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Rating Action:

Moody's affirms five Tunisian banks' ratings; changes outlook to stable for all banks

18 Feb 2020

Bank rating actions follow the affirmation of the Tunisian sovereign rating and change of its outlook to stable from negative

Limassol, February 18, 2020 -- Moody's Investors Service ("Moody's") has today affirmed the B2/NP local-currency deposit ratings of Amen Bank (Amen), Arab Tunisian Bank (ATB), Banque de Tunisie (BdT), Banque Internationale Arabe de Tunisie (BIAT) and the B3/NP local-currency deposit ratings of Société Tunisienne de Banque (STB). At the same time Moody's changed the outlook on all long-term deposit ratings of the five banks to stable from negative.

A full list of the banks' ratings affected by today's rating action is at the end of this press release.

The rating actions follow Moody's decision to affirm Tunisia government's long-term issuer ratings of B2 and change its outlook to stable from negative on 14 February 2020. For further information on the sovereign rating action, please refer to Moody's press release: https://www.moodys.com/research/--PR_417768

RATINGS RATIONALE

AFFIRMATION OF BANKS' RATINGS

The affirmation of the five Tunisian banks' ratings reflects Moody's view that, despite a still challenging operating environment, the banks' credit profiles, including asset-quality metrics, loss-absorption buffers and liquidity measures, will remain broadly stable at current weak levels. It also reflects the rating agency's view that government support in times of stress in the banking sector would be forthcoming.

Moody's estimates that the improving -- albeit still high -- government current account deficits and restoration in FX reserves reduce the risks of a depreciation of the local currency, easing possible inflationary pressures for the Tunisian banks. Also, in line with its intention to safeguard price stability, the Central Bank of Tunisia's (CBT) restrictive monetary policy (policy rate has been increased by a cumulative 350 basis point since March 2017) has brought back real interest rates into positive territory in 2019. This measure has already curbed lending growth, easing banks' asset risk as the potential for new problem loan formation reduces. The agency expects this to alleviate the burden of already high provisioning needs.

On the funding and liquidity side, banks' dependence on short-term collateralized CBT funding is decreasing thereby reducing asset encumbrance and providing some financial flexibility in times of stress. During 2019 the volume of CBT refinancing started a declining trend - for the first time since 2010 - to TND10.8 billion as of February 2020 from a peak of around TND16 billion during 2018. CBT funding grew to a peak of around 10.0% of total assets in 2018 from 0.5% in 2010 before declining to 8.6% in August 2019.

STABLE OUTLOOK REFLECTS SOVEREIGN OUTLOOK

The change in outlook to stable on the five banks' deposit ratings is primarily driven by the rating agency's stable outlook on Tunisia's rating from negative and its assessment of the Tunisian government's capacity and high probability to support the banks. The bank outlooks also reflect our expectation that challenges in the operating environment related to liquidity tightening will continue to ease over time.

WHAT COULD CHANGE THE RATINGS -- UP/DOWN

Upward pressure on banks' ratings could develop from sustained improvements in the fiscal, economic and liquidity conditions in Tunisia, as implied by an upgrade in Tunisia's sovereign rating. This could also be conditioned by a material improvement in asset quality, a reduction in provisioning requirements, an increase in loss-absorptions buffers and a material/sustained reduction in reliance on central bank funding.

Since all five Tunisian banks benefit from government support uplift from their respective Baseline Credit Assessments (BCA), downward pressure on banks' ratings could develop following a downgrade of the sovereign rating. Negative pressure on the banks' BCAs could also develop from a greater-than-expected deterioration in the operating environment - as implied by a change in the Macro Profile of Tunisia - weakening their asset quality, profitability, capital adequacy and/or liquidity profile.

Moody's does not have any particular governance concern for rated Tunisian banks, although the rating agency believes that their relatively high asset risks reflect banks' substandard risk governance culture, particularly for public banks. Tunisian banks have a low exposure to environmental risks in the medium term, however, in the long run such considerations can be material as the effects of climate change can significantly impair economic growth and development (coastal regions account for 80% of total output, the majority of which are exposed to rising sea levels). Social risk for Tunisian banks is in line with our general assessment for the global banking industry. However social considerations at the sovereign level can have ripple effects on the banks as tensions erupted against austerity measures made under the current IMF program could impair the government's ability to conduct necessary reforms to boost growth and reduce unemployment.

BANK-SPECIFIC CONSIDERATIONS

- Amen Bank (Amen)

Moody's affirmed Amen's long-term local-currency deposit rating at B2, long-term foreign-currency deposit rating at B3 and its BCA at caa1. The affirmation of the long-term deposit ratings reflects Moody's view that the ratings appropriately capture the challenges posed by the Tunisian operating environment on the bank's standalone credit profile (caa1 affirmed). The BCA reflects the bank's weak asset quality (around 16.5% ratio of problem loans as of June 2019), low loss absorption buffers and moderate profitability which remains challenged by high cost of funding and sustained provisioning requirements as well as a tight liquidity profile with a still relatively high reliance on central bank funding. The affirmation also reflects Moody's assessment of a very high probability of government support in case of need, given the bank's 9.1% market share in domestic deposits, resulting in two notches of uplift from the bank's caa1 BCA.

- Arab Tunisian Bank (ATB)

Moody's affirmed ATB's long-term local-currency deposit rating at B2, long-term foreign currency deposit rating at B3 and its BCA and adjusted BCA at caa1 and b3, respectively. The affirmation of the long-term deposit ratings reflects Moody's view that the ratings underpin the challenges posed by the Tunisian operating environment on the bank's standalone credit profile (caa1 affirmed). The BCA reflects the bank's deteriorating asset quality and high credit concentrations (problem loans ratio estimated at 11.6% as of June 2019), modest capital buffers in light of elevated asset risk and above average funding and liquidity metrics supported by a stable funding base. The affirmation also reflects that ATB's B2 long-term local currency deposit rating continues to benefit from (1) one notch of affiliate support uplift based on Moody's assessment of a moderate probability of parental support from ATB's majority shareholder, Arab Bank PLC (long-term LC deposit rating Ba2 stable, BCA ba2) and (2) one notch of government support based on Moody's assessment of a high probability of support from Tunisian authorities based on the bank's systemic importance in Tunisia with a 7.6% deposit market share and evidence of past government support provided to banks, in case of need.

- Banque Internationale Arabe de Tunisie (BIAT)

Moody's affirmed BIAT's long-term local-currency deposit rating at B2, long-term foreign currency deposit rating at B3 and its BCA at b3. The affirmation of the long-term deposit ratings reflects Moody's view that the ratings reflect the challenges posed by the Tunisian operating environment on the bank's standalone credit profile (b3 affirmed). The BCA is driven by weak capital buffers relative to elevated and concentrated credit risks (6.4% problem loans ratio as of June 2019) balanced by resilient profitability, good liquidity buffers and a strong deposit-gathering capacity, underpinned by the bank's position as Tunisia's leading private bank. The affirmation also reflects Moody's assessment of a very high probability of government support in case of need, given BIAT's systemic relevance as the largest bank in Tunisia with an around 19% deposit market share resulting in one notch of uplift from the bank's b3 BCA.

- Banque de Tunisie (BdT)

Moody's affirmed BdT's long-term local-currency deposit rating at B2, long-term foreign currency deposit rating at B3 and its BCA at b3. The affirmation of the long-term deposit ratings reflects Moody's view that the ratings incorporate the challenges posed by the Tunisian operating environment on the bank's standalone credit profile (b3 affirmed). The BCA is underpinned by its sound capital buffers and prudent risk management relative to local peers, combined with a resilient profitability. These strengths are moderated by the bank's (1) elevated asset-quality pressures in a still challenging operating environment; and (2) high reliance on central bank funding which raises refinancing risks and encumbers liquid assets, which are already at low levels compared to domestic and global peers. The affirmation also reflects Moody's assessment of a high probability of government support in case of need, given BdT's around 6% deposit market share resulting in one notch of uplift from the bank's b3 BCA.

- Société Tunisienne de Banque (STB)

Moody's affirmed STB's long-term deposit ratings at B3 and its BCA at caa3. The affirmation of the long-term deposit ratings reflects Moody's view that the ratings capture the challenges posed by the Tunisian operating environment on the bank's standalone credit profile (caa3 affirmed). The BCA reflects the bank's high - albeit declining - level of problem loans (reported problem loans ratio at around 20% as of June 2019), driven by historically weak underwriting standards and a concentrated exposure to the distressed tourism sector, low profitability and weak loss-absorption capacity coupled with a tight funding profile with high reliance on central bank funding. Also, STB's caa3 BCA continues to capture weak internal audit and reporting systems. The affirmation also reflects Moody's assessment of a very high probability of government support in case of need, given STB's around 10.4% deposit market and 83.4% direct and indirect government ownership resulting in three notches of uplift from the bank's caa3 BCA.

LIST OF AFFECTED RATINGS

..Issuer: Amen Bank

Affirmations:

.... Adjusted Baseline Credit Assessment, Affirmed caa1

.... Baseline Credit Assessment, Affirmed caa1

.... Long-term Counterparty Risk Assessment, Affirmed B2(cr)

.... Short-term Counterparty Risk Assessment, Affirmed NP(cr)

.... Long-term Counterparty Risk Ratings, Affirmed B2

.... Short-term Counterparty Risk Ratings, Affirmed NP

.... Long-term Bank Deposit Ratings, Affirmed B2 (Domestic) / B3 (Foreign), Outlook Changed to Stable from Negative

.... Short-term Bank Deposit Ratings, Affirmed NP

Outlook Action:

....Outlook Changed to Stable from Negative

..Issuer: Arab Tunisian Bank

Affirmations:

.... Adjusted Baseline Credit Assessment, Affirmed b3

.... Baseline Credit Assessment, Affirmed caa1

.... Long-term Counterparty Risk Assessment, Affirmed B2(cr)

.... Short-term Counterparty Risk Assessment, Affirmed NP(cr)

.... Long-term Counterparty Risk Ratings, Affirmed B2

.... Short-term Counterparty Risk Ratings, Affirmed NP

.... Long-term Bank Deposit Ratings, Affirmed B2 (Domestic) / B3 (Foreign), Outlook Changed to Stable from Negative

.... Short-term Bank Deposit Ratings, Affirmed NP

Outlook Action:

....Outlook Changed to Stable from Negative

..Issuer: Banque Internationale Arabe de Tunisie

Affirmations:

.... Adjusted Baseline Credit Assessment, Affirmed b3

.... Baseline Credit Assessment, Affirmed b3

.... Long-term Counterparty Risk Assessment, Affirmed B2(cr)

.... Short-term Counterparty Risk Assessment, Affirmed NP(cr)

.... Long-term Counterparty Risk Ratings, Affirmed B2

.... Short-term Counterparty Risk Ratings, Affirmed NP

.... Long-term Bank Deposit Ratings, Affirmed B2 (Domestic) / B3 (Foreign), Outlook Changed to Stable from Negative

.... Short-term Bank Deposit Ratings, Affirmed NP

Outlook Action:

....Outlook Changed to Stable from Negative

..Issuer: Banque de Tunisie

Affirmations:

.... Adjusted Baseline Credit Assessment, Affirmed b3

.... Baseline Credit Assessment, Affirmed b3

.... Long-term Counterparty Risk Assessment, Affirmed B2(cr)

.... Short-term Counterparty Risk Assessment, Affirmed NP(cr)

.... Long-term Counterparty Risk Ratings, Affirmed B2

.... Short-term Counterparty Risk Ratings, Affirmed NP

.... Long-term Bank Deposit Ratings, Affirmed B2 (Domestic) / B3 (Foreign), Outlook Changed to Stable from Negative

.... Short-term Bank Deposit Ratings, Affirmed NP

Outlook Action:

....Outlook Changed to Stable from Negative

..Issuer: Societe Tunisienne de Banque

Affirmations:

.... Adjusted Baseline Credit Assessment, Affirmed caa3

.... Baseline Credit Assessment, Affirmed caa3

.... Long-term Counterparty Risk Assessment, Affirmed B2(cr)

.... Short-term Counterparty Risk Assessment, Affirmed NP(cr)

.... Long-term Counterparty Risk Ratings, Affirmed B2

.... Short-term Counterparty Risk Ratings, Affirmed NP

.... Long-term Bank Deposit Ratings, Affirmed B3, Outlook Changed to Stable from Negative

.... Short-term Bank Deposit Ratings, Affirmed NP

Outlook Action:

....Outlook Changed to Stable from Negative

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in November 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The local market analyst for these ratings is Badis Shubailat, +971 (423) 795-05.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Constantinos Kypreos
Senior Vice President
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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