It is frustrating to note that the Central Bank of Tunisia (BCT) only recently published the Annual Banking Supervision Report for the 2024 financial year. Certainly, a minimum amount of time is required to process all the information on all local banks, resident and off-shore. And not only since the General Directorate of Banking Supervision (DGSP) under the BCT includes in its report the situation of leasing companies, factoring companies, investment banks and payment establishments. However, since this is not the first annual report that the BCT has published, the practice could have helped to shorten the publication time. This does not, however, make its usefulness obsolete.
Indeed, the report does not simply reflect the accounting situation of the banks and its evolution or the solidity/fragility of their financial foundations. It also reflects their credit policy and implicitly provides an image of a significant part of economic activity.
This may come as a surprise, but the Tunisian banking sector is not as flourishing as you might think. It is not because it shows profits that everything is for the best.
Performance and sources of banking income
In 2024, the 22 resident banks which also concentrate more than 93% of the sector’s assets, 95% of customer loans and more than 97% of deposits, generated a net banking income (NBI) up by 5.5%. However, this increase does not come from the interest margin which is the difference between interest received and interest paid. This interest margin marked a decline of 1.8% last year. What boosted the GNP were the banks’ investment income and particularly “the continued growth in income from the investment portfolio coming mainly from interest on Treasury bills”, on the one hand, and “the improvement in net commissions of 4.5%”, on the other hand, indicates the Report.
In other words, banks’ profits do not come from the core of their activity, which is credit. Certainly, outstanding loans to the economy recorded growth of 2.8% in 2024. This increase cannot, however, obscure the fact that it is not private companies that have benefited. “The increase in the outstanding credits granted to private companies remained at 1.5% in the same way as in 2023,” says the document which also shows “a sharp increase in the outstanding credits granted to public companies of 9.5%” in 2024 after an increase of 8.3% in 2023. More simply, public companies and administrations obtained an additional 1.5 billion dinars of credit in 2024 compared to only one billion dinars for all private companies. Housing credit is in the same boat as that of private companies. The outstanding amount of this credit only increased by 0.8%, representing a net credit volume of less than 100 MD.
Degradation of asset quality
Ultimately, the country’s resident banks lived for 2024 on the income from Treasury bills. They did not want to take excessive risks. And for good reason. For several years, they have suffered from the setbacks of the country’s productive fabric. A situation which has impacted the quality of the assets they hold. “The 2024 financial year was marked by the continued deterioration in the quality of assets in the banking sector for the third consecutive year, linked to the difficult economic context,” notes the BCT. Indeed, the overall outstanding amount of classified debts recorded an increase of more than 11% in 2024, exceeding 19 billion dinars or 14.5% of total commitments. This latter ratio was only 12.6% in 2022. The share of classified debts of private companies increased from 17.1% in 2022 to almost 20% in 2024. Furthermore, “the breakdown of classified debts by sector shows the continued concentration on the industrial, construction and trade sectors which monopolized 64.5% of outstanding debts classified in 2024 compared to 62.8% in 2023,” notes the BCT, adding that “together, these three sectors represent 54.7% of the banking sector’s commitments.”
Furthermore, the share of debts classified 4, in other words almost irrecoverable debts, represents 12% of the total commitments of resident banks, or 2.3 billion dinars to compare with the profits of these same banks which reach, remember, 1.6 billion dinars. And worse still, the coverage rate of classified debts by provisions which was more than 55% in 2022 fell to 50.5% and allocations to provisions in relation to GNP fell from 23.3% in 2022 to 18% in 2024.
Measures to strengthen banking stability
Is it to curb such a phenomenon that the BCT decided to slow down the distribution of dividends from banks and direct part of their profits towards consolidating their own funds? There seems to be no doubt about it. In any case, if this has not completely resolved the problem, the resident banks have relatively improved their liquidity ratio and especially their solvency ratio. Fifteen banks with nearly 89% of assets in the 22 resident banks had a solvency ratio in 2024 above 12%, the standard set by the issuing institute.
This is the reality of the situation of our banks. Far from the fantasies of those who only focused on profits.
