Fitch Ratings: Expected decline in profitability of non-bank financial institutions

The profitability, asset quality and liquidity positions of Tunisia’s non-bank financial institutions (NBFIs) will remain under pressure due to the challenging domestic environment, Fitch Ratings said in a statement. a new relationship published yesterday Wednesday 23 November 2022.

While all NBFIs are affected, factoring and microfinance firms’ recent balance sheets and higher margins mean they are progressively better placed to withstand the pressures of the operating environment than leasing firms.

Fitch evaluates seven Tunisian leasing companies (end 2021: 90% of sector assets), a factoring company and a microfinance institution. It confirmed the national ratings of all leasing companies and the microfinance company and raised the long-term national rating of the factoring company.
The inability to pass borrowing costs on to customers in a timely manner, due to essentially fixed rate loans, is likely to reduce profitability in 2023, although many NBFIs have recently adopted variable credit rates.

Asset quality deteriorated in the first half of 2022 due to the rising share of bad debts and weak growth in the sector, according to Fitch, which expects further deterioration in 2023, given the increase in transactional risk with clients, which could make it difficult for many NBFIs to comply with the recent decision by the Central Bank of Tunisia (BCT) requiring them to reduce their debt ratios to below 7% by 2026.

Tunisia’s NBFIs depend on funding from local banks, which increases their sensitivity to potential liquidity shortfalls in the banking sector, it said, knowing an IMF deal should mobilize more funding, but possible reform fees could exacerbate the economic difficulties. Local bond financing diversifies the financing of many issuers.

National ratings of Tunisian NBFIs range from “B+(tun)” to “A-(tun)” and have a stable outlook, reflecting the agency’s view that the national relative creditworthiness scale will remain unchanged.

National ratings of bank-owned NBFIs tend to be higher than their counterparts, as Fitch believes it has their support when needed and for the funding benefits of having bank shareholders.

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