Banque de Tunisie’s Ratings Downgraded

Capital Intelligence (CI), the international credit rating agency, today announced that it has downgraded the ratings of Banque de Tunisie (BT), based in Tunis, Tunisia. The Long-term Foreign Currency rating is downgraded to ‘BBB-‘, whilst the Short-term Foreign Currency rating is maintained at ‘A3’. BT’s Financial Strength Rating is reduced to ‘BBB’. The Outlook for all ratings remains ‘Negative’. The rating action reflects the increased level of non-performing loans (NPLs) and weakened liquidity position in addition to the continued challenging operating environment conditions. CI commented that BT’s financial position is supported, however, by a good level of provisioning coverage, a solid capital adequacy ratio, and still above average profitability. The Support Rating is affirmed at ‘3’. As the Bank’s shareholding profile is broadly based, support in case of need would come from the Tunisian authorities. Official financial support, while not guaranteed, is likely to be forthcoming due to BT’s significant market share of domestic banking sector deposits.

As with the entire Tunisian banking sector, BT has been negatively impacted by events in Tunisia over the past year. The domestic economy suffered a sharp decline in first half 2011 and this has in turn hit both the corporate and retail banking segments. BT experienced a rise in non-performing loans in 2010 and also in H1 2011.

This trend is likely to continue in the second half of 2011 and into 2012 due to the lagging effect of problem loans. To the Bank’s credit, provisioning coverage was raised in 2010 and a good level was maintained in H1 2011. The Bank has some exposure to enterprises and individuals linked to the previous regime. The Bank prudently provisioned for its exposure to the individuals in the 2010 accounts. Providing a further buffer is BT’s very solid level of capital adequacy, with the ratio the highest in the peer group. However, a concern is the Bank’s tight liquidity position. Although tight liquidity has been experienced across the Tunisian banking sector over the past year, BT’s position is weaker than average. The Bank has only a very limited base of liquid assets and other main liquidity ratio indicators, such as the ratio of loans to deposits, is high.

Profitability was weaker in 2010 due to the sharply raised provision charge. First half performance was reasonable but earnings challenges are likely to remain as margins will remain under pressure and there will be limited opportunity for balance sheet expansion unless deposits or other forms of funding are raised. The oldest bank operating in the sector, BT was established in 1884 during the French protectorate.

Shareholders comprise principally local private investors, with the rest accounted for by Crédit Industriel et Commercial de Paris Group (20% – stake acquired some years ago), and foreign pension funds (about 5%). Approximately 14% of the Bank’s shares were controlled by the previous regime and associates.

This shareholding has been sequestrated by the Tunisian government. Two board directors of BT were also replaced and a new CEO was installed by the government in H1 2011. BT is Tunisia’s seventh-largest bank overall by assets with a market share of around 8%. Total assets at end-June 2011 amounted to TND3,164mn.