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Rating Action:

Moody's confirms the ratings of five Tunisian banks with negative outlook; concludes the review

08 Oct 2020

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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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