Wednesday 22, November 2017 by Matthew Amlôt

CI: Ratings of Banque Nationale Agricole affirmed with a ‘Stable’ outlook

Capital Intelligence Ratings (CI Ratings or CI), the international credit rating agency, today announced it has affirmed the ratings of Banque Nationale Agricole (BNA), based in Tunis, Tunisia.

BNA’s Financial Strength Rating (FSR) is affirmed at ‘B-’. The rating remains constrained by very weak loan asset quality, low loan-loss coverage, and low levels of both liquidity and capital – the latter exacerbated by the shortfall in provisions.  BNA’s Long-Term Foreign Currency Rating (FCR) is maintained at ‘B-’. The Short-Term FCR is affirmed at ‘B’. The FCRs are constrained by the Bank’s weak financial profile and a very challenging operating environment, but are supported by majority government ownership. The Outlook for all ratings is ‘Stable’. The Support Rating is maintained at ‘3’. CI Ratings believes that there is a high probability that BNA would be supported in extremis, as it is government-owned and holds a large market share.

BNA is the second largest bank in Tunisia and controls an important banking franchise in the domestic market, with around fourteen percent of market assets at end 2016. The Bank’s financial profile is very weak, reflecting very poor loan asset quality and associated insufficient loan-loss coverage, in addition to low liquidity and capital. Non-performing loans (NPLs) by actual amount declined marginally in 2016, but remain at a very elevated level, and the NPL ratio is around double that of the sector. The high level of NPLs reflects the weak economy and government-directed lending in the past, together with exposure to problematic sectors. There remain significant challenges to the Tunisian economy, and this will continue to exert pressure on the Bank’s loan asset quality. Weak asset quality has led to low profitability (up to 2016) due to the carry cost of NPLs. While profitability and earnings did improve in 2016, the bottom line was boosted by a lower provisioning charge, despite the still significant gap between NPLs and loan-loss reserves.

BNA’s liquidity is tight due to the fact that loans form a very high percentage of total assets, and the liquid asset base is small. Moreover, the customer deposits market in Tunisia has been weak over recent years with banks relying on the Central Bank of Tunisia (CBT) for additional liquidity. Nonetheless, there was slight improvement in liquidity in 2016 as customer deposit growth outpaced loan growth. However, overall liquidity still remained tight as at end June 2017.

Capital needs to be raised, but this is somewhat dependent upon the strategic direction of BNA going forward. There has been some discussion that BNA might not need additional capital due to the explicit state guarantees for loans to State-Owned Enterprises (SOEs) and planned asset sales. However, CI considers its capital position to be weak.

The Bank can trace its history to 1959, the founding date of one of the two banks specialised in agricultural financing and involved in the 1990 merger creating  BNA. The Republic of Tunisia and quasi-government institutions own 66 per cent of the Bank. The government retains full management control. As at end 2016,  BNA’s total assets amounted to TND9.8 billion ($4.2 billion).

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