Moody’s Investors Service has today placed the local and foreign currency deposit ratings of four Tunisian banks on review for possible downgrade in light of its global review of systemic support indicators and stress testing for the banking systems. Bank financial strength ratings (BFSRs) of affected Tunisian banks remain unchanged. The full list of affected ratings can be found below.
Moody’s previously used the local currency deposit ceiling (LCDC) as the main input for its assessment of the ability of a national government to support its banks. Although anchoring the probability of support at the LCDC is appropriate in many circumstances — regarding the provision of liquidity to a selected number of institutions over a short period of time — this might overestimate the capacity of a central bank to support financial institutions in the event of a banking crisis becoming both truly systemic and protracted. This approach is outlined in the Special Comment entitled “Financial Crisis More Closely Aligns Bank Credit Risk and Government Ratings in Non-Aaa Countries”, which was published in May 2009.
The review of the local currency deposit ratings will look at the extent to which Tunisia’s ability to provide support to its banking system, if needed, is converging with the government’s own debt capacity as a result of the ongoing global economic and credit crisis. Moody’s will refine its assessment of systemic support available from the Tunisian government to capture the impact of the erosion of the local economy’s underlying credit fundamentals and the reduced fiscal policy flexibility on the government’s ability to support the banking sector.
Factors that Moody’s will consider in its assessment of systemic support include the size of the banking system in relation to government resources, the level of stress in the banking system, the foreign currency obligations of the banking system relative to the government’s own foreign exchange resources and changes to the government’s political patterns.
The local and foreign currency deposit ratings of Arab Tunisian BankArab Tunisian Bank are unaffected by these rating actions. They remain unchanged at Baa2/P-2 given that the bank benefits from an additional source of support parental support from its majority shareholder Arab BankArab Bank PLC, which counterbalances any impact stemming from a change in systemic indicators.