Capital Intelligence (CI), the international credit rating agency, today announced that it has assigned a ‘Negative’ outlook to Banque Internationale Arabe de Tunisie’s (BIAT) Foreign Currency ratings, as well as to its Financial Strength rating. The rating action reflects the uncertain political situation and the attendant risks to economic and financial performance. BIAT’s Long and Short-Term Foreign Currency ratings were affirmed at ‘BB+’ and ‘B’ respectively. The Financial Strength rating was also affirmed at ‘BB+’, as was the Bank’s Support rating of ‘4’.
BIAT is the leading private-sector bank in Tunisia, possessing a well established franchise. It controls over 10% of sector assets. In customer deposits, however, it holds the leading position with a 15% market share. Its customer deposit base provides the Bank with a low cost of funds, which translates into a relatively wide interest differential.
Although improving slightly, loan asset quality is still weak as non-performing loans (NPLs) form a high percentage of gross loans and provisioning is considered low. Profit and returns have improved over the past two years to end-June 2010. Both net interest and non-interest income lines have contributed to the improvement but the main factor has been a lower provisioning charge, as operating profitability has been declining. BIAT is addressing its need to control expenses, but its cost structure remains quite high.
Supporting the ratings is the Bank’s good liquidity position with a sector-high level of customer deposits as well as a good base of liquid assets. The capital position is considered adequate but only just so, as there remains a significant level of unprovided NPLs, particularly against free capital.
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. BIAT’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.
BIAT was established in 1976 by a consortium of investors composed of local institutions and individuals as well as Arab and European banks, who acquired the domestic branches of the British Bank of the Middle East and Société Marseillaise de Crédit. In its early years, BIAT expanded rapidly and in the 1980s it had become the largest private bank in Tunisia. At end-June 2010, total assets amounted to TND6, 326mn (USD4, 610mn).
