Rating actions follow the confirmation of the Tunisian government's bond rating at B2 with a negative outlook
Limassol, October 08, 2020 -- Moody's Investors Service ("Moody's") has today confirmed the B2 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 local-currency deposit ratings of Société
Tunisienne de Banque (STB). Moody's also changed the outlook
on the long-term deposit ratings of all five banks to negative.
This rating action concludes the review on the Tunisian banks initiated
on 23 April 2020 and follows Moody's decision to confirm the B2 long-term
issuer rating of the Tunisian government on 6 October 2020. For
further information on the sovereign rating action, please refer
to Moody's press release: https://www.moodys.com/research/--PR_431419.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL433823
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
The confirmation of the banks' ratings reflects (i) Moody's
views that the Baseline Credit Assessments (BCAs) of Amen, ATB,
BIAT and BdT already capture their weak standalone credit profiles,
whose asset quality and profitability will be further pressured by the
coronavirus-induced economic disruption over the next 12 to 18
months; and (ii) the unchanged capacity of the Tunisian government
to extend support to banks in case of need as indicated by the confirmation
of the government's rating.
CONFIRMATION OF THE BCAs of AMEN, ATB, BdT and BIAT
The banks' already low standalone credit profiles already capture
an expected deterioration in asset quality and profitability from the
coronavirus-induced economic disruption as well the already challenging
operating conditions, as reflected in Tunisia's "Very
Weak+" Macro Profile. Moody's expects asset quality
in the country to weaken further in the next 12 to 18 months, from
an already high system-wide average of 13.9% problem
loans to gross loans ratio as of September 2019. In addition profitability,
with an average 1.2% return on assets ratio as of September
2019, will inch lower as a result of the slower lending growth and
the recent policy rate cuts that will halt the widening of net interest
margin experienced since 2017.
More positively, in line with its intention to safeguard price stability,
the Central Bank of Tunisia's (CBT) restrictive monetary policy
stance has curbed lending growth, partially mitigating the risk
of new problem loan formation in the current challenging context.
Also, on the funding and liquidity side, this led to a reduction
in the banks' dependence on short-term collateralized CBT funding
thereby decreasing 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 TND10.3
billion as of October 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 5.2% in July 2020.
UNCHANGED CAPACITY OF THE TUNISIAN GOVERNMENT TO EXTENT SUPPORT IN CASE
OF NEED
The rating confirmation of the five Tunisian banks also reflects the unchanged
capacity of the Tunisian government to extend support to banks in case
of need as indicated by the confirmation of the government's rating
at B2. The confirmation reflects (i) the resilience of Tunisia's
foreign exchange reserve buffer observed since the opening of the review,
as a backstop for maturing external liabilities over the next year as
well as (ii) the installment of a technocratic government, supporting
Moody's assessment that Tunisia's institutions and governance
will contribute to policy continuity and likely be reflected in medium-term
fiscal and economic reform implementation under a new IMF program.
In turn, indications that monetary and fiscal policy will continue
to be aimed at containing Tunisia's external and fiscal imbalances
will support access to official and market financing.
NEGATIVE OUTLOOK
The negative outlook on the five banks' ratings is in line with the negative
outlook on Tunisia's (B2 negative) sovereign rating indicating a potential
lower capacity from local authorities to extend financial support to banks,
if needed over the next 12 to 18 months. The negative outlook also
captures any downside risks that the ongoing coronavirus outbreak shock
on the local economy presents on the banks' already weak standalone
credit profiles.
The negative outlook on the sovereign rating reflects the economic,
financial, social and political challenges the government faces
in implementing reforms required to secure official support and maintain
confidence-sensitive funding options as refinancing risks emerge
ahead of upcoming eurobond maturities starting 2021.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on banks' ratings is limited as indicated by the negative
outlook. However, the outlook on the ratings would likely
be stabilized if Tunisia's B2 sovereign rating outlook is changed
to stable from negative. This could develop if Moody's concluded
with sufficient confidence that, over the medium term, the
coronavirus shock will not materially alter Tunisia's external position
and ability to access official and capital market funding to meet its
upcoming debt service payments at affordable costs. This could
also be conditioned by a material improvement in the banks' asset
quality, a reduction in provisioning requirements, an increase
in loss-absorptions buffers and a material/sustained reduction
in reliance on central bank funding.
Conversely, since all five Tunisian banks benefit from government
support uplift from their respective Baseline Credit Assessments (BCA),
downward pressure on banks' ratings would develop following a downgrade
of the sovereign rating signaling a reduction in the government's
capacity to extend financial support to banks in case of need.
Downward pressure on the BCAs of Amen, ATB, BdT and BIAT could
also develop from a greater-than-expected deterioration
in operating conditions from the coronavirus spread weakening their asset
quality, profitability, capital adequacy and/or liquidity.
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.
BANK-SPECIFIC CONSIDERATIONS
- Amen Bank
Moody's confirmed Amen's B2 long-term local-currency deposit
and its B3 long-term foreign-currency deposit rating.
Moody's also confirmed the bank's BCA at caa1 and changed
the outlook on the bank's long-term ratings to negative.
The confirmation of the long-term deposit ratings is in line with
the confirmation of the Tunisian sovereign rating as detailed above.
The bank's B2 long-term local-currency deposit rating still
benefits from two notches of uplift from its caa1 BCA, reflecting
Moody's assessment of a very high probability of government support in
case of need, given Amen's around 9% deposit market share
in Tunisia.
The confirmation of Amen's caa1 BCA reflects Moody's expectation
that the bank's deterioration in asset quality and profitability
will continue to be captured in its already low standalone credit profile.
Amen's caa1 BCA reflects the bank's weak asset quality (around 15.8%
ratio of problem loans as of June 2020), low loss absorption buffers
and moderate profitability which remains challenged by a high cost of
funding as well as a relatively tight liquidity profile.
- Arab Tunisian Bank
Moody's confirmed ATB's B2 long-term local-currency deposit
rating and its B3 long-term foreign-currency deposit rating.
Moody's also confirmed the bank's BCA at caa1 and Adjusted
BCA at b3 and changed the outlook on the bank's long-term
ratings to negative. The confirmation of the long-term deposit
ratings is in line with the confirmation of the Tunisian sovereign rating
as detailed above.
ATB's b3 adjusted BCA continues to benefit from 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
(local currency deposit rating Ba2 stable, BCA ba2).
The bank's B2 long-term local-currency deposit rating still
benefits from a one notch uplift from its b3 Adjusted BCA, reflecting
Moody's assessment of a high probability of government support in case
of need, given ATB's around 7.6% deposit market share
in Tunisia.
The confirmation of ATB's caa1 BCA reflects Moody's expectation
that the bank's deterioration in asset quality and profitability
will continue to be captured in its already low standalone credit profile.
The confirmation of ATB's Adjusted BCA reflects the confirmation
of the bank's caa1 BCA and unchanged affiliate support assumptions.
ATB's caa1 BCA reflects the bank's weak asset quality and high credit
concentrations (problem loans ratio at 9.8% as of June 2020),
modest capital buffers and strained profitability in light of elevated
asset risk. These challenges are mitigated by above average funding
and liquidity metrics supported by a stable funding base.
- Banque Internationale Arabe de Tunisie
Moody's confirmed BIAT's B2 long-term local-currency deposit
rating and its B3 long-term foreign-currency deposit rating.
Moody's also confirmed the bank's BCA at b3 and changed the
outlook on the bank's long-term ratings to negative.
The confirmation of the long-term deposit ratings is in line with
the confirmation of the Tunisian sovereign rating as detailed above.
The bank's B2 long-term local-currency deposit rating still
benefits from a one notch uplift from its b3 BCA, reflecting 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 a 19% deposit market share.
The confirmation of BIAT's b3 BCA reflects Moody's expectation
that the bank's deterioration in asset quality and profitability
will continue to be captured in its already low standalone credit profile.
BIAT's b3 BCA is driven by weak capital buffers relative to elevated
and concentrated credit risks (6.4% adjusted problem loans
ratio as of June 2020) balanced by higher than average profitability,
good liquidity buffers and a strong deposit-gathering capacity,
underpinned by the bank's position as Tunisia's leading private bank.
- Banque de Tunisie
Moody's confirmed BdT's B2 long-term local-currency deposit
rating and its B3 long-term foreign-currency deposit rating.
Moody's also confirmed the bank's BCA at b3 and changed the
outlook on the bank's long-term ratings to negative.
The confirmation of the long-term deposit ratings is in line with
the confirmation of the Tunisian sovereign rating as detailed above.
The bank's B2 long-term local-currency deposit rating still
benefits from a one notch uplift from its b3 BCA, reflecting Moody's
assessment of a high probability of government support in case of need,
given BdT's around 6% deposit market share.
The confirmation of BdT's b3 BCA reflects Moody's expectation
that the bank's deterioration in asset quality and profitability
will continue to be captured in its already low standalone credit profile.
BdT's b3 BCA is underpinned by its sound capital buffers (adjusted
tangible common equity to risk weighted assets at 14.6%
as of June 2020) and prudent risk management relative to local peers,
combined with solid profitability. These strengths are moderated
by the bank's (1) elevated asset-quality pressures in a highly
challenging operating environment; and (2) relatively high reliance
on central bank funding which raises refinancing risks.
- Société Tunisienne de Banque
Moody's confirmed STB's B3 long-term local-currency
and foreign currency deposit ratings. Moody's also affirmed
the bank's BCA at caa3 and changed the outlook on the bank's
long-term ratings to negative. The confirmation of the long-term
deposit ratings is in line with the confirmation of the Tunisian sovereign
rating as detailed above.
The bank's B3 long-term local-currency deposit rating still
benefits from three notches of uplift from its caa3 BCA, reflecting
Moody's assessment of a very high probability of government support in
case of need, based on STB's around 10.4% deposit
market share in Tunisia and an 83.4% direct and indirect
government ownership stake in the bank.
The affirmation of STB's caa3 BCA reflects its resilience to increased
downside risks in the Tunisian operating environment. The BCA is
underpinned by the bank's high - albeit declining - level
of problem loans (reported problem loans ratio at around 20% as
of December 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. Also, STB's caa3 BCA continues
to capture weak internal audit and reporting systems, which translates
into a one-notch negative adjustment for 'opacity and complexity'.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, 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
The List of Affected Credit Ratings announced here are a mix of solicited
and unsolicited credit ratings. Additionally, the List of
Affected Credit Ratings includes additional disclosures that vary with
regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL433823
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Endorsement
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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
