(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 Amen Bank (Amen 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 Amen’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.

Amen’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 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.

Amen’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 Amen’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 Uncertain. Approximately 60% of the Bank is owned by the Amen Group, a large and diversified domestic conglomerate with activities across food and hospitality, banking, insurance and health, trade of capital goods, and specialised financial services. Although the Bank is the sixth-largest bank in Tunisia by assets (it controls just over 9% of customer deposits and is regarded as systemically important by the Central Bank of Tunisia (CBT)), we expect the first line of support to come from the Tunisian well-respected Amen Group. However, the capacity of the Amen Group to provide timely and sufficient financial support is uncertain, in our view.

The CFS rating is underpinned by the Bank’s sound capital base and good profitability at both the operating and net levels. The Bank’s CAR (although based on Basel 1 for credit risk) is comfortably above regulatory requirements (and above most peer banks), and – together with loan-loss reserves – provides a reasonable buffer for NPLs. Capital was only slightly impaired by unprovided NPLs at end-2024. Balance sheet leverage is solid. Internal capital generation has been sound over the past few years, as profitability has been good (and improving), and the dividend payout reasonable. The rating is also supported by satisfactory liquidity and funding profile.

Amen’s earnings strength in terms of operating income generation is considered good. Interest income is at a sound level, although margins are slightly impacted by a higher than peer average cost of funds. The latter reflects a higher proportion of time deposits. The ROAA improved further in 2024 on the back of stronger operating income, and the ROAA is the second-highest in the eight-bank CI-rated peer group and comfortably above the average. The Bank’s operating expense base is low, and although the cost of risk is moderately high, the capacity to absorb provisioning expenses is satisfactory. Earnings quality is viewed as satisfactory. Operating profitability is sound at over 3% of average assets and is above the peer average. Bank-only figures for H1 25 showed steady results, with net profit up by 4%. However, certain CBT rules introduced in 2024 and this year will create some 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%, effective from January 2025. However, improved GDP growth should lift credit demand, albeit modestly.
The CFS rating is still constrained by the Bank’s high level of NPLs, although the ratio is lower than that of the sector. The Bank’s NPLs include non-performing contingent balances. Loan asset quality has been negatively impacted by the difficult economic conditions, with exposure to sectors such as tourism, real estate and manufacturing seeing a higher rate of defaults. CI expects pressure to remain on loan asset quality metrics this year due to weakness in the Tunisian economy, still high interest rates (the central bank’s key policy rate is currently at 7.5%, down from 8% in 2024), and the impact of lacklustre economic growth. However, economic conditions have improved slightly.

Tunisian treasury bills and government bonds are all local currency-denominated but are not considered highly liquid, as there is a limited secondary market in Tunisia. However, there is a discount window with the CBT, and the T-bills/bonds can be repo-ed at the central bank. Government securities represented 0.6x of equity. This is low compared to peer banks.

The Bank’s funding profile is considered satisfactory, with funding mainly comprising core customer deposits. Customer deposits grew by a stronger 9% in H1 25, representing 70% of total assets. As with many Tunisian banks, Amen utilises official CBT funding, which we consider stable, as has been the case for some years. CBT funding represented 6% of total assets at H1 25. Amen also has a base of medium- and long-term loans and special resource funding from institutions such as the EBRD, EIB and KfW, as well as public funds from various European countries. Amen is one of the most active banks in Tunisia in relation to special resource drawdowns. In H1 25, the EBRD increased its facility to Amen. Liquid assets are adequate, and the liquidity coverage ratio is at a good level. The net loans to customer deposits ratio has fallen to a satisfactory level (82% at H1 25), and the level of stable funding to loans is viewed as comfortable.

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 Amen 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 or the ratings raised, 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. 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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