Fitch Ratings has affirmed
At the same time, Fitch has downgraded the bank's Viability Rating (VR) to 'ccc-' from 'ccc+'. The rating action follows the downgrade of
ATB's 'B-' IDRs are above the sovereign's 'CCC-' IDRs but its Long-Term Foreign-Currency IDR is capped by
The VR downgrade follows the downgrade of
Key Rating Drivers
ATB's IDRs and National Ratings are driven by potential support from the bank's 64.2% shareholder,
ATB's 'ccc-' VR is one notch below the 'ccc' implied VR due to the following adjustment reason: capitalisation and leverage.
Shareholder Support: Our view of shareholder support is based on ATB's majority ownership by AB and its role in the group, as the subsidiary operates in a strategic market for AB. Despite being a large overseas subsidiary, ATB contributes only 4% to the group's assets, making any required support manageable for the parent. Integration links are strong, with AB defining ATB's strategy and overseeing its credit, market and liquidity risks. ATB's IDRs are constrained by
Very Challenging Operating Environment: Real GDP growth was a moderate 2.4% in 2022 and we expect it will slow significantly to 1.6% in 2023. The banks' operating environment is undermined by high inflation (9.6% in
Established Franchise: ATB is
Heightened Risk Profile: ATB's risk profile is inevitably high, given its focus on the vulnerable Tunisian economy. The bank's credit profile is highly linked to the sovereign risk via holdings of government bonds and direct loans to the state and to public companies, although this has declined since 2022. Investments in unquoted illiquid securities (4% of assets, or 0.4x
Weak Asset Quality: ATB's impaired exposures (including off balance sheet) were 13.6% of total exposures at end-2022, which is broadly in line with the market average of 13.2%. Coverage of impaired assets by provisions was only moderate at 80%, which translates into high FCC encumbrance by unreserved impaired exposures. Substantial restructured and watchlist loans add to asset-quality vulnerabilities. Tunisian government bonds were 1.6x equity at end-2022, which is negative for ATB's credit profile.
Modest Profitability: ATB's operating performance has been modest in recent years. Steep rises in overheads, affected by high inflation, and rising provisioning requirements have combined to depress operating profitability. ATB's high exposure to low-yielding corporates and its limited pricing power in a highly competitive market put pressure on performance.
Small Capital Buffers, Support Available: We view ATB's capital buffers as weak relative to the bank's risk profile. Its end-2022 Tier 1 ratio provided a limited buffer over the regulatory minimum of 7%.
Adequate Funding and Liquidity: ATB is mainly deposit-funded (85% of total liabilities at end-2022), and a large proportion (57%) is in the form of current accounts and savings accounts. ATB's liquid assets, net of wholesale funding maturing within the next 12 months, covered a moderate 19% of total deposits at end-2022. The bank may benefit from liquidity support from AB in case of need.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
ATB's Shareholder Support Rating (SSR) and Long-Term IDRs are sensitive to a downgrade of
ATB's VR is sensitive to further deterioration in asset quality and a sustained weakening of profitability leading to a breach its minimum Tier 1 ratio regulatory requirement for a few consecutive quarters with no clear path to restore it.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of ATB's SSR and IDRs would require an upgrade of
An upgrade of the VR would require sustained improvement in the bank's asset quality, earnings and capitalisation, which is unlikely at present.
VR ADJUSTMENTS
The operating environment score of 'ccc' is below the 'b' category implied score, due to the following adjustment reason: sovereign rating (negative).
The business profile score of 'ccc' is below the 'b' category implied score, due to the following adjustment reason: business model (negative).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
ATB's ratings are driven by AB's IDRs.
ESG Considerations
ATB's ESG Relevance Score of '3' for social impacts reflects ATB's exposure to social disapproval of interest rate practices in the banking sector compared with the '2' typically assigned to banks. Nevertheless, environmental, social or governance assessments are not rating drivers for ATB.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
(C) 2023 Electronic News Publishing, source