Provided it is able to move past the political uncertainty of early 2011, following a strong year in 2010, the banking sector looks set to profit from the improving global economic outlook and renewed efforts to tackle the issue of non-performing loans (NPLs) in 2011, although some questions remain about the government's plans in the longer term, particularly in regard to efforts to make the North African state a regional centre for finance.
While final figures are not yet available, 2010 seems to have been a good year for the sector. Maxula Bourse, a leading local brokerage firm, estimated that net banking profits for the year rose by more than 20% on 2009 figures, to reach TD504m (€257.08m). While not all banks have yet announced their end-2010 numbers, the early signs are positive, with the country's second-largest bank, the publicly owned Société Tunisienne de Banque (STB), reporting that deposits grew by 8.46% to TD5.1bn (€2.6bn) in 2010, while its loans portfolio increased 12.46% year-on-year to TD5.4bn (€2.75bn). This translated into profit growth of 5% over the previous year, to TD42m (€21.42m).
The authorities are working to further improve the prospects for the sector, and the central bank is also taking action to ensure the smooth functioning of the financial system in the wake of the country's ongoing political transformation. While it is not yet clear whether the effort will continue following the change of government, the previous administration had been taking steps to transform Tunisia into a regional financial services centre as part of a long-term development plan for the sector. In June 2010 the government had outlined a number of measures to help realise this goal, including reducing the country's NPL ratio to less than 7% of loans, promoting the establishment of 400 new bank branches and raising the sector's contribution to GDP from 3% to 5%.
Other steps outlined under the long-term plan for the sector included the creation of two new banking organisations, with the first, Tunisia Holding, developing strategy for the sector and monitoring publicly owned banks, and the second, Al Moubadara, specialising in providing short-term loans for small and medium-sized enterprises. Encouraging consolidation was another goal, with this designed to be achieved in part by increasing capitalisation requirements to TD100m (€51m) by 2014.
Efforts to further reduce NPLs can build on the success of recent years, which has seen the NPL ratio fall from 24.2% in 2003 to 15.5% in 2008 and 13.2% in 2009, with the latter breaking down to 14.1% for publicly owned banks and 12.5% for private banks, according to the IMF. The provisions ratio for NPLs increased from 44.1% in 2003 to 58.3% in 2009 - 57.1% for state-owned banks and 59.2% for private banks. The ratios for both vary widely from bank to bank, however, with some institutions performing better than others.
While 2010 figures for the sector as a whole are not yet available, STB, for example, reported an NPL rate of 18.8% and a provisions ratio of 46.8% at the end of 2010. Attijari Bank reported a higher-than-average NPL provisions ratio of 68.1%, up from 64.2% in 2009. Arab Tunisian Bank's provisions ratio was higher still at 75.2%, up from 73.2% in 2009, with an NPL rate of 7.1% in 2010, down from 8.7% in 2009. Banque Internationale Arabe de Tunisie (BIAT) reported that NPLs fell to 8.2% with a provisions ratio of 71.3% at the end of 2010, down from 9.4% with 70.3% provisioning in 2009.
While the NPLs have been falling and provision rates increasing, the value of retail lending in the banking system has also been expanding. According to figures from the central bank, retail lending stood at TD10.7bn (€5.46bn) in December 2010, up approximately 21% on December 2009 figures. Housing loans/mortgages accounted for 78% of the total, and grew by 26% between December 2009 and December 2010, to TD8.35bn (€4.26bn). Since 2005, mortgage lending has grown more than threefold. Vehicle loans, though accounting for a small proportion of overall consumer finance, have also seen rapid growth in the last five years, rising from TD150m (€76.51m) in December 2005 to TD335m (€170.88m) at the end of last year, an increase of over 120%.
To ensure the continued smooth functioning of the banking system in the light of recent political developments, in January the Tunisian central bank took control of two institutions which have been impacted by the upheaval, Banque de Tunisie and Zitouna Bank, the country's only Islamic bank. Similarly, in a move to reassure creditors, the central bank told the international press that it held sufficient foreign currency reverses to meet the country's financial obligations.
While the recent political changes may cause a short-term blip in the downward trend of NPLs, the longer-term picture should see progress on this front accelerate. Despite some uncertainty over the new government's longer-term plans for the sector, with the central bank front and centre in ensuring the stability of the system and addressing the concerns of international creditors and investors, it looks like 2011 will be a year of business as usual for the country's banks.
© Oxford Business Group 2011
