Rédaction Africa Links 24 with satarbf
Published on 2024-03-03 08:42:41
Once again, Fitch Ratings is sounding the alarm about Tunisian banks and their risks associated with questionable reserves and loans. This affects the ratings of these banks and puts pressure on shareholders (both public and private).
This alert comes two weeks after the appointment of a new governor at the head of the Central Bank. He is urged to act quickly to patch up the gaps and push towards modernizing the governance of the Tunisian banking system. This alert comes 5 weeks after the very alarming OECD report on Tunisian banks and their endemic collusion.
The alert is given in a press release from Fitch Ratings, released in London yesterday evening.
The first consolidated financial statements of Tunisian banks according to IFRS 9 are expected to show that the banks have sufficient capacity to absorb additional provisioning requirements, according to Fitch Ratings, considering reasonable equity reserves and the phased implementation period that the regulator is likely to allow to fill reserve deficits.
We expect the accounts, expected by the end of April, to highlight provisions for loan losses and coverage deficits based on loss forecasts.
Tunisian banks must comply with a minimum Tier 1 regulatory ratio of 7% and a minimum Capital Adequacy Ratio (CAR) of 10%, which is less strict than in many African markets.
The Tier 1 and average CAR ratios for the sector were 11.7% and 14.6%, respectively, at the end of the first half of 2023, which is high compared to international standards.
However, these ratios should be considered in light of high national risks and high concentrations of single borrowers.
Comparing Tunisian banks to international banks is not straightforward because Tunisian banks calculate capital adequacy ratios in accordance with Basel I (using the standardized approach), which allows for more favorable risk weights for poorly rated sovereign exposures.
IFRS 9 requires the deduction of expected and incurred credit losses on loans held at amortized cost, which represents a significant shift from the previous backward-looking approach.
We anticipate that the reserve deficit for loan losses in accordance with IFRS 9 will reduce equity ratios by up to 30 basis points. Most banks would continue to meet regulatory requirements, but some may need to raise new capital.
Fitch considers that the sector’s reserve coverage (end of the first half of 2023: 52%) is low given the difficulties related to realizing collateral and high operational environmental risks.
We anticipate that most additional required reserves will relate to loans classified as Phase 2 under IFRS 9, meaning loans for which credit risk has significantly increased since initial recognition.
It is unlikely that loans classified as impaired (Phase 3 under IFRS 9) will require significant additional reserves. However, some banks may need additional reserves for loans in Phases 1, 2, and 3, especially if they have insufficient data and models to support their expected loss assumptions, or if recording standards for collateral value documentation are less stringent.
The average non-performing loan ratio for the sector has been around 13.5% in recent years. Banks will need to comply with a 7% ratio by the end of 2026, which will be challenging for some. The adoption of IFRS 9 will not necessarily result in an increase in reported levels of non-performing loans (Phase 3), but Phase 2 loans are likely to be significant given the magnitude of loan restructuring.
Tunisia’s banking regulatory framework is still lagging behind that of most African countries.
Banks calculate credit risk in accordance with Basel I, and market and operational risk according to Basel II. Basel III principles are under discussion, but unlikely to be introduced in the short term. Nevertheless, we consider the Central Bank of Tunisia’s efforts to converge with international standards and preserve bank capital to be positive.
The Central Bank has imposed limits and conditions on bank dividend distributions based on end-2023 capital ratios, as it did for end-2022.
Payments will be limited to 35% of 2023 net income for banks whose CAR and Tier 1 ratios at the end of 2023 (after deducting dividends to be paid) exceed regulatory minimum requirements by less than 2.5 percentage points. There will be no restrictions for banks whose CAR and Tier 1 ratios exceed regulatory minimum requirements by at least 2.5 and 3.5 percentage points, respectively, although prior approval from the Central Bank is still required.
Economics for Tunisia, E4T.
Read the original article(French) on Tunisie Focus
