The political and economic legacy of the Ben Ali regime and the precipitous transfer of power have, in our view, damaged Tunisia's prospects for growth, public finances, and external balance.

We anticipate pressure on the financial profiles of the five Tunisian banks we rate in 2011, and potentially 2012, coming from weaker economic prospects and wiping out the improvements we observed over the past three to four years.

We believe that extraordinary support from the government or foreign owners is likely, if needed, and we continue to factor this into the ratings.

We are affirming our ratings on Arab Tunisian Bank (ATB), Banque de l'Habitat (BH), Banque de Tunisie et des Emirats (BTE), and Banque Tuniso - Koweitienne (BTK). The negative outlooks on these four banks reflect the risk that their financial profiles could deteriorate more than we currently anticipate.

We are affirming our 'BB' unsolicited public information rating on Société Tunisienne de Banque.

PARIS (Standard & Poor's) March 21, 2011--Standard & Poor's Ratings Services said today that it has affirmed its ratings on the five Tunisian banks it rates. Specifically, we affirmed:

  • Our 'BB+/B' long- and short-term counterparty credit ratings on Arab Tunisian Bank (ATB),

  • Our 'BB+/B' long- and short-term counterparty credit ratings on Banque de l'Habitat (BH),

  • Our 'BB/B' long- and short-term counterparty credit ratings on Banque de Tunisie et des Emirats (BTE),

  • Our 'BB+' long-term counterparty credit rating on Banque Tuniso - Koweitienne (BTK), and

  • Our 'BB' unsolicited public information (pi) rating on Société Tunisienne de Banque (STB).

We also removed our long-term ratings on ATB, BH, BTE, and BTK from CreditWatch, where they had been placed on Jan. 17, 2011 with negative implications. The outlooks on the long-term ratings on these four banks are negative.

Today's rating actions follow our recent review of the Republic of Tunisia's creditworthiness, which led to a one-notch downgrade of our local and foreign currency ratings on the sovereign on March 16, 2011 (see "Tunisia's Foreign And Local Currency Ratings Lowered To 'BBB-' And 'BBB' Respectively; Off Watch Neg; Outlook Stable"). The rating actions also take into account our view that 2011, and potentially 2012, will be tough years for the Tunisian financial industry.

On the one hand, the political and economic legacy of the former regime and the precipitous transfer of power have, in our view, damaged Tunisia's prospects for growth, public finances, and external balance. With respect to economic growth, much will depend on the future of the tourism industry, whose prospects are currently uncertain, and the ability of the new government to attract foreign direct investment (FDI). On the other hand, our outlook on Tunisia's rating is stable, which reflects our expectation that the downside risk from political instability will be contained, and that the political transition will be deeper and more orderly than we had previously anticipated.

Our affirmation of the banks' ratings reflects our opinion that these banks are relatively well armed to face the inevitable short-term pressure on their financial profiles--particularly on asset quality, profitability, and capitalization. Although their financial profiles may deteriorate, we expect them to remain commensurate with the banks' stand-alone credit profiles (SACPs), which we assess presently at 'bb-' for ATB, BH, BTE, and BTK, and in the 'b' category for STB. These relatively low SACP levels in a global context reflect our view of the structurally high credit risk embedded in the domestic economy and the banks' modest profitability. Our Banking Industry Country Risk Assessment (BICRA) is '8' for Tunisia (the scale ranges from group '1', which denotes the lowest risk, to group '10', which denotes the highest risk). The BICRA score of '8' factors in regular periods of surges in nonperforming loans (NPLs) and weakening financial profiles resulting from endogenous and exogenous crises, such as the tourism crisis in the early 2000s. Although the abrupt economic slowdown we expect for 2011 is of a very different nature, we expect the effects on the financial system to be broadly similar. We therefore believe the 2011 crisis will wipe out the benefits of the improvements that rated banks achieved in the 2008-2010 period.

The affirmation also reflects two additional elements:

  • Our understanding that the liquidity positions of the banks we rate have remained broadly unchanged since the beginning of the crisis and that customer deposits have remained stable, allowing for stable funding profiles;

  • Our opinion that support from owners (private and public) is unlikely to change. All of the Tunisian banks we rate benefit from uplift above their SACPs, which takes into account the likelihood we see of extraordinary support from the sovereign or foreign owners, if needed.

The negative outlooks on the long-tern ratings of ATB, BH, BTE, and BTK essentially reflect:

  • Downside risks related to a potentially higher deterioration in asset quality (and subsequently profitability and capitalization) than we currently envisage. These risks could be heightened by: 1) the absence of an economic rebound in 2012 contrary to our present expectations; and 2) the concentrated nature of the loan portfolios, with high exposures to potentially vulnerable sectors like tourism and more generally the small and midsize enterprises segment;

  • Lower credit demand in the event that economic perspectives remain durably weak, which could depress revenue generation;

  • Declining capital positions if retained earnings remain very low in 2011 and 2012 and if owners of the weakly capitalized banks, notably STB and to a lesser extent BH, are not willing to inject capital.

If we see any of these risks looming in the next months, we may lower the ratings on any of the banks.

ARAB TUNISIAN BANK (BB+/Negative/B)

The ratings on ATB primarily reflect its strategically important status for the Arab Bank group (operating entities rated A-/Stable/A-2), which owns 64.2% of ATB. This provides the bank with an uplift of two notches above its SACP of 'bb-', according to our group methodology.

ATB has so far exhibited a superior financial profile compared with the other banks we rate in Tunisia, notably with respect to liquidity. Asset quality and operating performance continued to improve in 2010, and will remain in our view above system averages in 2011, although not immune to pressures. Main risks could stem from ATB's large exposure to the corporate sector and from large single-name risks. We note that ATB has publically communicated that its exposures to counterparties owned or affiliated to the ex-ruling families amount to Tunisian dinar (TND)180 million (6% of the bank's credit exposures). We consider this exposure to be manageable for ATB. We expect capitalization to remain moderate. We estimate that our risk-adjusted capital (RAC) ratio before diversification was about 6% at year-end 2010, taking into account the TND20 million capital increase realized in December.

BANQUE DE L'HABITAT (BB+/Negative/B)

The ratings on BH primarily reflect our view that there is a "high" likelihood of support from its majority owner, the government of Tunisia, which directly and indirectly owns 58% of the bank. This provides the bank with an uplift of two notches above its SACP according to our criteria for rating government-related entities (GREs). We expect BH to retain its leading position in the low-risk mortgage segment in Tunisia, and its comparatively low-risk profile. BH has publically communicated that its exposures to counterparties owned or affiliated to the ex-ruling families amount to TND231 million (4.6% of the bank's credit exposures). We consider this exposure to be manageable for BH, but we believe it will put material pressure on the bank's already modest profitability. We estimate that our RAC ratio before diversification was moderately above 4% at year-end 2010. Further pressure on capitalization is likely in 2011 and could be a trigger for a downgrade.

BANQUE DE TUNISIE ET DES EMIRATS (BB/Negative/B)

The ratings on BTE primarily reflect our opinion of a "moderate" likelihood of support from its co-owner, the government of Tunisia, which owns 38.9%. The Abu Dhabi Investment Authority (ADIA; not rated) also owns a 38.9% stake in BTE. This provides the bank with an uplift of one notch above its SACP, according to our criteria for rating GREs.

We expect BTE to maintain a strong capital position and an improving funding profile, following the transformation of BTE into a universal bank allowed to collect deposits and not only focused on tourism financing. We also understand that BTE's exposures to counterparties owned or affiliated to the ex-ruling families are minimal. We note that over the past years, BTE has displayed one of the best credit risk performances among the banks we rate in Tunisia, despite still material concentration in the tourism sector. This is the result of prudent and selective underwriting. We expect this defining characteristic to persist in the future, despite lower earnings in 2011, and to compensate for the small size and limited competitive position of the bank.

BANQUE TUNISO-KOWEITIENNE (BB+/Negative/--)

The ratings on BTK primarily reflect its strategically important status to French bank BPCE (A+/Stable/A-1), which owns 60% of BTK. This provides the bank with an uplift of two notches above its SACP, according to our group methodology.

We expect BTK to maintain a strong capital position and an improving funding profile, following the 2008 transformation of BTK into a universal bank that is allowed to collect deposits and is not only focused on tourism financing. We understand that BTK's exposures to counterparties owned or affiliated to the ex-ruling families are minimal. Support from its committed parent BPCE should help to mitigate asset quality pressures, which could be heightened by the historically high and above-system-average nonperforming loan ratio (which we estimate at around 15% in 2010) and by the strong loan growth since 2008 (more than 30% per year on average).

SOCIÉTÉ TUNISIENNE DE BANQUE (BBpi)

The public information (pi) rating on STB primarily reflects our view that there is a "high" likelihood of support from its majority owner, the government of Tunisia, which directly and indirectly owns 52.5% of the bank. This provides the ratings on the bank with an uplift of one category above its SACP, according to our GRE criteria. We typically do not use modifiers, outlooks, or CreditWatch placements for pi ratings. We have affirmed the 'BB' pi rating on STB but we recognize that the bank is likely to be the most affected among the five by deteriorating asset quality, which we already consider as weaker than peers', and profitability. Furthermore, we view STB's capitalization as weak.

RELATED CRITERIA AND RESEARCH

All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.

  • Tunisia's Foreign And Local Currency Ratings Lowered To 'BBB-' And 'BBB' Respectively; Off Watch Neg; Outlook Stable, March 16, 2011

  • Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010

  • Group Methodology, April 22, 2009

  • Bank Rating Analysis Methodology Profile, March 18, 2004

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