Credit rating agency, Fitch Ratings, says the clarity of asset quality – loans – of Tunisian banks remains unclear due to the Central Bank’s loan deferral scheme expected to last till September 2021.
According to Fitch, the loan deferral scheme will ease pressure on Tunisian banks’ financial profiles but will also cloud the transparency of asset quality reporting by banks, attributing the cloud of transparency to asset quality reporting to some measures implemented by the Central Bank of Tunisia.
The Central Bank of Tunisia (CBT) extended the ability of companies hit by the coronavirus pandemic to defer loan repayments, subject to banks’ approval. Businesses now have until September 2021 to request deferrals.
In addition to the loan deferrals, the CBT is also allowing banks until December 2021 to grant companies hit by the crisis new loans of up to seven years, including a two-year grace period.
The CBT’s decision follows series of support measures taken in recent months, including an increase in the maximum loans-to-deposits ratio, and a 50 basis points (0.5%) policy rate cut in October 2020 to 6.25% which helped to reduce short-term liquidity pressure for banks.
According to Fitch, profitability and capital of Tunisian banks will be artificially boosted as most banks due to the loan referral scheme will classify loans as impaired and thus make loan-appropriate impairment charges for most part of 2021.
“While the CBT’s moves will alleviate some of the pressure we initially expected banks to face in 2021, it will also continue to cloud the transparency of financial reporting by distorting reported asset quality data. Banks will defer the classification of loans as impaired and hold off on making loan-appropriate impairment charges for most of this year, which will artificially boost their profitability and capital,” said Fitch.
Fitch further says its outlook for Tunisia’s banking sector is negative as it expects lower interest rates to continue to depress banks’ profitability and pressure their already-thin capital buffers, particularly banks with weak core profitability.
Tunisia’s economy, Fitch further noted is expected to grow by 4 per cent this year, but the country’s political instability and uncertainty over the renewal and possible tightening of measures taken by the country’s authorities to counter a resurgence in coronavirus infections could further slow down Tunisia’s growth rate projection.
