Tunis/Tunisia — Moody's Investors Service on Tuesday downgraded to Caa2 from Caa1 the long-term bank deposit ratings of Amen Bank, Banque de Tunisie (BT), Banque Internationale Arabe de Tunisie (BIAT) and Societe Tunisienne de Banque (STB).

Concurrently, Moody's has confirmed at Caa1 the long-term bank deposit ratings of Arab Tunisian Bank (ATB). Moody's also changed the outlook to negative from rating under review on the long-term bank deposit ratings of all five Tunisian rated banks.

"Tuesday's rating action concludes the review for downgrade initiated on October 4, 2022", Moody's said.

The rating actions on the banks follow Moody's downgrade of Tunisia's government long-term issuer ratings of Caa2 with a negative outlook on January 27, 2023.

Concurrent to today's rating action, Tunisia's ceilings have been lowered to B2 for the local-currency ceiling and Caa1 for the foreign-currency ceiling.

RATINGS RATIONALE

The main driver of Tuesday's rating downgrades for Amen, BT, BIAT and STB is the continuously uncertain operating conditions in the country, exacerbated by the absence to date of a comprehensive financing package to meet the government's large funding needs, which raises the default risk of the country, the rating agency inidcated.

"A new IMF programme has yet to be secured, despite reaching staff-level agreement in October 2022, aggravating an already challenging funding position and compounding the pressures on Tunisia's foreign exchange reserve adequacy. Very tight domestic and external funding conditions and the Tunisian government's challenging debt-service profile elevate refinancing risks."

Moody's assesses that weak governance and significant social risks in part account for Tunisia reaching such a critical juncture.

The second driver is the Tunisian banks' direct government exposure to treasury bills and bonds which has increased to around 57% as a proportion of shareholders' equity as of August 2022 and exposes the banks to increasing asset and solvency risk.

Unlike the other four rated Tunisian banks, ATB's bank deposit ratings have been confirmed, driven by affiliate support uplift from Arab Bank PLC (deposit rating Ba2 positive, ba2 BCA), its majority shareholder.