Press Release: S&PGR Publishes Assessment Of Tunisia’s Banking Industry
The following is a press release from Standard & Poor's: DUBAI (S&P Global Ratings) Aug. 10, 2016--S&P Global Ratings today published its "Banking Industry Country Risk Assessment: Tunisia." We classify the banking sector of Tunisia (not rated) in group '9' under our Banking Industry Country Risk Assessment (BICRA) methodology. We rank BICRAs on a 1-10 scale, where group '1' represents the lowest risk banking system. Other countries in group '9' include Argentina, Cambodia, Kenya, Nigeria, and Vietnam. We use our BICRA economic risk and industry risk scores to determine an anchor, the starting point in assigning a bank an issuer credit rating under our criteria. The anchor for banks operating only in Tunisia is 'b+'. We think that Tunisia has a generally diversified economy but its income levels remains low. Although the country completed its political transition, the ruling coalition failed in redressing Tunisia's persistent low economic growth and decreasing unemployment amid high political, geopolitical, and security risks. In our base-case scenario, we assume that low economic growth will continue, reform implementation will be shaky, and high geopolitical and security risks will persist in the second half of 2016 and 2017. Over the past four years, Tunisian banks' financial performance and asset quality indicators suffered from the combination of post-revolution instability, Europe's anemic growth and materialization of security risks. We expect these challenges will continue over the next 12-24 months. After a marked jump post-revolution, residential real estate prices started to decline in 2016. Under our base-case scenario, we expect, however, that the impact of this decline on the banking system's asset quality will remain contained. Banks' exposure to property developers stood at a modest 9% of total loans at year-end 2015 while risks linked to mortgage loans are somewhat mitigated as they are typically backed by salary assignments. Nevertheless, banks' asset quality remains weak, with the ratio of nonperforming loans (NPLs) to total loans likely to stabilize at 16%-17% of total loans in the next 12-24 months, although a significant portion of these loans are old legacy loans from the troubled tourism industry. In our view, the main sources of risk are still-high unemployment, low economic growth, declining real estate prices, the sharp drop in tourism receipts, and the strained financial flexibility of the corporate sector. In assessing Tunisia's banking industry risk, we expect nominal lending growth of about 5% over the next 12-24 months. Although improving, banking regulation and supervision and the regulatory track record remain weak. The authorities have recapitalized two of Tunisia's three public-sector banks and implemented a new banking law. We think that aligning Tunisian regulation with that of its peers will take time, particularly with regards to capital requirements. Our assessment of Tunisia's institutional framework is further dragged down by our views of its poor governance and weak transparency by international standards. Tunisian banks exhibit moderate risk appetites and don't use complex products. However, they operate in a fragmented and highly competitive market. Market distortions remain sizable in the Tunisian banking sector, in our opinion. Customer deposits are Tunisian banks' primary funding source, which have proved to be relatively stable. However, they are insufficient to fund the system's loan portfolio growth based on Tunisian banks' comparatively high average loan-to-deposit ratios. In addition, the local capital markets remain narrow. Banks' access to external funding is limited and concentrated primarily on few offshore companies, Tunisian expatriate deposits, or long-term loans from multilateral lending institutions. We view the trend for economic risk in Tunisia as stable. In our base-case scenario, we assume limited deterioration in banks' asset quality indicators as a result of the ongoing real estate price correction. We regard the trend in industry risk in Tunisia's banking sector as stable. We take into account our view that banking regulation enhancement will be slow. RELATED CRITERIA AND RESEARCH Related criteria -- Sovereign Government Rating Methodology And Assumptions, June 30, 2013 -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011 -- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 Related research -- Banking Industry Country Risk Assessment Update: July 2016, July 22, 2016 -- S&P To Publish Economic And Industry Risk Trends For Banks, March 12, 2013 -- Analytical Linkages Between Sovereign And Bank Ratings, Dec. 6, 2011 Only a rating committee may determine a rating action and this report does not constitute a rating action. The report is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request[a]spglobal.com. 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Press Release: S&PGR Publishes Assessment Of -2-
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