Fitch Ratings Confirms UBCI's Long-Term Issuer Default Ratings
Fitch Ratings has confirmed the long-term issuer default ratings (IDR) in local and foreign currency of the Union Bancaire pour le Commerce et l'Industrie (UBCI) at 'CCC+' and the viability rating (VR) at 'ccc+'. The agency has also confirmed the national long-term and short-term ratings of UBCI at 'AA-(tun)' and 'F1+(tun)', respectively. The outlook for the national long-term rating is stable.
Challenging Operating Environment
Fitch notes that the operating environment in Tunisia will remain challenging in 2025, with real GDP growth expected to reach 1.5% in 2025 and 1.6% in 2026. Inflation is expected to decelerate but remain high at 6% on average. The lack of structural reforms will continue to weigh on business confidence. Credit demand is weak, with loans increasing by only 1.8% year-on-year in the first nine months of 2024.
UBCI's Commercial Profile
UBCI's commercial profile is characterized by a market share of 2.8% in terms of assets and 3.3% in terms of deposits as of the end of 2023. The bank operates a classic business model, with customer loans representing nearly 65% of assets as of the end of the first half of 2024, resulting in a high dependence on interest income. This model is complemented by bancassurance, private banking, leasing, factoring, and brokerage services.
Risk Profile
UBCI's risk profile is compromised by its high exposure to the state, which represents around 17% of assets and 1.5x its equity as of the end of 2024. However, the bank's subscription standards for treasury bonds are well-developed, and its risk control framework is adequate in the national context. Moreover, UBCI focuses on low-risk retail clients and high-quality national and multinational companies.
Asset Quality
UBCI's asset quality indicators are comparable to those of its national peers and have remained generally stable despite the volatile operating environment. The non-performing loan ratio of 4.9% as of the end of 2024 is significantly lower than the sector average of around 14%.
Profitability
The bank's profitability is comparable to that of the sector. However, Fitch notes that the EBIT/weighted risk assets ratio, which is the primary measure of profitability, has been declining since 2022. This trend is driven by the increase in operating expenses and risk costs.
Capitalization
UBCI's Tier I and total capital ratios are 11.8% and 12.9%, respectively. Although the bank's capitalization is well above regulatory minimums, Fitch considers it inadequate in light of the high concentrations and significant exposure to a weak sovereign.
Funding Profile
The bank's funding profile is good, with customer deposits representing 89% of total funding as of the end of the first half of 2024. The high proportion of retail deposits (67% of total deposits) translates into a granular deposit base and moderate concentration risk. The bank's liquidity is sound, with a loan-to-deposit ratio of 91% and a liquidity coverage ratio of 219% as of the end of June 2024.
Conclusion
In conclusion, UBCI can take comfort in this rating. However, the bank needs to work hard on improving its profitability and, more importantly, transforming its business model. This is a challenge for the entire Tunisian banking sector in the years to come.
