Moody's Upgrade: A Boost to Tunisian Banks
All eyes were on the improvement of Tunisia's sovereign rating by Moody's, but it's worth noting that several banks also benefited from this upgrade. As a country's enterprise rating is capped by its sovereign rating, the recent reassessment of Tunisia's risk profile has allowed four banks to improve their ratings.
Moody's has upgraded the long-term deposit ratings of Amen Bank, Banque de Tunisie, Banque Internationale Arabe de Tunisie (BIAT), and Société Tunisienne de Banque (STB) from Caa2 to Caa1.
The agency has also upgraded the counterparty risk ratings and long-term counterparty risk assessments of Banque de Tunisie and BIAT from Caa1 to B3 and from Caa1 to B3(cr), respectively. It has revised upwards the long-term counterparty risk ratings and counterparty risk assessments of STB from Caa2 to Caa1 and from Caa2 to Caa1(cr), respectively, and confirmed the long-term counterparty risk ratings and counterparty risk assessments of Amen Bank at Caa1 and Caa1(cr). The outlook for all long-term deposit ratings remains stable.
At the same time, the agency has upgraded the baseline credit assessments and adjusted credit assessments of Banque de Tunisie and BIAT from Caa2 to Caa1, and confirmed those of Amen Bank at Caa2 and STB at Caa3.
The adjustment of Tunisia's rating has a positive impact on the banking sector, given its strong direct and indirect exposure to the sovereign, on both sides of the balance sheet.
On the asset side, the direct exposure of banks to the state through the purchase of treasury bonds and government securities, as a proportion of equity, has slightly decreased to around 57% in August 2024 compared to 60% in December 2023. The total exposure to the state, including loans to public enterprises and foreign currency loans granted to the state under syndicated agreements, represents around 1.3 times the banking system's equity in August 2024, which is stable compared to December 2023.
On the liability side, banks have been exposed to short-term financing guaranteed by the Central Bank of Tunisia (BCT). There were approximately 12.8 billion dinars of short-term financing from the BCT in the banks' balance sheets in November 2024, which represents around 8% of the total liabilities of banks, compared to 14 billion dinars a year earlier. The volumes of refinancing from the BCT have stabilized since 2023, as deposit growth has outpaced credit growth, bringing the loan-to-deposit ratio below 90%.
Looking ahead, the government's recurrent recourse to BCT financing will also alleviate pressure on the banking system, while we take into account a residual level of external financial support from Western and Gulf partners.
Finally, given the close links between banks and the credit profile of the state, as well as their geographic concentration in Tunisia, the current rating level also reflects the stabilized but fragile operating conditions in the country, characterized by low economic growth, albeit improving, relatively high inflation, and low private investment. This rating level also reflects the relatively tight internal and external financing conditions, but which are stabilizing.
The stable outlook for all long-term deposit ratings reflects the expectation that the credit fundamentals of banks will remain stable at their respective levels, supported by the stabilization of operating conditions in Tunisia, the stable outlook for the Tunisian government's issuer rating, and the fact that some risk assessments are already at the sovereign level.
