Tunisian banks face continued challenges from high inflation, slow economic growth, and heightened interest rates, said Fitch Ratings.
Subdued credit growth (0.6% in 5M25) reflects both muted demand and the state’s high financing needs crowding out other types of credit, it pointed out in a report released Tuesday.
Fitch upgraded Tunisia to ‘B-‘/Stable in September 2025, but does not expect this to materially improve banks’ operating conditions, despite also revising the operating environment score up.
The sector non-performing loan (NPL) ratio rose to 14.7% at end-1Q25, its highest level in four years (end-2021: 13.1%). However, a sizeable portion of the NPL stock relates to legacy assets, and there is significant potential for a material reduction in the NPL ratio over the longer term, specified the agency.
It added that profitability remains modest when adjusted for inflation, with an average return on equity of 10.6% over 2022–1Q25.
Net income at the ten largest banks increased by a moderate 13% year-on-year in 1H25, weighed down by a 21% rise in loan impairment charges and an 8% increase in operating expenses.
Adequate liquidity conditions
Liquidity conditions remain adequate and are expected to be maintained in 2026. Customer deposits, which are the banks’ main source of funding, were up 3% in 5M25 (2024: 10%), while loans grew by only 0.6%. Banks’ reliance on the Central Bank of Tunisia’s refinancing accounted for 5% of sector liabilities at end-May 2025.
Good liquidity conditions are expected to persist, supporting a gradual increase in banks’ exposure to sovereign debt in 2026, according to the same source, noting that this trend is supported by low private credit demand and attractive risk-adjusted yields on government securities.
Last September, Fitch Ratings noted, in terms of “strengthening ties between the state and banks,” that the “domestic banking sector could help meet the sovereign’s financing needs, as deposit growth and weak credit demand support sector liquidity. »
However, Fitch Ratings added that this will increase banks’ exposure to the public sector, which already represents about 20% of their total assets, necessitating refinancing to local banks by the central bank.
“We expect state-owned banks to take on a greater share of the financing burden due to caution by some private banks,” the agency stated.
