TUNISIA BANKING SECTOR

Transcription

1 j MAC SA Stockbrokerage Company Green Center, Bloc C, 2 éme étage Rue du lac Constance 1053 Les Berges du Lac - Tunisia Tel: (216) / Fax: (216) / macsa@gnet.tn Update August 2009 TUNISIA BANKING SECTOR Financial Analyst : Salma Zammit salma@macsa.com.tn 1

2 TUNISIA ECONOMY The efforts made by Tunisia to enter into trade agreements reflect its approach to economic liberalization. This openness has allowed Tunisia to be a privileged partner of the European Union and to be the first country in the southern Mediterranean to sign in 1995, the Association Agreement and free trade with the European Union. The close cooperation is economic, cultural, social...etc. In addition, Tunisia is linked by preferential agreements with Maghreb and Arab countries through regional agreements. Also, bilateral free-trade zone agreement with Turkey, Egypt, Morocco, Jordan, Iraq and Libya are governing trade with these countries. Other free trade agreements are negotiated with other countries in the region. To support this openness, several reforms were initiated in to promote foreign investment. Indeed, investment is free for nationals and foreigners in most sectors. Any foreign investor can hold up to 100% of a company s capital without permission in most sectors. Foreign investors are also free to repatriate profits and capital gains from the cession of their investments in foreign currencies. All these reforms and the stability of the country including economic and gradual improvement of the business environment have made Tunisia an attractive country for foreign investment. During the recent years, FDI (excluding portfolio investments) has been multiplied by 5 in five years: from MTND in 1997 to MTND in 2007 and the government expects the FDI to increase in the next five years ( ) to MTND against MTND during , is an annual FDI flow of MTND. According to the latest report on global competitiveness developed by the World Economic Forum in Davos and the U.S. Harvard University, Tunisia is the most competitive country in North Africa, the second largest in Africa and the 4th largest Arab country regarding the free movement of goods. The report ranks Tunisia 16th out of 118 in terms of good security in the business environment. Moreover, rating agencies and financial institutions have given notes and respectable ratings to Tunisia. This confidence is due to its classification in the third category of risk according to the OECD, the allocation of the investment grade, the good management of its debt and also to the political stability. This was also affirmed by the Japanese financial rating agency 'Rating and Investment Information, Inc. (R & I)', which has announced recently (March 2008) its decision to upgrade the sovereign risk rating of Tunisia, from 'BBB +' to 'A-' with stable outlook. The current privatization operations in the country comply with the intention to make Tunisia an attractive destination for investment. Several public institutions have been privatized and others are in the in progress. The service sector has led the privatizations in terms of receipts (80.6%) and in terms of number of companies (52.2%). GDP in uptrend GDP at current prices of Tunisia increased by 11.8% in 2008 to MTND according to the Central Bank of Tunisia. At constant prices, the GDP gained 5.1% to MTND. Thus, between 2003 and 2008, the CAGR was by 5.4% in constant prices generating an average annual increase of per capita income of more than 6.9% over the same period. Manufacturing industries and services are the main contributor sectors to the growth rising by 2.2% and 8.8% per annum, respectively, during the period The service sector including transport and communication (11%) and trade (9%) were the main contributors to the GDP in

3 Tab 1: GDP growth In MTND PIB à prix courant Growth ( in %) 7,9% 4,1% 7,6% 8,8% 7,3% 9,6% 10,04% 11,83% 7,2% PIB à prix constant Growth ( in %) 4,9% 1,7% 5,6% 6,2% 4,0% 5,4% 6,30% 5,12% 5,0% Source : Central Bank of Tunisia and Ministry of development and International cooperation The most positive point about the growth in Tunisia is the diversification of its economic structure and the important contribution of exports to this growth which rose by 15% annually (at market prices) between 2004 and Manufactured products and tourism are evolving rapidly and contribute currently by about 66% to these exports. In addition, Tunisian exports depend no more directly on commodities (phosphates, oil). Chart 1 : Tunisian 2008 GDP breakdown;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; Others 12,1% Manufacturing industries 19,2% Services 43,2% Farming and fishing 11,5% Non manufacturing industries 14,0% Source: Foreign Investmant Promotion Agency "FIPA"- Tunisia Privatization transactions, the increase in FDI particularly in the energy sector (following the discovery of new deposits) and the dynamic of real estate and infrastructure will be the main drivers of the Tunisian economy growth in the medium term. 3

4 THE BANKING SECTOR IN TUNISIA The banking sector in Tunisia is posting a considerable change. It passed from a protected and closed to an open, developed and dynamic actor in the Tunisian economy. This is in line with a context of globalization of the financial services more and more impregnated by the competition and the increased modernization of the international financial establishments. This liberalization of the financial services is perceived by the economic and monetary national authorities as a strategic choice dictated by the concern of investment intensifying and economy diversifying. According to, the governor of the Central Bank of Tunisia, "... This liberalization challenges the Tunisian banks to define their activity field and to reconsider its dimension in order to comply with the requirements of the economic efficiency of the bank". The main factors behind these evolutions are the new regulations of the Tunisian Central bank concerning the reinforcement of the financial relations security, the economic opening of the country which required a reorganization of the financial system, as well as the wave of privatization which the banking environment knew. Modernization of the sector: Promulgation of the banking law relating to the credit institutions Since 1997, the Central Bank of Tunisia had launched a vast program intended to level, the financial institutions in general and the banking sector in particular: development of the electronic banking, telecompensation and payment systems, security of funds transportation, central unit of information and outstanding payment, establishment of debts recovery companies, possibilities to proceed to securitization operations. In July 2001, a banking law relating to the credit institutions was promulgated. This law enabled to set up a more liberal environment for the banking activities and removed the legal division between the development banks and the deposit banks. From now on, each establishment is approved as a universal bank, being able to specialize according to its strategic choices. The repercussions were obvious on the profitability (improved net income of banks) and the banking operations. In 2006, a new law project came to reinforce the banking landscape. This legislation endows the CBT with new prerogatives in the fields of the consulting, the follow-up, the transparency, the control and the publication of financial and economic information. Concretely, this law enables the CBT to establish statistics and to carry out investigations into the tendencies and evolutions of the monetary and financial economic situation, in order to put at the disposal of general public objective indicators. Moreover, and under the terms of the new amendment, the CBT will stop granting to the Treasury credit facilitations in the form of overdrafts. The other aim expected by this new law consists in the control of the payment system since the CBT is entitled, hence forth; to keep a register on the risks of payment by cheque, bank card or other future modes of payment. As for the safety of the transactions, a reform relating to the transfers of the big amounts of more than 50 thousand dinars was also instituted. It aims at the security of the payments within the framework of the automatic and automated processing of payment operations. 4

5 In the control field, the CBT is entitled to control the credit institutions and to look after the stability of the financial system and its safety. It is authorized to conclude conventions with the control institutions such as the Council of the Money market, the credit institutions and the insurers. These agreements will support the formation, the exchange of information, expertise and the joint control operations after authorization of the Official Authorities. The shutter of the transparency was also approached by this reform. Indeed, under the terms of this new legislation, the CBT is in charge of submission of its books to international audit. The other innovation of the law relates to creation within the CBT of a "The banking services watchdog" in charge of the follow-up of the quality of the banking services provided by the credit institutions. In addition, and for a better financing of the economy and in order to reinforce the action of the banking supervision, the transparency as regards granting of the loans was instituted. Moreover, the banks are obliged to transmit to the CBT at the same time as the declaration of the accounting monthly situation, the list of the customers having been granted loans during the concerned month, including the renewals of the credits, and the financial statements of the last two fiscal years. To improve the information, the law regarding the creation and organization of the Central Bank has been changed by a new law on economic initiative and particularly its financing. In the context of improving the quality of information gathered by the risks central and the file of credit to individuals, the CBT is enabled to require from debt collection companies to provide all statistics and information it deems useful for the development of credit and economic conditions and, as for credit institutions. Structure of the banking system in Tunisia The banking system in Tunisia includes currently 20 deposit banks. In 2005, its structure knew a considerable change due to the setting up of a new bank called " Financing Bank of Small and medium-sized enterprises", the privatization of Banque du Sud, henceforth called Attijari Bank and the change in statute of the development banks, STUSID, BTL, TQB and BTK in universal banks. In January 2008, in the framework of the banking sector restructuring program, the Tunisian- Kuwaiti bank (Banque Tuniso-Koweitienne) was privatized through the cession of 60% of its capital to the financial company «OCEOR» a subsidiary of the French group «Caisse d Epargne». In Tunisia, the banking sector is mainly composed of private banks and mixed capital (70%) but the public banks play a dominating role in the financing of the economy. Among the 20 banks which count the Tunisian banking system, 11 banks are listed in Tunis Stock Exchange market. 5

6 Tab 2: Banks presentation Bank Name Issued capital in TND AB Amen Bank ABC Arab Banking Corporation ( Branche onshore) ATB Arab Tunisian Bank ATTIJARI Banque Attijari de Tunisie BIAT Banque Internationale Arabe de Tunisie BFPME Banque de Financement des Petites et Moyennes Entreprises BFT Banque Franco-Tunisienne BH Banque de l'habitat BNA Banque Nationale Agricole BT Banque de Tunisie BTE Banque de Tunisie et des Emirats BTK Banque tuniso-kuweitienne BTL Banque Tuniso Lybienne BTS Banque Tunisienne de Solidarité Citibank CitiBank ( branche onshore) STB Société Tunisienne des Banques STUSID Bank Société Tuniso Séoudienne dinvestissement et de Développement TQB Tunisian Qatari Bank UBCI Union Bancaire du Commerce et de l'industrie UIB Union Internationale des Banques Source : CBT and Profesionnal Tunisian Association of banks and financial institutions Tunisia also boasts of large private banks as the Banque Internationale Arabe de Tunisie (BIAT) owned by Tunisian businessmen and international financial institutions, Amen Bank owned by the family Ben Yedder, the International Union Banks, the Union Bank of Commerce and Industry (UBCI) and Attijari Bank held by international banks respectively Société Générale, BNP Paribas, and the consortium Attijariwafa Bank (Morocco) Stander and Banco Central Hispano (Spain). Consolidated assets of the banking sector increased by 10.4% to 32,378 Million TND at the end of 2007 thanks to the credits growing by 9.77% to 27,458 Million TND. Moreover, 2007 was marked by a more important progression of the banks resources (+13.7%) than that of deployments (+9.77%). Indeed, several banks increased their capitals and reinforced their financial basis. In addition, the banking system structure strives increasingly for the universal banking model in terms of size. This dynamic is a rational response to the program of the financial sector liberalization to comply with international standards on the one hand and also be a banking center with sound financial basis for the exploitation of economies of scale against the crush in intermediation margins. Financial Performance of the Banking Sector (According to2007 data) The reforms taking place in the Tunisian banking sector since 1997 had positively influenced the performance of the banks in terms of improved consolidated assets and liabilities and resulting performance ratios. The acceleration of the Tunisian economy, accompanied by the banking sector reform program, stimulated investments in various business sectors leading to an increase in the money supply in the market, which was translated into the incline of the consolidated assets and liabilities of the banking system. 6

7 Domestic liquidity (M2) growth pace slowed in 2008 as compared to the previous years i.e. 3.5% in 2008 against 13.5% y-o-y in 2006/07 and 12.2% rise in 2005/06. Narrow Money Supply (M1), represented by currency in circulation and demand deposits in local currency, rose slightly by 3.5% ( against 12.3% in 2007), reaching 12,404 MTND, and Quasi Money, moved up by 3.6% (against 14.4% in 2007) reaching 18,864MTND in the same year. This liquidity drop could be explained by the increase of the required reserve ratios by the Central Bank of Tunisia at the end of 2007 and the beginning of 2008 to reduce inflation. At the end of 2008, required reserve ratios were reduced again to encourage credit facilities to face the direct and indirect effects of the global crisis on the Tunisian economy. Chart 2: Domestic liquidity development;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; In Million TND Jun-09 M1 Quasi-money Source: Central Bank of Tunisia, MAC SA La hausse de l offre de monnaie dans le système bancaire a été reflétée dans les chiffres consolidés des bilans des banques. La base du financement, représentant le moteur principal des bonnes performances des banques, s est améliorée en 2008 de 12,9% (contre 13,5% en 2007) atteignant les MDTN. The increased money supply in the banking system was reflected in rising figures of the aggregate assets and liabilities. The funding base, representing the key driver for the banks good performance improved in 2007/08 by 12.9% (against 13.5% in 2007) reaching MTND. 7

8 Tab 3 : Consolidated Balance Sheet of Commercial Banks in Tunisia In Million TND Feb-09 Cash Deposits in the Central bank Balances with banks abroad Credits to the State Credits to the economy Securities and investments portfolio Other assets Total assets In Million TND Feb-09 Monetary deposits Quasi-monetary deposits Obligations to banks abroad Central bank advances Special ressources Shareholders equity Other liabilities Total liabilities Source : Central Bank of Tunisia The banking penetration in the economy has been increasing over the last few years. The ratio of credit deployment to GDP for Tunisia has grown gradually to 57.3% at the end of Chart 3: Banking Penetration in Tunisia k hhhhhhhhhhhh hhhhhhhh 60% 55% 50% 45% 57,2% 56,8% 56,5% 56,3% 46,6% 46,1% 46,2% 45,9% 57,1% 47,6% 56,1% 55,9% 50,1% 48,5% 51,6% 57,3% 40% Source: Central Bank of Tunisia, MAC SA Loans to GDP Ratio Deposits to GDP Ratio This ratio is within the average for the MENA region (58%) and remains above the average level of some Central European countries (around 30%), but under the average level of Euro-zone (109.6%). In terms of deposits, the penetration rate remains relatively low at 50.8% at the end of 2007 as compared to Morocco, (79.1%), Kuwait (64.1%) and Qatar (68.3%). 8

9 Despite its growth, the population bank rate remains low in Tunisia (50% of the total population in 2007 against 98% for France, 1-counter for 9.6 thousand inhabitants against 1 for 7.3 thousand in Morocco and 1 for 2.4 thousand inhabitants in France). Tunisian banks are mostly retail banks and net banking income comes from the banking branches network. The size and dispersion of the network is as a lever for the bank. They provide a regional diversification and sector diversification and it is an attraction to potential customers. Liabilities - a growth by the deposit mobilization During the period , total assets of the commercial banking sector grew at a CAGR of 10.6% and in 2008 the asset base witnessed a growth of 13% against 13.5% in A major portion of this growth in the asset base was funded through the inflow of funds from deposits as it accounted for more than 56.3% of the total liabilities at the end of Chart 4 : Deposits breakdown. 100,0% 11,0% 10,7% 14,1% 10,8% 80,0% 60,0% 40,0% 33,8% 33,0% 27,0% 29,8% 29,1% 29,4% 31,5% 32,8% 20,0% 26,1% 26,8% 27,4% 26,6% 0,0% Demand deposit Term deposit Savings accounts Others Source : Central Bank of Tunisia Deposits structure remained almost the same except for the savings deposits that represented nearly 30% of the deposits in rise by 2.7 points of percentage. The rise in these deposits is mainly due to the increase in the other saving accounts and the special saving accounts and housing savings increased by 10.16% and 4.14%, respectively. Chart 5 : Banks ressources structure in 2007 Other liabilities 17% Monetary deposits 15%. Shareholders equity 13% Special ressources 5% Obligations to banks abroad 9% Quasi-monetary deposits 41% Source : Central Bank of Tunisia 9

10 Assets - a growth of the credits In 2008, credit facilities granted by the financial sector to the economy amounted to almost 31.5 billion TND, an increase of 13.7% which is 3.9 percentage points higher than the rate recorded a year earlier. The banking sector remained the first financing source of the economy and contributed by 92.6% to these credit facilities. There was faster growth, mainly, in the outstanding balance of operating loans and to a lesser degree in investment loans. Moreover, in 2008, the breakdown of the outstanding balance of loans granted by the banking system by category of beneficiary shows a drop in the share of loans to professionals with a consequent increase in the share of loans to individuals. This rapid growth is due to the increased focus on housing loans. The outstanding balance of short term loans represented 56.6% of the total credit facilities (against 56.4% in 2007) and medium and long term loans constituted 43.4% of the total loans facilities (against 43.6% in 2007). Institutional loans Quoiqu en progression de 14,8% à 21,9 Milliards de dinars en 2008 contre une évolution de 6,5% une année auparavant, les crédits aux professionnels ont représenté 75% de l ensemble des crédits à l économie octroyés par les banques quasiment inchangé par rapport à Loans granted to professionals have increased by 14.8% to 21.9 Billion TND during 2008 against an incline by 6.5% one year earlier. The share of loans to professionals granted by banks was by 75% nearly the most than that of Chart 6 : Loans development to economic sectors ;;; ;;;;;;;;;;;;; Services Industry Farming and fishing 8,1% 8,0% 7,7% 6,4% 5,2% 5,2% 33,7% 33,7% 32,7% 37,7% 37,4% 36,8% 58,2% 58,3% 59,6% 55,9% 57,4% 58,0% Source : Central Bank of Tunisia and MAC SA Services companies were the most important beneficiary of the outstanding balance of loans granted to professionals (+ 317MTND) and namely trade (+ 160MTND to 4,746 MTND). Loans to individuals Loans to individuals, that are the privileged target of the Tunisian banks, came to 7.3 billion TND in 2008 up from 6.3 Billion TND at the end of 2007, an increase of 14.5% vs. 20% a year earlier. This trend was due to faster growth in the 10

11 outstanding balance of medium and long term loans, an increase of 37.7% vs. 25.6% a year earlier. New loans went mainly to finance acquisition of new housing and improvement or extension of existing housing since mortgage loans were 39.5% higher in The outstanding balance of short term loans went down by 20% vs. 12.6% rise in During the last five years, the average growth of loans to individuals has been by 18.9% but with the inflationary tension at the national level, the expansion of loans to individuals may be limited by the central bank in the coming years. Chart 7 : Households loans development in Billion TND ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; Source : Central Bank of Tunisia and MAC SA Assets quality According to a press release from the IMF date on June 2009, The Tunisian financial sector has not been directly affected by the international crisis. The authorities have continued their long-term strategy of reinforcing the banking sector, which has led to a decline in the ratio of non-performing loans to total loans from 17.6 percent in 2007 to 15.5 percent in 2008 and an increase in the provisioning ratio from 53.2 percent in 2007 to 56.8 percent in The authorities intend to continue this effort even after they reach their targets of 15 percent and 70 percent, respectively. Though in improvement, the asset quality of the Tunisian banks remains still problematic. Over the five last years, the Tunisian banks were focused on the improvement of their assets portfolio quality. These non performing loans came, in part, from the financing of infrastructure public projects and from a supervisory mismanagement. 11

12 Chart 8 : Assets Quality ;;;;;;;;;;;;; ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 22% 17% 12% 24,0% 23,7% 53,2% 20,9% 20,9% 19,3% 46,8% 49,0% 17,6% 15,5% 45,8% 43,9% 43,1% NPL to gross loans Coverage ratio 58% 56,8% 56% 54% 52% 50% 48% 46% 44% 42% 40% Source : Central Bank of Tunisia, 2008 IMF estimates and MAC SA Over the last four years, Tunisian banks continued their efforts to keep risk down and pro-active processing of non performing loans. Consequently, the share of non performing loans in total commitments went down from 24% in 2003 to 15.5% in So the banks are moving towards achieving the objective of reducing the rate of non performing loans at 15% in 2009 and 12% in Despite this improvement, the rate of bad loans is still quite high as compared to an average of 5% for other Mediterranean countries. The rate of coverage of non performing loans by provisions went up by a significant 3.6 percentage points to 56.8% at the end of 2008 following greater efforts to boost provisioning and reserved charges. Despite this improvement, the coverage rate is under the standard level of 70% expected by the Central Bank. According to the IMF, raising the ratio of provisions to NPLs to 70 percent would further strengthen the banking system s resilience, particularly in light of the gradual opening of the capital account. 12

13 PEER GROUP COMPARISON The peer group comparison is done on ten banks listed on Tunis Stock Exchange market, namely Amen Bank, Arab Tunisian Bank, Attijari Bank, Bank of the Habitat, Bank International Arab of Tunisia, Bank of Tunisia, National Agriculture Bank, Société Tunisienne des Banques, Union Bancaire du Commerce et de l Industrie et Union Internationale des Banques. These banks together accounted for about 82% of the total assets of commercial banks in 2007 and 88% of total credit disbursed. The size of the banks under our coverage increased from 21,233 Million TND in 2001 to 32,093 Million TND in 2007, i.e. a CAGR of 8.1%. Between 2007 and 2008, their size progressed by 14.3% from 32,093 MTND to 36,681 MTND. The top four banks namely STB, BNA, BIAT and BH contribute 57.9% of the overall size of the banks under review. The share of these banks has remained almost the same since Tab 4 : Key Indicators of Listed Banks In MTND Deposits Amen Bank Arab Tunisian Bank Banque Attijari de Tunisie Banque Internationale Arabe de Tunisie Banque de l'habitat Banque Nationale Agricole Banque de Tunisie Société Union Bancaire Tunisienne du Commerce des et de l'industrie Banques Union Internationale des Banques Total Assets 3 246, , , , , , , , , ,2 Gross Loans & Advances 2 344, , , , , , , , , ,6 Total Deposits 2 440, , , , , , , , , ,9 Paid-up Capital 85,0 80,0 150,0 170,0 90,0 100,0 75,0 124,3 50,0 196,0 Equity Capital 304,4 273,8 136,9 445,5 313,4 411,2 401,1 483,7 175,6 72,9 Net Profit 40,1 37,5 40,8 33,7 62,8 31,8 62,8 32,2 24,1 0,9 Source: Banks Annual Reports and MAC SA The deposits increased at a CARG of 12.5% for the period from 15,487 Million TND in 2003 to 27,862 Million TND in In order to support strong loan growth in the banking sector, resource mobilization is the key. Most of the banks have also started focusing on medium term notes as a way of increasing their funding base. The top four banks capture the highest market share of 56.2% of total deposits of the banking system, topped by BIAT with a market share of 17.3%. BH and STB lost both, 0.6 percentage points in their market share to stand off at 9.5% and 14.4% respectively while BNA maintained its share at 15%. Total deposits increased by 15.4% from 24,862 Million in 2007 TND to 27,862 Million TND in A greater part of the banks showed double digit growth except for BH and UIB. Attijari Bank, UBCI and BT were the most aggressive in deposit collection with respective growths of 24.1%, 22.9% and 21.3%. Chart 9 : Deposits development (in MTND);;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; % 14% 16% 15% 14% 12% % 7% 10% 11% 10% 8% 6% 4% 2% 13

14 Banks have also increased their branch networks through Tunisia. The branch networks reflected the more marked orientation of the banks towards the retail banking requiring proximity of the banking agencies to the geographical localization of the customers. Chart 10 : Market Share of Deposits ,2% 4,7% 17,3% BIAT 6,4% BNA STB BH 8,7% AB 15,0% ATB ATTIJARI 9,1% UIB BT UBCI 8,8% 14,4% 9,5% Source : Banks Annual Reports and MAC SA Loans For the period , loans increased slower than deposits. Gross loans grew at a CARG of 8.9% going up from 16,960 Million TND in 2003 to 25,918 Million TND in This rise was partly due to the increase in loans to private individuals and namely the mortgage with the development by all the deposit banks of the mortgage services reserved before only to BH. In 2008, loans showed the same bullish trend then deposits i.e. a rise by 15.4% to range from 22,462 Million TND in 2007 to 25,918 Million TND in We think that banks will continue to face an important demand for credits in the coming years. This demand will emanate mainly from the services sector and namely the real estate one. The governmental efforts to diversify the economy and to improve the business climate in Tunisia and the attraction of the Foreign Direct Investments through lawful and structural rules in various sectors will be catalysts for the development of the banking sector in Tunisia. The top four first banks exhibited a slight decrease by 0.6 percentage point to range at 59.6 % share of overall loans in The market share of these banks increased during the period from 58.4% in 2001 to 60.2% in 2007 then it edged down in 2008 under 60%. The high proportion of outstanding loans of public banks (17.5% for BNA, 17.2% for 14

15 STB and 13.3% for BH) dates back to the period when public banks were the main providers of funding to the economy. This contribution tends to be reduced in the coming years due to the dynamism of private banks. This trend has begun to emerge during the last three years. Indeed, the three public banks have accumulated in 2006, 64.2% of new loans to customers. This share dropped to 52 % in 2007 and 48.5 % in In 2007, the dynamism of private banks increased the level of new loans to customers including Attijari Bank, BIAT and AB. In 2008, UIB, ATB and AB showed the best commercial dynamism of private banks which induced higher level of loans granted to customers by all private banks. These banks have credit growth rates higher than the average of the banking system. This trend has continued over the first half period of In fact, loans have increased by 1,200 Million TND during the first six months of AB, BIAT, UIB and Attijari Bank showed the highest performances to range at 85% of all the new loans. Tab 5 : New granted loans Change 06/ State owned banks % STB % 632 BNA % 662 BH % 382 Private banks % BIAT % 252 AB % 360 ATTIJARI % 263 BT % 69 UIB % 368 ATB % 299 UBCI % 169 TOTAL % The intermediation rate (loans to deposits rate) Since 2002, the intermediation rate has been in continuous fall from 112.6% in 2002 to 93% in 2007 and Moreover, it is only in 2006 that this rate passed under the threshold of 100%. This resource s structural inadequacy is met by the use of special resources and refinancing in the money market. The overuse of deposits to finance loans is likely to weigh on the profitability of the banks. Chart 11 : Loans to deposits ratio ( studied banks ) ;;;;;;;;;;;;;;;;;;;; ;;;;;;;;;;;;;;;;;;;; 112,6% 115,0% ,5% 110,0% ,9% 105,0% ,4% 100,0% ,9% 93,0% 95,0% 93,0% ,0% ,0% Deposits Loans Loans to deposits ratio 80,0% Source : Banks Annual Reports and MAC SA

16 Considering this rate, banks are divided into three categories: Banks with intermediation rate higher than 1 (BH,STB, BNA, BT), Banks with intermediation rate lower than 1 (ATTIJAARI, BIAT, UIB and ATB) Banks which have an intermediation rate around 1 (AB and UBCI). Chart 12: Loans to deposits ratio of the banks in 2008;;;;;;;;;;;;;; ;;;;;;;;;;;;;;;;;;;;;; 129,8% 111,1% 108,4% 100,6% 96,1% 94,6% 93,0% 94,5% 81,4% 62,2% 59,9% BH STB BNA BT AB Source : Banks Annual Reports and MAC SA UBCI UIB Average ATTIJARI BIAT ATB Assets quality Over the last few years Tunisian banks have extensively focused on improving their quality of assets which resulted in substantial improvement in the quality of their assets portfolio. In the sector, UIB had the highest NPLs to gross loans ratio at 34 % and a coverage rate at 45.6%. However, the bank s new recapitalization plan will allow it to optimally cover against the risks of non-performing loans and to consolidate its claims and improve its risk and costs control. 16

17 40,0% 30,0% 20,0% 10,0% Chart 13 : Non performing loans in 2008;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 23,1% Strategic goal of 10% in ,6% 14,7% 10,8% 11,9% 6,8% 8,3% 9,1% 9,4% 34,0% 0,0% BT BH UBCI ATB BIAT BNA AB Attijari Bank Source : Banks Annual Reports and MAC SA STB UIB In the public sector, STB suffers again from the bad quality of its loans and the lack of provisions. In spite of the massive transfers of the NPL to its recovering subsidiary company, STB still suffers from its active participation in the financing of tourism, a priority sector considered by the public authorities. On the other side, BT is broken away from the whole Tunisian banks with a NPL ratio below the standard of 10% at 6.8% and a coverage ratio of 82%. In the public sector, BH remained a benchmark in term of compliance with standard norms with a gross loans ratio of 8.3% and a coverage rate of 74.3%. Chart 14 : Coverage ratio in 2008;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; ;;;; 90% 80% 70% 82,0% 74,3% 71,0% 69,4% 66,7% Strategic goal of 70% in ,2% 63,5% 60% 50% 40% BT BH ATB UBCI BIAT BNA Attijari Bank Source : Banks Annual Reports and MAC SA 57,7% 49,0% 45,6% AB STB UIB In 2007, most of the banks in Tunisia have adequately provided for their NPLS. They provided MTND against MTND in 2006, an increase by 8% while the provision growth in 2006 was by 73%. The important increase in provisions in 2006 was due to the significant provisions recorded by Attijari Bank, i.e. 163 MTND to consolidate its entire portfolio. In 2007, UIB provided MTND while Attijari Bank provided 51 MTND. In 2007, most of the banks in Tunisia have adequately provided for their NPLS. They provided MTND against MTND in 2006, an increase by 8% while the provision growth in 2006 was by 73%. The important increase in provisions in 2006 was due to the significant provisions recorded by Attijari Bank, i.e. 163 MTND to consolidate its entire portfolio. In 2007, UIB provided MTND while Attijari Bank provided 51 MTND. 17

18 Chart 15: Provisionning effort ( in Million TND );;;;;;;;;; ;; % % % % % % % % % Provisions Gross operating income Average Provisionning effort Source : Banks Annual Reports and MAC SA Thus, in 2008, the average provisioning effort was in considerable increase at 212 % in 2008 against 120 % in 2007 i.e. the gross operating income allowed to cover provisions up to 212 % in 2008 and up to 120% in Over the period , the average provisioning effort has been declining as a result of intensive provisioning policies with an average annual growth rate of 19 % against 18% for gross operating profit. Interest margin The interest margins follow closely those of the money market rate. Correlatively to the fall of money market rate, the interest margin rate (expressed as a percentage of the NBI) of the banks over period went down from 62% in 2001 to 57% in From 2005, interest margin witnessed an upward trend to 59.2% at the end of Chart 16 : Interest margin 65% 6,2% 6,0% 60% 55% 5,8% 5,6% 5,4% 5,2% 50% Interest margin Monetary market rate 5,0% 4,8% Source : CBT, Banks Annual Reports and MAC SA In 2008, following a downward revision of MMR at the end of the year, the rate of the interest margin has shown a slight decline from 59.6% in 2007 to 59% in In 2008, banks average interest margin increased 14.8% and 0.5 NBI percentage point from 58.5% in 2007 to 59 %.This is due to the 13.8% increase in interests and similar incomes and in particular incomes from credit operations. This growth has been driven by greater risk control that resulted in an improvement of loans yields. In addition, incurred interests and similar charges rose by 13.1% owing, particularly, to the increase in interest paid on the time deposits and deposits 18

19 certificates which was attenuated by the reduction in the financial expenses due to the fall of the average debt of the banks on the money market. Chart 17 : Interest margin development..;;;;;;;;;;;;;;;;;;;;;;;;;;;; 80,0% 60,0% 40,0% 20,0% AB ATB BIAT BNA Attijari BH STB UBCI UIB Average ,3% 49,7% 59,4% 61,5% 67,9% 68,4% 47,2% 68,3% 49,5% 59,5% ,8% 33,7% 53,1% 63,5% 65,0% 69,1% 46,1% 64,6% 45,3% 56,5% ,9% 24,0% 53,5% 61,8% 58,0% 67,0% 56,9% 61,8% 56,2% 56,9% ,6% 20,3% 55,4% 60,5% 57,1% 65,5% 65,8% 61,9% 52,1% 57,4% ,1% 27,0% 56,6% 59,2% 46,9% 69,0% 71,7% 56,9% 55,6% 58,5% ,5% 30,6% 56,5% 61,4% 50,0% 72,0% 69,6% 57,6% 55,6% 59,0% Source : Banks Annual Reports and MAC SA Revenues diversification The non-interest incomes which relate mainly to the commissions on the banking services and the incomes from investment portfolios and the incomes from the exchange activity are becoming the main contributors to the growth of the banks incomes. Between 2001 and 2007, the non-interest incomes of the banks under review has grown at a CAGR of 9.4% whereas the NBI has increased at a CAGR of 8.7% annually during the same period. Tab 6: Net Banking Income breakdown Interest margin % growth -3,0% -2,3% 1,5% 10,7% 16,9% 15,3% Fees margin % growth 10,0% -0,9% 9,3% 9,4% 14,6% 12,6% Other revenues % growth 1,4% -0,3% 20,8% 9,0% 9,0% 13,9% NBI % growth 0,4% -1,6% 6,7% 10,1% 14,8% 14,4% Source: Banks Annual Reports and MAC SA Local banks increase their dependence on the non-interest incomes namely during the periods when the interest rates go down and which are used to compensate the potential fall of the interest margin. In 2004, for example, the non-interest incomes of the banks under review posted a growth by 14% against a slight evolution by 2% of the interest margin. The share of these incomes in total NBI has improved gradually between 2001 and 2004 from 38% to 43.5%, respectively. Since 2005, their share has fallen because of improved interest margin that showed an annual increase of 11% in 2005, 17% in 2006, 14% in 2007 and 15% in In addition, these incomes are made up mainly of commission margins (52% in 2008) and gains from investment portfolio and financial transactions. 19

20 Chart 17 : Non interest incomes to NBI;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 80,0% 60,0% 40,0% 20,0% AB ATB BIAT BNA Attijari BH STB UBCI UIB Average ,7% 50,3% 40,6% 38,5% 32,1% 31,6% 52,8% 31,7% 50,5% 40,5% ,2% 66,3% 46,9% 36,5% 35,0% 30,9% 53,9% 35,4% 54,7% 43,5% ,1% 76,0% 46,5% 38,2% 42,0% 33,0% 43,1% 38,2% 43,8% 43,1% ,4% 79,7% 44,6% 39,5% 42,9% 34,5% 34,2% 38,1% 47,9% 42,1% ,9% 73,0% 43,4% 40,8% 53,1% 31,0% 28,3% 43,1% 49,5% 41,5% ,5% 69,4% 43,5% 38,6% 50,0% 28,0% 30,4% 42,4% 44,4% 41,5% Source : Banks Annual Reports and MAC SA Attijari Bank has been the first to increase considerably its non interest incomes ratio during the six last years from 32.1% in 2003 to 53.1% in 2007 and 50% in Moreover, ATB has the most important ratio in 2008 due to an important rise of 8 % of the gains from investment portfolio and financial transactions. However, STB has reduced the proportion of these non-interest incomes between 2006 and 2007 from 34.2% to 26.7% because of the stability of its gains from investment portfolio and financial transactions while the NBI went up by 13%. In 2008, this part rose by 30.4% due to the 31% improvement of gains from investment portfolio. However, the structure of the Net banking income has not changed as compared to previous years because the interest margin remained predominant (59%) as compared to net commissions which represented only 21.4% in 2008 against 19.7% for other incomes. Important operating expenses weighing on the operating profitability In addition to the problematic assets quality, the other major problem of the Tunisian banks remains the importance of the operating expenses and particularly staff costs. The average operating ratio (operating expenses/nbi) of the banks under review worsened between 2003 and 2008 from 56.1% to 44.7%, respectively. This improvement derives mainly from the reduced staff costs which represents 75% of the operating expenses. Furthermore, other operating expenses increased by 5.3% due to expenses incurred for the overhaul of their information systems and the expansion of the branches network of some banks. This expansion complies with a policy of retailing bank that requires proximity of the bank branches to the geographical location of customers. 20

21 Chart 18 : Operating efficiency,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, ,0% ,9% ,1% 53,7% 55,0% ,6% 50,0% ,9% ,0% 44,7% ,0% Net Banking Income Operating expenses Operating efficiency Source : Banks Annual Reports and MAC SA In 2008, the more proportional rise of the NBI (+13.8%) than that of the operating charges (+10.6%) enabled to release an operating efficiency ratio of 44.2% in rise by 3.7 percentage points compared to Moreover, some banks and particularly private ones remain largely far from the average of the sector namely BT and AB with an operating efficiency ratio of 25% and 32%, respectively. Public banks remain penalized by an excess staff which weighs on the efficiency. Indeed, the operating expenses of BNA and STB absorb 53% and 56% of the NBI of these banks. An effort of operating expenses control is done to improve this ratio. The other private banks and in particular UIB, UBCI, Attijari and BIAT, release an operating efficiency ratio definitely higher than the average ratio. This is explained by their involvement in the modernization of their information systems and expansion of their branches networks in addition to the importance of the staff charges. Chart 20 : Operating efficiency growth ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 80% 60% 40% 20% 0% AB ATB BIAT BNA TIJARI BT BH STB UBCI UIB Average % 47% 54% 66% 58% 30% 60% 71% 51% 79% 56% % 47% 54% 70% 54% 32% 54% 72% 58% 79% 57% % 47% 58% 62% 60% 30% 49% 62% 59% 66% 54% % 48% 52% 54% 64% 26% 43% 56% 63% 68% 51% % 45% 53% 52% 57% 26% 39% 44% 61% 84% 48% % 43% 48% 47% 50% 25% 38% 44% 56% 73% 44,7% Source : Banks Annual Reports and MAC SA Return on Assets and Equity In general, the majority of the banks increased their 2007 s net incomes. BT is the top performer of the sector achieving an average of 22.3% of the combined net profits of the banks under review over the period In 2007, BT net income represented 22.6% of the combined net profit of the banks under review with a net profit that doubled y-o-y in 2007 due the operating improvement, expenses control and mainly the reduction of provisions. BH recorded the second highest profit at MTND i.e. an increase of 79%. 21

22 In general, the majority of the banks increased their 2008 s net incomes. In fact, already out the UIB and Attijari, the accrued return all the other banks increased by 19% compared to 2007 at 316MTND. Then Attijari bank and UIB profits showed an upward trend so the accrued return of all banks stand off at 358MTND in BT is achieving an average of 21 % of the combined net profits of the banks under review over the period In 2008, BT net income represented 18 % of the combined net profit of the banks under review. BH recorded the second highest profit at 54MTND i.e. an increase of 6%. Tab 7 : Net profits and market shares In MTND AB 27,50 18,48 19,44 19,87 29,42 40,09 Growth rate in % 74% -33% 5% 2% 48% 36% Market Share 18% 16% 12% 11% 11% 11% ATB 13,4 13,7 17,7 21,98 26,33 37,50 Growth rate in % 33% 3% 28% 25% 20% 42% Market Share 9% 12% 11% 12% 10% 10% BIAT 22,22 16,07 19,08 21,05 21,50 33,74 Growth rate in % -1% -28% 19% 10% 2% 57% Market Share 14% 14% 12% 12% 8% 9% BNA 14,94 3,13 8,07 16,32 28,11 31,76 Growth rate in % 1% -79% 158% 102% 72% 13% Market Share 10% 3% 5% 9% 11% 9% Attijari Bank 2,28 0,00-4,11-176,42-9,42 40,78 Growth rate in % -78% -100% N.S N.S N.S N.S Market Share 1% 0% N.S N.S N.S N.S BT 30,22 31,66 34,10 39,89 60,15 62,79 Growth rate in % 1% 5% 8% 17% 51% 4% Market Share 19% 27% 21% 22% 23% 18% BH 16,53 18,53 21,71 28,50 51,13 53,99 Growth rate in % -3% 12% 17% 31% 79% 6% Market Share 11% 16% 13% 16% 19% 15% STB 18,51 5,29 36,29 21,87 31,58 32,24 Growth rate in % -5% -71% 585% -40% 44% 2% Market Share 12% 5% 22% 12% 12% 9% UBCI 10,78 10,20 7,00 13,16 17,42 24,15 Growth rate in % 51% -5% -31% 88% 32% 39% Market Share 7% 9% 4% 7% 7% 7% UIB 0,01 0,00 0,00 0,00-179,86 0,92 Growth rate in % -100% -100% N.S N.S N.S N.S Market Share 0% 0% 0% 0% N.S N.S Total profit 156,39 117,10 * 163,33 * 182,64 * 265,64 357,96 Growth rate in % 3% -25% 39% 12% 45% 35% Source: Banks Annual Reports and MAC SA N.S : not significant * : Except Attijari Bank and UIB In terms of return on equity and return on average assets, the banks have witnessed an incline in their ROA an ROE but still low. The average return on equity of the banks under review increased considerably at 10.3% in BT and BH posted the highest returns on equity in 2007, of 20.1% and 18.8% respectively due to the rise of their profits. Barring BT, BNA showed the highest improvement on its ROE from 4.7% in 2006 to 7.8% in 2007, the highest ROE over the last five years. This uptrend is explained by an exceptional net profit in 2007 enabled by the capital gain from the cession of BNA s participation in the other listed company Magasin Général. 22

23 The average return on equity of the banks under review increased considerably at 10.3% in 2007 (except Attijari and UIB) and 13.2% in 2008 (including Attijari and UIB). Even if they showed a drop compared to 2007, BT and BH posted the highest returns on equity in 2008, 18.6% and 17.2% respectively. Attijari Bank showed high ROE of 42.3%. This high rate is due to the high profit in 2008 whereas the previous losses recorded by the bank have significantly deteriorated its equity. The same for UIB, but 2008 net profit wasn t so high. Tab 8 : Profitability indicators ROE ROA In MTND Amen Bank 10,2% 9,7% 12,1% 15,4% 0,9% 0,8% 1,1% 1,2% Arab Tunisian Bank 11,8% 13,7% 15,4% 15,9% 1,0% 1,0% 1,0% 1,2% Banque Attijari de Tunisie Banque Internationale Arabe de Tunisie 7,2% 5,9% 5,3% 8,2% 0,5% 0,4% 0,4% 0,6% Banque de l'habitat 10,6% 17,7% 18,8% 17,2% 0,7% 2,2% 1,3% 1,2% Banque Nationale Agricole 2,3% 4,7% 7,8% 8,4% 0,2% 0,4% 0,6% 2,9% Banque de Tunisie 13,4% 14,4% 20,1% 18,6% 2,0% 2,2% 2,9% 1,3% Société Tunisienne des Banques 9,3% 5,2% 7,4% 7,1% 0,8% 0,5% 0,6% 1,2% Union Bancaire du Commerce et de l'industrie 4,9% 9,3% 11,9% 15,9% 0,6% 1,0% 1,2% 0,9% Union Internationale des Banques Source: Banks Annual Reports and MAC SA The banks under review posted slightly higher returns on assets from 0.7% in 2003 to 0.9% in 2007 and 1% in As for the ROE, BT topped the other banks with a ROA of 2.9% in 2008 against an average of 1%. Indeed, BT has been detached from the industry average with well structured assets. 1H 2009 performance In H1-2009, the combined net banking income grew by 8.5 % against a 13.5% in the same period last year. The major banks showed a bullish trend except BH and UBCI. The interest margin increased by 6.6% and was the most preponderant part in the banking net income. The commission margins rose by 8.8%. While operating expenses 7% higher as compared to the 1st half period of 2008, the operating rate has improved slightly from 55.9% in 06/30/2008 to 55.2% in 06/30/ The EBITDA of the whole banks was 7.3% up. Tab 9 : Performance of listed banks in H NBI Margin interest Fees Margin Operating expenses EBITDA In MTND YTD YTD YTD YTD YTD H H H H H2009 change change change change change AB 59,2 68,6 16,0% 29,9 33,6 12,2% 13,2 16,46 24,2% 19,9 23,1 15,9% 40,1 46,3 15,5% ATB 51,8 60,7 17,1% 13,5 16,1 19,1% 9,5 9,5 0,5% 27,986 30,782 10,0% 23,9 29,9 25,5% ATTIJARI Bank 60,5 69,1 14,2% 28,9 33,0 14,0% 16,9 20,3 20,3% 32,155 34,93 8,6% 28,5 34,9 22,4% BIAT 125,3 131,6 5,0% 70,1 69,8-0,4% 23,7 25,2 6,3% 67, , ,9% 58,6 61,0 4,0% BH 80,6 78,6-2,4% 65,1 63,3-2,7% 15,5 15,3-1,5% 89,979 88,448-1,7% 55,9 51,0-8,9% BNA 98,3 109,9 11,8% 54,1 66,7 23,4% 22,1 21,7-1,6% 52,428 58,284 11,2% 46,1 51,9 12,6% BT 63,8 66,5 4,3% 42,1 40,9-3,0% 11,6 13,6 17,3% 15,653 16,7 6,7% 48,4 50,1 3,5% STB 100,7 107,6 6,8% 69,7 68,8-1,3% 21,1 24,3 15,3% 46, ,5% 56,9 56,1-1,5% UBCI 45,9 45,2-1,5% 25,9 25,5-1,5% 11,5 12,5 8,8% 25,756 28,895 12,2% 21,0 17,2-18,2% UIB 40,2 50,4 25,2% 21,4 30,9 44,7% 14,9 15,1 1,2% 33,293 34,206 2,7% 6,9 16,2 133,0% Source: Banks activity indicators and MAC SA 23