Fitch Ratings has today affirmed Tunisia-based Banque Nationale Agricole’s (BNA) and Societe Tunisienne de Banque’s (STB) respective Support ratings at ‘2’.
BNA and STB’s ratings reflect the high probability of support from the Tunisian government in case of need, given their majority ownership by the Tunisian state. The ratings further reflect the strategic roles the two banks play in the country’s economy and their systemic importance. BNA and STB are 67% and 52.5%-owned by the Tunisian state, respectively.
BNA is Tunisia’s second-largest bank by assets, and held market shares of around 14% of deposits and around 18% of loans at end-2008. BNA is the only bank used by the government to channel funds for financing the agricultural sector, although the diversification strategy it launched in the 1990s reduced its exposure to agriculture (19% of total exposure at end-2008).
STB is Tunisia’s largest bank by assets. At end-2008, it held around 17% of the domestic credit market and around 14% of the deposits market. STB’s network, at 117 branches nationwide, is the second-largest in Tunisia. It is the government’s main arm for financing the private sector. Lending to SMEs and corporates represented about 80% of the bank’s customer loan book at end-2008, although STB also conducts retail banking operations.
As for BIAT whose support ratings is affirmed at ‘2’, Fitch stated that the bank’s shareholding structure is fragmented and, in Fitch’s view, shareholder support therefore cannot be relied upon. Nevertheless, Fitch considers that there is a high probability that the Tunisian authorities would provide support to the bank due to its importance to the local banking system. BIAT is Tunisia’s third-largest bank and the largest privately-owned bank in the country. It held 16.5% of system deposits at end-2008.
BIAT’s performance ratios improved in 2008 but remained modest, with an operating ROAE of 11%, reflecting the weight of loan loss provisions (62% of pre-impairment operating profit). For 2009, the bank expects profitability to improve on the back of its still active lending business, declining impairment charges and lending pricing revisions, which should offset the drop in local interest rates, although these expectations may be challenged by tougher economic conditions.
Credit risk remains significant at the bank, although management is striving to enhance risk management through the implementation of independent structures, new procedures and tools. BIAT’s impaired loan ratio declined to a still substantial 13% at FYE08 from 16% at FYE07, largely on the back of sales of impaired loans to its loan recovery subsidiary, and net impaired loans represented a significant 37% of equity at FYE08.
Liquidity is satisfactory. BIAT, which is predominantly funded by fragmented and growing client deposits (with retail deposits accounting for 79% of the deposit base at FYE08), has a stable client deposit base. Additionally, its loan/deposit ratio is comfortable (68% at FYE08), with some TND1.5bn, or 32% of deposits, invested in liquid assets at FYE08.
Fitch considers BIAT’s capital adequacy ratios (Basel I) to be stretched (13.7% at FYE08; Tier 1: 11.5%) given the bank’s credit risk profile, particularly its significant level of unreserved impaired loans. BIAT plans to strengthen its capitalisation by improving internal capital generation.