Tunisian non-bank financial institutions (NBFIs) are increasingly reliant on domestic bank funding, which, along with often-material asset-liability mismatches, increases liquidity risks, Fitch Ratings said in a new report.
It added that funding from international financial institutions (IFIs), historically a key funding source, dropped to 21% for the domestic leasing sector at end-1H23 (end-2021: 28%), partly due to materially higher foreign-currency hedging costs amidst Tunisia’s challenging operating environment.
Fitch rates seven Tunisian leasing companies (end-2022: 90% of sector assets), one factoring company and one microfinance lender. “We affirmed the National Ratings of all but Enda Tamweel, the country’s largest microfinance lender, whose National Rating we upgraded,” it noted.
The domestic banking sector accounted for 79% of non-equity funding at end-1H23 (end-2021: 72%). The Tunisian state increasingly relies on shorter-term domestic bank financing to compensate for scarce external financing, which could reduce the banking sector’s additional funding for domestic NBFIs.
However most domestic NBFIs have maintained access to alternative, but more costly, funding sources such as the domestic bond market and, to a lesser extent, IFIs, mitigating this risk, according to the ratings agency.
Fitch also said factoring and microfinance companies are more resilient to operating pressures than leasing companies, due shorter average tenor assets and the absence of lending rate caps that allow better margins.
Asset quality has remained resilient in 1H23. “We expect material write-offs and tighter underwriting standards to help NBFIs to contain increased credit risk and to comply with regulatory requirement to reduce NPL ratios,” it pointed out. Decreasing impairment charges and stabilizing interest rates contributed to higher profitability in 1H23, which Fitch expects to continue in 2024.
Tunisian NBFIs’ National Ratings range from ‘B+(tun)’ to ‘A-(tun)’ with Stable Outlooks, reflecting Fitch’s view that the relative credit profiles on the National scale will be unchanged.
National Ratings of NBFI subsidiaries of foreign-owned banks tend to be higher as we expect extraordinary support, if required, Fitch further said.