Launched seventeen years ago, banking reform in Tunisia is only just beginning to bear fruit at the national level. But the industry’s volatile nature prevents an overwhelming majority of operators from joining the race for international expansion.

Walid Kéfi, Tunis

Unlike many of their Moroccan neighbours who have recently become undeniable agents of in the growing African market, Tunisian banks are still struggling to develop nationally. Evidence of this is apparent in a World Bank delegation’s move to urge Tunisian authorities to speed up the banking reform process in order to improve their banks’ position on a tight market and enable them to play the “regionalisation” card in the coming years.

While lauding the authorities for the efforts they have made to incorporate information and communication technologies, the international organisation went on to say that the large volume of bad loans and the poor quality of their assets remain the fundamental weaknesses of the Tunisian banking sector.

Despite its 18 universal banks, 8 offshore establishments, two commercial banks and nine branches abroad, Maxula Bourse laments the sector’s “volatility”. These remarks made by the World Bank confirm the results of a study published in April by Fitch Rating. “Risk management remains one of the weak points of Tunisian banks despite their efforts to apply the directives of the Bale Agreement II by the start of 2010,” indicated the financial rating agency.

Improving signs

On the eve of banking reform in 1995, credit portfolio had a slew of questionable loans on record, due in part to the hefty influence of the public sector which favoured the indebtedness of its companies or those within sectors that are considered priority or very dependent on the state of international markets, such as tourism.

Many improvements were achieved in the last few years, thanks in part to the creation of loan recovery companies, the transformation of some loans into securities and the significant help that tax-friendly policies provide. The result: the rate of registered bad loans was reduced by 17.3% in 2007. For its part, the coverage rate for these loans improved considerably, going from 47% in 1997 to 54.5% in 2007, according to a report issued by the Central Bank of Tunisia (BCT in French).

With a bad loan rating of 7%, the Banque de Tunisie (BT) has the best assets, followed by Banque de l’Habitat (BH, 14%). A subsidiary of the Morrocan group since 2005, Attijariwafa Bank still has a high rate of dubious credit cases inherited primarily from over three decades of state governance. According to the BCT, all establishments attempted to improve their financial standing. They amassed a total of 3.2 billion dinars, making an 8.7% gain in a single year.

Things in the works

Fitch Rating believes that Tunisian banks must pursue their provisioning efforts to meet recommendations made by local banking authorities that are targeting a bad loan rate of 15% and a provision-derived coverage rate of 70% in 2009.

A report on the banking sector published in May by Maxula Bourse, also suggest that Tunisian banks are, more than ever before, to aim to establish a “merger-acquisition-concentration” process. This process will enable credit establishments to improve their profitability and to have the weight needed to undertake political expansion at the international level,” assured the stock market middleman.

So far, only two banks have managed to establish themselves in other countries within the North African region: Banque internationale arabe de Tunisie (BIAT) which opened a representational bureau in Libya and Amen Bank which created a leasing branch in Algeria. Despite its 18 universal banks, 8 offshore establishments, two commercial banks and nine branches abroad, Maxula Bourse laments the sector’s “volatility”.

There has been no increased collaboration among Tunisian banks since 2001, the date when Tunisia’s leading bank (STB, public) acquired two other state-controlled banks - La Banque de développement économique de la Tunisie (BDET) and Banque nationale de développement touristique (BNDT). “Through this merger of three state-run banks, the government sought to encourage closer relations among private sector banks that remain aloof even in the current hardships of the local market,” stated a director at Banque internationale arabe de Tunisie, the nation’s leading private bank.

On the other hand, privatisations still occur at a snail’s pace. After three successful transactions in the last five years, no public sector banks figure among the list of companies that can be privatised.