Fitch Ratings has affirmed Enda Tamweel S.A.’s (Enda) National Long- and Short-Term Ratings at ‘BBB(tun)’ and ‘F3(tun)’, respectively. The Outlook on the National Long-Term Rating is Stable.
National scale ratings are an opinion of creditworthiness relative to the universe of issuers and issues within a single country. The Stable Outlook reflects our expectation that Enda’s upside and downside rating risks are equally balanced relative to peers’.
The ratings of Enda are driven by Fitch’s assessment of the company’s standalone strength and the challenging operating environment for financial institutions in Tunisia, which has a high influence on its financial profile. This is balanced against the company’s strong franchise and brand recognition in a niche market, a record of solid profitability, reasonable, albeit weakening, asset-quality metrics, strong capital buffers as well as good access to international funding.
The operating environment for Tunisian financial institutions is deteriorating, as underlined by our downgrade of Tunisia’s sovereign rating to ‘CCC’ on 18 March 2022, and placed Under Criteria Observation on 14 July 2022. The sovereign downgrade reflected heightened fiscal and external liquidity risks amid further delays in agreeing on a new program with the IMF, which is necessary to access most official creditors’ support for its budget.
Fitch said Enda is Tunisia’s largest lender in the microfinance sector, where it controls an estimated 72% market share by outstanding loans as of end-2021, but remains a small lender in the country’s overall financial sector.
Enda’s business model is monoline, but diversification efforts are underway with the introduction of micro-insurance products. Enda lends to the most vulnerable individuals and micro-entrepreneurs in Tunisia, for which it is often the only source of finance available. Borrowers are typically micro entrepreneurs in the agricultural and trade sectors, seeking small, short-term working- capital loans (average loan values are below TND3,500 (or around USD1,000)). Enda operates nationwide through a network of over 100 regional branches.
Enda’s capitalization and leverage metrics are one of the strongest across Tunisian non-bank financial institutions (NBFIs) with a debt/tangible equity and a tangible common equity/tangible asset ratio a 3.07x and 21%, respectively, at end-1H22. Except in 2020, leverage has been stable around 3x.
Fitch expects Enda’s capitalization metrics to remain sound and resilient to asset-quality shocks, with adequate coverage of impaired loans by loan loss allowances.
Nonetheless, Enda’s funding profile remains, to a certain extent, vulnerable to a tightening of domestic market conditions, as around 65% of non-equity funding is sourced from domestic issuance and local banks.
