Tuesday 02, January 2018 by Matthew AmlĂ´t

Revival of the Tunisian banking sector will depend on aggressive reform, says report

S&P Global Ratings regards Tunisia's banking sector as a weakness for its economy, and a significant source of contingent liabilities for the government, according to a report entitled, Ambitious Reform Is Key To The Revival Of The Tunisian Banking Sector.

"The Tunisian banking system continues to suffer from long-standing structural and asset-quality issues," said S&P Global Ratings credit analyst, Pierre Hollegien.

Difficult operating conditions for banks, their past utilization by the Government in developing strategic economic sectors, such as tourism, and the country's slow implementation of banking reforms have resulted in banks' weak asset quality and low capitalization by regional and international standards. Loose standards on capital ratios leave Tunisian banks vulnerable and with limited capacity to absorb shocks in a volatile economic environment. Key tasks for the government, in our view, now include implementing measures to restructure at-risk banks and address their high nonperforming loans, so that the banking sector can spur the country's economic development.

What's more, the banking sector's fragmentation weighs on banks' profitability as competition is fierce and economies of scale are few.

"We believe that ambitious reforms could spur the banking sector's growth, and enable it to contribute more to the country's economic development," said Mr. Hollegien.

While this will be a demanding task, we believe it is an achievable one. Morocco and Egypt, which have faced similar long-standing structural and asset-quality issues in their banking systems, brought up banking supervision and regulation closer to international standards and improved their banks' financial risk profiles largely through well-executed banking reforms.

  

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