Operating conditions will be difficult for Tunisian banks despite the return of growth according to Moody's
The operating conditions in Tunisia will remain tense in 2019, which will affect the quality and profitability of bank assets, the rating agency announced today in a report.
"While GDP growth in Tunisia will increase from 2.5% in 2018 to 3% in 2019, it remains well below the levels of 4-5% before 2011, which weighs on the country's banks", said Badis Shubailat, an analyst at Moody's. "In addition, the current account deficit remains high, at nearly 10% of GDP, which has resulted in a decrease in foreign exchange reserves and a depreciation of the local currency."
These pressures will weigh on banks' overall credit profiles, mainly due to deteriorating asset quality and profitability, through lower loan growth.
NPLs will remain high in 2019 (approximately 14% starting in March 2018), with credit growth slowing and efforts to reduce bad debt being offset by new non-performing loans due to the challenging operating environment and rising interest rates.
Return on assets will remain under pressure as competition for deposits and increased provisioning requirements outweigh the benefits of rising interest rates. The reported Tier 1 capital ratio at the industry level was 8.9% in March 2018, which is low given the still high NPLs and modest funding buffers.
Dependence on central bank financing will remain high. The Central Bank of Tunisia (CBT) will gradually liberalize its liquidity assistance, which will aggravate financing shortages if deposit recovery is not done simultaneously.
Persistent economic imbalances could lead the government to become more selective in its support of the banking system.