S&PGR Publishes Assessment Of Tunisia’s Banking Industry

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 
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 
     -- 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, 
     -- S&P To Publish Economic And Industry Risk Trends For Banks, March 12, 
     -- 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 
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www.standardandpoors.com.  Alternatively, call one of the following S&P Global 
Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office 
(44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; 
Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4009. 
Primary Credit Analyst: Mohamed Damak, Dubai (971) 4-372-7153; 
Secondary Credit Analyst: Anais Ozyavuz, Paris 0144206773; 
Sovereign Analyst: Remy Carasse, Dubai (971) 4-372-7154; 
Additional Contacts: Financial Institutions Ratings Europe; 
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