“Tunisian banks’ profitability, which rebounded close to pre-pandemic levels in 1H22, should help mitigate weaker operating conditions, but credit risks are emerging, with asset-quality metrics already deteriorating, Fitch Ratings said in a new risk analysis of the Tunisian banking sector on Wednesday.
According to the rating agency, “lower impairment charges and rising rates drove the strong rebound in 1H22 profitability, with the sector’s annualized return on average equity increasing to 16% (2021: 10%), close to its 2019 level of 17%.”
It also said the banking sector is exposed to the Tunisian sovereign (CCC) through holdings of government securities, placements with the central bank and loans to the public sector. Sovereign exposure (excluding state-owned enterprises) was 16% of sector assets at end-May 2022, or about 0.9x sector equity.
“Although not particularly high by regional standards, this poses risks to banks’ thin capital buffers. Most of the exposures are in local currency, which means a local-currency sovereign debt restructuring could lead to substantial losses,” Fitch pointed out.
