29 July 2016
Tunisia is undertaking sweeping reforms and launching extensive new banking legislation aimed at consolidating the financial sector.
A bill adopted on June 9 raises the minimal capital requirements for banks from TD25m (€10.2m) to TD50m (€20.5m), and mandates that any change in a bank's legal status, activity or majority stakeholders must now be endorsed by the Central Bank of Tunisia (BCT). The law also changed eligibility requirements for boards of directors, and mandates the establishment of committees for internal audit, compensation and risk assessment within each bank.
The new legislation also includes measures to codify Islamic banking and boost enforcement, creating an independent sanctions committee to deal with infractions outside of the BCT's mandate.A framework for good practice
The law also stipulates that a Deposit Guarantee Fund will be set up as an independent public body. The fund will act as a last resort, with the ability to refund deposits of up to TD60,000 (€24,500), a figure which covers the savings of 95% of Tunisians, according to Slim Chaker, minister of finance.
The fund may also take steps to provide aid to banks, pending approval by a five-person committee composed of representatives from the BCT, the Ministry of Finance, appointed taxpayers, as well as the bank in question - and endorsed by a risk assessment and internal audit commission, according to media reports from May.Industry perspective
The new law marks a major step forward for Tunisia's banking sector, according to Ahmed Rjiba, CEO of Banque de l'Habitat.
"The final version is the product of long discussions between the BCT and banks through the Tunisian Professional Association of Banks and Financial Institutions (APTBEF) which also took into account the comments of the National People's Assembly. The new law strives towards the highest international banking standards and represents the most important banking reform in Tunisia in the last few decades," he told OBG.
Despite efforts to bring Tunisia's banking legislation in line with international standards, however some stakeholders believe the law could have done more to hasten consolidation in the banking sector. According to a report released by APTBEF in March, the association points out that the minimum capital requirement should be an adjustable function of market conditions, rather than a fixed constant that might become out-dated with new developments.
Meanwhile, industry stakeholders are also advocating for the continued professionalisation of the BCT, which is further supported by a EU-funded twinning project between the BCT and the central bank of France to develop the BCT's operational framework for monetary policy.
Earlier this year the National People's Assembly voted to strengthen the independence of the BCT, which includes limiting the role BCT leadership can play in regional and national politics during their tenure.Structural reforms
The regulatory changes are part of a broader package of reforms the authorities are rolling out to address structural issues in its banking system.
Most prominently, Tunisia has taken action to reduce its non-performing loans (NPL) ratio, for example, which at nearly 16% in March 2015 was the highest in the southern and eastern Mediterranean region.
This is in part attributable to loan deterioration among public sector lenders. The three state-owned banks - Société de Banque Tunisienne (STB), Banque National Agricole (BNA) and Banque de l'Habitat (BH) - hold about 38% of national banking assets and account for a significant share of national NPLs. STB, for example, had a -5.17% solvency ratio at the end of 2014, with 29.1% of its loans non-productive as of June 2015.
The government restructured the public banks last year to alleviate their exposure: STB was recapitalised by TD756m (€309.3m) and BH by TD110m (€45m). A final decision on the recapitalisation of BNA is still under discussion.
Even after recapitalisation, however, the state banks' capital metrics remain behind private sector averages. Late last year Moody's estimated that STB's NPLs still represented 118% of shareholders' equity and loan loss reserves, leading to concerns that further recapitalisation might be necessary.Commendation-worthy
The recapitalisation exercises, along with a move to bridge a shortfall in banking liquidity - which saw the BCT inject TD5.1bn (€2.1bn) in 2015 and introduce an agenda to bring all banks up to a 90% liquidity rate by 2018 - appear to be having their intended effect, and resulted in plaudits from external observers.
The steps taken so far were commended by the IMF, which announced in May that it would extend a $2.9bn loan and is closely monitoring Tunisia's economic reforms.
"The adoption of critical banking sector legislation is welcome. Further action is needed to restructure public banks and strengthen the banking resolution and supervision frameworks. Developing credit bureaus and relaxing caps on lending rates will increase access to finance," the IMF said in its May announcement.
© Oxford Business Group 2016