Moody’s Investors Service (“Moody’s”) yesterday examined the downgrade of Caa1 long-term deposit ratings of five major Tunisian banks on Tuesday 4 October 2022.
This following the decision taken by Moody’s on 30 September to put the long-term ratings of the Tunisian state (Caa1) under review for a possible downgrade.
Probable erosion of equity
The agency explains its approach with the uncertainty affecting banks’ operating conditions and the delay in the IMF’s funding program. He believes that liquidity risks are increasingly high and that Tunisia’s external position is fragile, which increases the risk of the country’s insolvency.
The other factor in the agency’s position relates to the direct exposure of banks to the risk of underwriting Treasury bills to finance the state budget, which could erode their assets by 53% and threaten the quality of their assets.
The rating agency also predicts that large fiscal and external imbalances and high internal refinancing risks will pose significant threats to public debt sustainability along with the possible occurrence of social tensions that could be exacerbated by the repercussions of the Russian-Ukrainian conflict.
The agency drew attention to sluggish economic growth, rising inflationary pressures, weak private investment and the delay in structural reforms, considering them as causes that could affect banks’ ability to finance economic agents. in addition to the negative impact on their profitability, liquidity and solvency.
In addition, Moody’s estimates that banks’ total exposure to government loans is quite large – around 1.1 times their equity, taking into account public enterprise loans and syndicated foreign currency loans to the government since 2017. Consequently , believes that the capital thresholds of most rated banks fall below minimum regulatory requirements, which could lead to recapitalisations.
Low impact of the crisis
Nevertheless, and contrary to the forecasts of some rating agencies and financial organizations, the Tunisian banking sector has not been significantly affected by the repercussions of the economic crisis and the misdeeds of the pandemic, on the contrary it has been able to consolidate its capital funds, develop its results and optimally manage their solvency and liquidity risks.
By the way, according to the central bank’s latest annual report (BCT) 2021, despite continuing economic difficulties, the banking sector has continued to mobilize deposits at a steady pace of 8.5%, a slightly slower pace. to that of 2020 and financial years 2019 (9.3%).
Data from the banks also shows that their net worth increased significantly from 15,743 million dinars (MD) at the end of 2020 to 16,648 MD at the end of 2021, thus appreciating by 906 MD, which corresponds to a sustained increase of 5.75. %.
The same data show the success of the sector in ensuring an optimal match between resources and uses, which allowed it to comply with the regulatory ratios, in particular with regard to short-term liquidity (LCR), in parallel with the improvement of the return ratios. on assets (ROA)) and equity (ROE). And for good reason, the total volume of assets went from 101,858 MD in 2020 to 109,388 MD at the end of the last fiscal year, which means, for this purpose, a rebound of 7,530 MD or 7.39%.
What is happening in Tunisia?
We explain on our YouTube channel. Subscribe!