareholders to be the first supporter in case of need. Shareholders comprise principally local private investors, although 34% is owned by France’s Credit Industriel et Commercial de Paris Group. By assets, BT is the seventh-largest bank in Tunisia. Accordingly, the Bank would not be regarded as systemically important in CI’s view.

The CFS is underpinned by the Bank’s relatively good loan asset quality, high and consistent profitability, a solid capital position, and the presence of Credit Mutuel-CIC as an important shareholder. The CFS also takes into account the difficult operating environment, a competitive banking sector and limited financial disclosure with accounting based on Tunisian standards (as is the case for the sector).

The level of NPLs is satisfactory and far below both the NPL ratio for the sector and peer averages. NPLs declined in 2024 as the credit environment improved. The Bank has strong loan-loss reserve coverage in place against NPLs. BT generates a very good level of operating profit and, in turn, has sound capacity to absorb more provisioning expenses if needed. Credit risks will remain elevated due to the still challenging Tunisian economy and operating environment. Nonetheless, BT has done well, maintaining reasonably good loan asset quality. Treasury bills and government bonds represented only 50% of total equity for BT, a level below all peer-rated banks. The share of government claims in total banking assets rose to around 21% 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.

BT’s earnings strength in terms of revenue generation is good. Operating profit on average assets is the highest in the peer group of the eight CI-rated banks in Tunisia, and the ROAA is also the highest. The Bank has long maintained amongst the best profitability ratios in the peer group and the sector. Operating income on average assets remains at a very high level. Margins are sound, and operating efficiency is very good. The Bank’s interest income is driven by its loan activities, with the loan book continuing to perform relatively well. BT has a diversified revenue stream channelled from various sources, including fee and commission income. We expect BT’s operating income and operating profit to remain well above the peer average. This is also the case with the ROAA. For Bank-only results in H1 25, operating income was marginally higher, and net profit rose by 5%. We expect solid results for 2025 despite 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%, commencing January 2025. However, improved GDP growth should lift credit demand, albeit modestly.

Capital ratios are considered solid, with the total CAR (17.1%) comfortably above regulatory requirements (10.0%) and the second-highest in the peer group. However, the CAR is largely based on Basel I and hence favourable risk-weighting is applied to assets. The overall capital position of the Bank currently provides some capacity to absorb shocks. The ratio of total capital to total assets is very solid at above 16% and is the best in the peer group.

A previous credit challenge and constraint on the CFS was the Bank’s limited liquidity buffer. However, the Bank’s liquidity position improved quite significantly in 2024, driven by strong customer deposit growth, which was twice the rate of the sector. BT’s level of liquid assets grew, and key liquidity ratios strengthened, including loan-based funding ratios and the liquidity coverage ratio. Capital is also a major funding support for the Bank.

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 BT to maintain its overall financials at a satisfactory level this year.

Rating Dynamics: Upside Scenario

The ratings may be raised or the Outlook 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 BT’s financial profile. This is considered unlikely.

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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