Fitch Ratings has affirmed Tunisia-based Caisse des Prets et de Soutien des Collectivites Locales’ (CPSCL) National Ratings at Long-Term ‘AA-(tun)’ and Short-Term ‘F1+(tun)’. The Outlook is Stable.
The affirmation reflects unchanged links between CPSCL and the Tunisian State (BB-/BB/Negative/B) over the last 12 months, including the former’s supportive legal status, strong control from the sponsor and the high strategic importance CPSCL holds for the Tunisian State. The affirmation also reflects the ratings agency’s expectation of stable rating factors over the medium term.
Lending volumes stabilized in 2015 (-1%). Over the year, the State has granted larger capex grants to municipalities, made through CPSCL, to encourage key investment in urban infrastructure and restore their self-financing capacity. The implementation of the 2015-2019 development plan should support the growth of CPSCL’s lending activity in the coming years, especially from 2017 and 2018.
CPSCL’s flexibility in loan extension and subsidy allocation was slightly expanded in 2014, through a national decree (30/9/14). Interest rates and maturities of loans remain fixed by the Tunisian government through annual decrees, after taking into account CPSCL’s proposals based on the entity’s credit risk and own refinancing conditions. The 2014 decree also enabled CPSCL to provide subsidized loans. CPSCL has also implemented a dedicated credit risk division.
CPSCL’s high impaired loan ratios reflect local authorities’ low repayment capacity and weak debt servicing. In addition, social and economic dislocation in Tunisia since January 2011 has weighed on CPSCL’s impaired loans.
Impaired loans coverage ratios are weak but strengthened to 15.2% of total loans at end-2015, from 13.2% in 2009, as only the overdue portion of loans is covered by a provision for loans in arrears of less than two years (and there is an additional provision covering 25% of the outstanding loan for loans in arrears for more than two years). However, Fitch believes CPSCL’s asset quality ratios should be considered in the context of the financial support the Tunisian State provides to local authorities.
In addition to its large equity base (41% of total assets, well above the 10% required for banks by Tunisian regulation), CPSCL is dependent on multilateral long-term funding guaranteed by the Tunisian State, through multilateral financing agencies, mainly “Agence Francaise de Developpement” (AA/Stable/F1+) and the European Investment Bank (AAA/Stable/F1+).
Excess liquidity, placed with local banks (TDN263m at end-2015), provides a significant buffer against liquidity risk. At end-2015, CPSCL’s liquidity ratio was comfortable at 145%, above the 100% required for Tunisian banks.
CPSCL’s ratings are credit-linked to the sovereign’s. Changes to CPSCL’s strategic importance to the Tunisian State or negative changes to CPSCL’s governance, leading to a dilution of state control, would trigger a downgrade.