Financial Sector Overview

The financial sector is dominated by banking institutions, which hold the greatest share of the financial sector’s total assets up to 151,806 million dinars (USD 49,252 million) in 2022. Nonbanking financial institutions are still in the early stage of development. Tunisia was included in the FATF’s list of jurisdictions with serious AML/CFT deficiencies in November 2017, due to the lack of sufficient progress in improving its AML/CFT regime. However, action plans successfully implemented by the authorities caused the country to exit the FATF list in October 2019.

Banking Sector

The Tunisian banking sector comprised 22 banking institutions, including 5 public and 17 private (9 foreign). Over the period 2017-19, the sluggish or declining trend in banking penetration, measured by the ratio of deposit bank assets to GDP, partly reflects the lingering effects of the waves of economic and political crises that the country has been through. However, despite the occurrence of the COVID-19 pandemic, a noticeable rise in banking assets was recorded between 2019 and 2020 followed by a decrease in 2021. According to the Central Bank, deposits have risen from 82.2 billion Tunisian Dinar (TD) (USD 28.99 billion) in 2020 to TD 96.6 billion (USD 31.34 billion) in 2022 (an increase of 17.51%). The banking sector remains highly concentrated in Tunisia. The banking asset concentration, as a proportion of total commercial banking assets, stood at about 44.5% for the three largest commercial in 2021. In 2022, the 4 largest banks accounted for 50.3% of the sector's total assets. Public banks also play a key role in the Tunisian banking sector, holding a significant proportion of banking assets (around 37%).

Notwithstanding the COVID-19 pandemic, the banking sector in Tunisia substantially contributed to financing the economy. Credit to the private sector, as a proportion of GDP, rose between 2019 and 2020 partly supported by measures put in place by the Central Bank to curb the negative effects of the crisis. (Table 3). However, credit to the private sector decreased from 2021 to 2023. Bank deposits (demand, time, and saving deposits) registered an increase over 2019/20, which could partly be attributed to an acceleration in demand deposits and buoyant resource mobilization strategies and remained adequate in 2021.

Regulation of the financial sector is converging, though at a slower pace, towards international standards. The implementation and strengthening of risk-based supervision as well as the adoption of international prudential standards have improved bank regulatory oversight in the region. Basel III prudential norms are currently being implemented. Asset quality, measured by the ratio of non-performing loans (NPLs), has improved slightly in recent years but remains high (above 5%). NPLs have stabilized at around 13% since 2017, which is reflected in NPL provisions that have fluctuated between 55% and 57% over 2017/22. Treasury bills and domestic bonds were used by the government to raise TD 19 billion (USD 6.2 billion) on the local market. These developments, along with the fact that public companies are becoming more indebted, have led to an increase in banks' exposure to sovereign risk, which was 20.7% of total assets in 2022 as opposed to 19.2% the previous year. Public banks bear the brunt of this exposure, accounting for TD 18.9 billion (USD 6.13 billion), or 33% of these banks' total assets. Overall, banks in Tunisia held up well with adequate capital and liquid assets above the recommended levels amid the pandemic, suggesting that supportive measures undertaken by the Central Bank have been successful. The regulatory and core capital adequacy stood at 14% and 10.9% respectively in 2022, above the statutory minimum of 10% and 7% respectively.

The liquid assets to short-term liabilities stood at 171.7% in 2022 in Tunisia, well above the required minimum of 100%. The average loan/deposit ratio at the end of 2022 remained below the regulatory ceiling of 120%, with all banks adhering to the conditions of circular no. 2018-10, owing to efforts to mobilize deposits. indicators of banks' profitability have deteriorated for both Return on Assets (ROA) and Return on Equity (ROE), respectively from 1.1% and 13.3% in 2019 to 0.8% and 9.1% in 2021. This drop is partly due to banks’ contributions to the COVID-19 fund put in place in the country, and the rise in provisioning costs in anticipation of higher credit losses and lower transaction volumes. However, in 2022, the sector generated a net income of 1,313 MDT, up 20.9% in 2021, leading to an improvement in ROA and ROE.

Financial Inclusion and Digital Finance

As part of the Financial Inclusion Strategy 2018-2022, the BCT and the Ministry of Finance initiated joint programmes specifically aimed at strengthening financial literacy among the people, developing the microfinance institutions (MFIs) refinancing system and implementing the interoperability of mobile financial systems. The purpose is to extend the offer of financial services to the poorest segments of the population. This interoperability has been effective since April 2018 between holders of mobile money accounts with telephone operators and those with bank and post office accounts.

Promoting financial inclusion is one of the priorities set by the government to achieve more inclusive and sustainable growth. Despite a well-developed postal network that provides affordable basic savings services to low-income populations in Tunisia, the overall supply of inclusive financial services in Tunisia remains fragmented and hardly accessible. Although there has been progress over the 2011/21 period, only 37% of the adult population had an account in 2021, meaning that over 60% of the population was not served by the traditional financial sector.

Low levels of income, lack of trust in the banking system, perceived high prices of banking services, problems of geographic proximity, barriers from religious beliefs and entry hurdles such as mandatory documents to be submitted and minimum deposit requirements are some of the barriers to financial inclusion in the region. Moreover, Tunisia is also encouraging Fintech and innovation by providing an enabling digital infrastructure. In 2020, a regulatory sandbox6 was launched. With the combined effects of increasing smartphone penetration rates, improvement and of online payment systems, and the development of better distribution logistics, the volume of e-commerce is expected to move to the next level. However, despite these advances, digital financial services still have plenty of room for improvement.

Insurance Sector

The insurance sector in Tunisia is expanding, although still shallow. In 2022, the insurance sector had a total turnover of DT 3,147.1 million (USD 1,021 million), up 7.4% from DT 2,833.2 million (USD 1.015.5 million) the previous year. The number of insurance contracts underwritten increased by 11% to 3,363,409, up from 3,042,096 in 2021. The volume of direct written premiums (life and non-life) has increased over 2018/22. Gross written premiums rose from USD 748.1 million in 2018 to USD 1014 million in 2022, a nearly 36% increase.

Tunisia stands out with registered 25 insurance and reinsurance companies. Despite its growth, the insurance sector in Tunisia remains underdeveloped relative to other countries. The insurance penetration rate in Tunisia at 2.17% of GDP respectively in 2022. The insurance density remains also low, compared to countries like Morocco or South Africa which respectively recorded a density rate of USD 143 and USD 852 per capita in 2021. The non-life sector remains moderately diversified and apart from a limited number of mandatory lines of insurance such as motor third-party liability, the rest of the products offered fail to create a real interest among the population. In Tunisia, motor insurance represented a significant share of 40% in 2022. Life insurance remains shallow with simple covers such as term assurance policies, hampering its role as a source of long-term investible funds. Lastly, insurance tax is often unfavorable, hindering the growth-enhancing potential of the sector. For example, stamp duties in Tunisia are generally set between 5% and 10%, which is higher than those applied in Ireland. Moreover, opportunities such as the introduction of micro-insurance could boost the sector.

The Capital Market

In 2022, the market capitalization of the Tunisian Stock Exchange stood at USD 7.7 billion (USD 7.9 billion in 2023) corresponding to 16.7% of the country’s GDP. The stock market has suffered from the uncertainty raised by the Arab Spring, which has adversely affected investors’ confidence and resulted in little inflows of private capital. Tunisian stock markets also remain relatively small compared to some of its peers in the region (Morocco and Egypt). The market breadth, which can be captured by the number of listed companies, shows that there is no sufficient stock available for investors to have more diversified portfolios to mitigate risk. The Tunisian stock exchange had respectively 78 listed companies in 2023. The small number of listed foreign companies highlights limited cross-border2 or inbound3 listings in the country. The turnover in the Tunisia stock market is also very low. Between 2019 and 2021, the turnover ratio turned around only 6% of the market capitalization but reached 7.4% in 2023. 

IPO activities in Tunisia remained sluggish, particularly in 2019/20 following the pandemic outbreak. This could be attributed to the strictness of the listing requirement that results in the private sector being unwilling to enter the market. Overall, Tunisia’s IPO resource mobilization stood at USD 436 million of capital raised over 2011/21. Tunisia recorded the greatest number of IPOs with 28 IPOs whereas Egypt and Morocco registered 23 and 13 IPOs respectively over the same period. 

Fixed Income Markets and Debts
Corporate bond issuance tends to dominate the market. On average, over 2014-2023, the domestic private sector accounted for 83% of the total number of bonds in Tunisia and Morocco. In 2023, Tunisia listed more than 250 bonds. No foreign bonds were listed in either market of the region over the same period.

Islamic Finance
The contribution of Islamic finance (including banking, insurance, and funds has recently become more prevalent in the country. Of the 22 banks in the sector, 3 specialize in Islamic banking. By 2022, they represented 6.8% of total assets (7.9% of deposits and 6.9% of loans) in the Tunisian banking sector. The country also features 3 takaful companies (representing 5.7% of insurance market turnover in 2022).

Capacity of Local Investors
Tunisia's capital market lacks the critical mass of investors needed for market depth and liquidity, impeding their development. The investor base is narrow, with commercial banks being the most active institutional investors. The participation of non-bank institutional investors such as pension funds and insurance companies remains small and the involvement of retail and foreign investors is still negligible.

Social Welfare System

The pension system in Tunisia is managed by the National Pension and Social Security Fund (CNRPS), which covers civil service workers, and the National Social Security Fund (CNSS), responsible for private sector pension schemes as well as unemployment, disability and death risks. The overall pension system situation remains worrying. The weak financial viability and poor governance of both funds have been recorded by regulators. Financial deficits, which have increased over the years, have worsened despite regular and massive government bailouts to support the national pension system. According to data from the CNSS and the CNRPS, between 2006 and 2016, the CNSS deficit rose from TND 68 million (USD 22.4 million) to TND 470 million (USD 155.1 million), while that for the CNRPS increased more than tenfold over the same period, from TND 38 million (USD 12.5 million) to TND 529 million (USD 174.6 million). Several factors explain these deficits, namely high levels of paid benefits, demographic changes associated with a rapidly ageing population, the development of an informal economy and high unemployment. To cope with these structural deficits and reduce the recurrence of government budget support, public policy makers have undertaken reforms to amend the law on pension schemes. The reform bill, which was adopted in March 2019 by parliament, includes raising the retirement age and increasing the level of contributions, among others.