The Tunisian banking sector’s credit quality is likely to weaken further in 2021 as the operating environment for banks remains challenging in the aftermath of the coronavirus pandemic, Fitch Ratings says in a new report. Fitch is maintaining its negative outlook on the sector.
The international rating agency expects underlying asset quality deterioration to become increasingly visible in reported metrics when Tunisia’s loan deferral program expires in September 2021 and some forbearance measures for banks stop at end-2021
It draws the attention to the impact of the move to IFRS 9 from end-FY2021 on weakening reported asset quality metrics and the need for additional provisioning.
“Our assessment of Tunisian banks’ asset quality captures their high exposure to the weakened sovereign (‘B’/Negative) through holdings of government securities and direct lending to the state,” reads the statement published by Fitch.
It estimates that the banks’ exposure to the sovereign was about 15% of sector assets at end-November 2020, which is sizeable and expect profitability to remain weak in 2021 due to low interest rates, subdued business activity and a delayed recovery in the vital tourism sector.
Loan impairment charges (LICs) are likely to remain high given the severity of asset quality risks, which will also weigh on profitability, according to the agency.