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Rating Action:

Moody's places five Tunisian banks' ratings under review for downgrade

23 Apr 2020

Bank rating actions follow the review for downgrade on the Tunisian government's B2 rating

Limassol, April 23, 2020 -- Moody's Investors Service ("Moody's") has today placed on review for downgrade the B2 long-term 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 long-term local-currency deposit ratings of Société Tunisienne de Banque ("STB").

The rating actions on the banks follow Moody's decision to place Tunisia's government long-term issuer ratings of B2 on review for downgrade on 17 April 2020. For further information on the sovereign rating action, please refer to Moody's press release: https://www.moodys.com/research/--PR_422611.

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL423274 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 main driver of today's rating actions is the increasingly uncertain economic environment for Tunisian banks, as a result of the acute tightening in global financing conditions that risks precipitating a sustained period of high financing risk for the Tunisian government amid the coronavirus outbreak. This is further exacerbated by Tunisia's deteriorating fiscal position, fragile external position and weakened near-term economic growth prospects presenting increasingly uncertain operating conditions.

During the review period, which may extend beyond the usual three-month horizon, Moody's will assess (1) the potential deterioration of the Tunisian government's capacity to extend support to banks in case of need; currently the Tunisian banks' ratings benefit from a one to three notch uplift from government support; and (2) any downside risks on the already weak standalone profiles of the banks from the ongoing coronavirus outbreak shock on the local economy.

The review for downgrade on the Baseline Credit Assessments (BCAs) of Amen, ATB, BIAT and BdT will look into the impact of the erosion of economic output on the already difficult credit and liquidity operating conditions for these banks. Despite easing liquidity conditions, the operating environment remains challenging and risks are tilted to the downside. Asset risk will remain high, with a system-wide average 13.9% problem loans to gross loans ratio as of September 2019, and can be exacerbated absent a resolution of the ongoing coronavirus outbreak. In the meanwhile profitability, with a local average 1.2% return on assets ratio as of September 2019, will inch lower mainly on the back of slower lending growth but also because of a recent policy rate cut that will halt the net interest margin widening trend seen since 2017. Also, a sustained economic slump could jeopardise the current restrictive monetary policy stance, which helped in moderating inflation levels and liquidity conditions for the banks, and could reverse the downward trend in central bank refinancing volumes for Tunisian banks, since early 2019.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Upward pressure on the banks' ratings at present is limited as indicated by the review for downgrade. However, the ratings would likely be confirmed if Tunisia's B2 sovereign rating is confirmed. This is also conditioned by no further material deterioration in banks' standalone fundamentals throughout this coronavirus crisis.

Conversely, 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.

BANK-SPECIFIC CONSIDERATIONS

- Amen Bank (Amen)

Moody's placed on review for downgrade Amen's B2 long-term local-currency deposit rating, B3 long-term foreign-currency deposit rating and caa1 BCA. The bank's ratings benefit from a two-notch government support uplift.

In its review, Moody's will evaluate the bank's profitability as well as funding and liquidity indicators. 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.

- Arab Tunisian Bank (ATB)

Moody's placed on review for downgrade ATB' B2 long-term local-currency deposit rating, B3 long-term foreign-currency deposit rating as well as its caa1 BCA and b3 adjusted BCA. The bank's ratings benefit from a one notch government support uplift and one notch affiliate support uplift from ATB's majority shareholder, Arab Bank PLC (long-term LC deposit rating Ba2 stable, BCA ba2).

In its review, Moody's will evaluate the bank's asset quality, capital and profitability metrics. The BCA reflects the bank's deteriorating asset quality and high credit concentrations (problem loans ratio at 10.2% as of December 2019), modest capital buffers, strained profitability in light of elevated asset risk and above average funding and liquidity metrics supported by a stable funding base.

- Banque Internationale Arabe de Tunisie (BIAT)

Moody's placed on review for downgrade BIAT's B2 long-term local-currency deposit rating, B3 long-term foreign-currency deposit rating as well as its b3 BCA. The bank's ratings benefit from a one notch government support uplift.

In its review, Moody's will assess the bank's capital, profitability and asset quality resilience to further weakening in operating conditions. 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.

- Banque de Tunisie (BdT)

Moody's placed on review for downgrade BdT's B2 long-term local-currency deposit rating, B3 long-term foreign-currency deposit rating as well as its b3 BCA. The bank's ratings benefit from a one notch government support uplift.

In its review, Moody's will assess the bank's asset risk, funding and liquidity resilience to further deterioration in operating conditions. 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 highly 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.

- Société Tunisienne de Banque (STB)

Moody's placed on review for downgrade STB's B3 long-term local-currency and foreign-currency deposit ratings and affirmed its caa3 BCA. The bank's ratings benefit from a three-notch government support uplift.

The affirmation of the bank's caa3 BCA reflects its resilience to increased downside risks in the Tunisian operating environment. 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.

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_ARFTL423274 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:

• Solicitation and Participation

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings include both solicited and unsolicited ratings. As a result, Moody's considers the Rated Entity and/or any Related Third Party to be participating in the ratings process, thereby providing general access to internal documents and management. Please refer to the List of Affected Credit Ratings for more details regarding solicitation. For additional information, please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on www.moodys.com.

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.
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