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Tunisia : STB Ratings Action

Capital Intelligence (CI), the international credit rating agency, today announced that it has assigned a ‘Negative’ Outlook to Société Tunisienne de Banque’s (STB) Foreign Currency ratings, as well as to its Financial Strength rating. Despite the improvement in asset quality and profitability, the rating action reflects the uncertain political situation and the attendant risks to economic and financial performance. STB’s Long and Short-Term Foreign Currency ratings were affirmed at ‘B+’ and ‘B’ respectively. The Financial Strength rating was also affirmed at ‘B-‘, as was the Bank’s Support rating of ‘3’.

STB, majority owned by the Tunisian government, is the largest bank in Tunisia. Due to both the ownership and sector position, CI is of the opinion that STB would be supported by the state in extremis. The Bank’s financial profile is weak and is characterised by poor loan asset quality and insufficient capital. Non-performing loans (NPLs), although falling over the last few years, continue to represent a substantial proportion of both loans and assets. Provisioning is very low; moreover, the gap between loan-loss provisions and NPLs is significant and erodes the overall level of capital.

Profitability has shown some signs of moderate improvement, but the ongoing high cost of risk due to provisioning charges continues to impact net profit and returns remain low. At the current level of operating profit, it will take many years to address adequately the loan asset quality problems from internal sources. STB’s liquidity position is tight due to a low base of liquid assets and high level of loans against both assets and customer deposits.

The recent political turmoil in Tunisia will have negative implications for the economy, at least over the next twelve months. Economic growth will be lower than previously forecast and there remains more risk to the downside. Key economic sectors will be hit and will likely be a source of new non-performing loans going forward. STB’s profitability, as is the case with the Tunisian banking sector, could come under pressure in 2011 on the back of possible asset quality deterioration and limited asset expansion. STB’s position may be more vulnerable due to its market position and government ownership.

STB was founded in 1957, the first indigenous bank to be established following Tunisia’s independence. Initially begun as a development bank, it is now a full-service commercial bank. Following its 2000 merger with two development banks, Banque de Développement Economique de Tunisie (BDET) and Banque Nationale de Développement Touristique (BNDT), which were partially owned by the state, STB’s principal owners are now the state directly and state-owned companies. The balance of shares is traded on the Tunis Stock Exchange. The Bank operates a network of 128 branches. Total assets amounted to TND6, 622mn (USD4, 826mn) at end-June 2010.


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