A lengthy process of evaluating Tunisia’s three state-owned banks has been announced by the government, but numerous problems remain and a strategy for reform is not yet in place.
The Tunisian economy has suffered from poor access to credit, with Tunisian businesses having to offer large guarantees to receive loans necessary to expand. The three banks up for evaluation cover a third of the country’s banking sector.
Tunisia’s economy has fared poorly since the revolution, and recent evaluations by major credit rating agencies have been pessimistic. On June 28, for example, a Standard and Poor’s report described Tunisia’s banking sector as “fragile and not supportive of investment.” It predicted that the government would need to devote considerable funds to recapitalizing Tunisian banks, which currently are not able to meet demands for credit.
The gap between the demand for credit and the funds available in Tunisian banks is large, estimated to be between 17 and 20 billion dinars (10 to 12 billion dollars), according to Laurent Gonnet, a financial sector specialist at the World Bank who spoke with Tunisian media on Tuesday.
Banks are also saddled with bad debts that will likely never be repaid, decreasing their ability to make new loans.
The three major state-owned banks – the National Agricultural Bank (BNA), the Housing Bank (BH), and the Tunisian Banking Company (STB) – are widely regarded as in need of reform. They represent 36 percent of the country’s banking sector, but their oversight has been lax, with no full on-site inspections held since 2006.
The government has announced that it will undertake an eight-month audit process to diagnose failures in these banks and identify a reform strategy. According to the Ministry of Finance’s website, the international auditors selected for the evalution are Group PWC/ MTBF for STB and Roland Berger Strategy Consultant/FICO and ORGA Audit Group for BH and three of the bank’s subsidiairies. The final bank to be audited, BNA, is still collecting bids from international contractors, due to low payment offerings. The process is behind schedule and was supposed to start on July 15 according to Gonnet.
Gonnet believes this audit will prepare the country to undertake needed reforms.
“When looking to evaluate the banking sector, we need to look at two key indicators: the credit penetration rate and debt quality, meaning the amount of bad debts,” according to Gonnet.
The credit penetration rate measures the amount of credit issued by banks as a percentage of a country’s gross national product, with a higher percentage meaning there is more access to loans and other forms of credit in an economy. This means higher access to credit for businesses looking to expand, facilitating growth.
“Ten or 15 years ago, the Tunisian and Moroccan banking sectors were similar, but now Morocco is taking a step forward with a credit penetration rate of 90 percent. Tunisia is lagging behind with a rate of 72 percent,” Gonnet said. He believes that reforms can bring Tunisia on par with Morocco.
Tunisia’s reform strategy, however, is yet to be determined.
Gonnet reported the key problems facing the Tunisian banking sector as mismanagement, lack of innovation, and a lack of an effective approach to bad debts.
The value of collateral that must be put up to guarantee a loan in Tunisia is the highest in the region, averaging 167 percent of the loan amount, according to Gonnet. This limits the flow of credit in the economy, as potential borrowers may not be able to provide such a guarantee.
He listed a number of reforms which the government could adopt, including transforming the three public banks into development banks, liquidating them, installing teams of private experts in management roles, and finally, to giving shares of these banks to strategic shareholders.
“The financial sector’s full potential hasn’t been reached yet in Tunisia. The banking sector’s intervention is not efficient and not supportive of economic growth,” he said.
Under the regime of former president Zine el-Abidine Ben Ali, the International Monetary Fund (IMF) called on the government to undertaken financial reforms, but the suggestions were not implemented.
The IMF issued an analysis of Tunisia’s financial system stability last August as part of its Financial Sector Assessment Program (FSAP). It noted that the reforms called on in its previous assessment issued in 2006 had been ignored.
“The core recommendations of the 2006 FSAP were not implemented. These recommendations centered on the proposed comprehensive reform of the state-owned banks to improve their risk management; addressing the overhang of nonperforming loans; and the rationalization of staffing and duties,” stated the report.