The Islamic International Rating Agency (IIRA) has reaffirmed Al Baraka Bank Tunisia’s (ABBT) ratings on the international and national scales, with a ‘Stable’ outlook. ABBT is assigned a foreign currency rating of ‘BB-/B’ (Double B Minus / Single B), and a local currency rating of ‘BB/B’ (Double B / Single B), on the international scale. On the national scale, ABBT’s rating has been maintained at ‘BBB+ (TD) /A2 (TD)’ (Triple B Plus (TD) / Single A Two (TD)).
The bank’s overall fiduciary score is in the range of ‘71 – 75’, which implies that the rights of various stakeholders are adequately protected. The fiduciary score is a composite score of three sub-sections, namely ‘Asset Manager Quality’, ‘Corporate Governance’ and ‘Shari’ah Governance’.
ABBT was established in 1983 as the first Islamic bank in Tunisia and the Maghreb region. It offers both offshore and local retail banking services, following its conversion to a resident universal bank in 2013. The Bank has expanded its branch network and currently operates through 37 branches and 4 exchange offices. It aims to further expand its network to up to 62 branches, 10 cash offices and 64 ATMs by 2020. Al Baraka Banking Group (ABG) is the largest shareholder at ABBT with a majority stake of 78.4 per cent.
The ratings remain constrained by the country’s economic underperformance, albeit improving, and exchange rate volatility which have a bearing on the banking sector’s performance. The country is running a high fiscal deficit, which is expected to remain negative in the medium term. As a result, the continuously rising government debt further burdens the economy. The Tunisian Dinar has lost 5.84 per cent of its value in 2017, extending double digit losses in 2016. The current and projected economic performance suggests continued pressure on local currency value and on the country’s international reserves position.
The Bank’s profitability fell in 2016, weighed in by higher personnel costs and the overall economic climate constraining the Bank’s business growth. The Bank also posted higher non-performing financings (NPFs) primarily driven by a single counterparty exposure. While the exposure is well-collateralized and has been restructured, its performance will remain an important rating driver, going forward. The establishment of the country’s first credit and insurance bureau in 2016 bodes well for the overall credit environment.
Despite extensive branch-network expansion, deposits’ growth in 2016 has been at the lowest since the Bank’s conversion to a resident bank. ABBT’s funding structure remains overly reliant on interbank funds, and features source concentration. IIRA has noted the Bank’s strategic thrust towards a more cost-effective and dispersed deposit mix. In the same context, ABBT’s branch expansion is likely to have a more meaningful effect in later years, as the full impact crystallizes and new branches mature.
The ratings assigned to ABBT derive strength from its high liquidity levels and institutional ownership. As one of the six banks in the country, featuring government shareholding, the direct shareholding of the State allows the Bank greater market access, and it adds to the Bank’s capitalization profile. The parent support is further strengthened by ABG’s profile and commitment.
The Bank’s corporate and Shari’ah governance practices are adequate, buoyed by its association with ABG and the new banking regulations introduced in 2016, especially the dedicated regulatory framework for Shari’ah compliant financial services. The overall fiduciary score reflects ABBT’s sound Board structure, as well as an expanding Shari’ah governance infrastructure. The Bank’s Shari’ah personnel are well qualified and certified by AAOIFI and CIBAFI as Shari’ah auditors. Further departmentalization of the various Shari’ah functions will streamline controls and streamline Shari’ah review processes. The Bank’s new organizational structure proposes the segregation of Shari’ah review and audit, which is viewed favorably. IIRA opines that disclosures pertinent to Shari’ah need to be further enhanced.