Financial Sector Overview
Recent Economic Developments
Tunisia’s economy is gradually recovering from the consequences of the 2011 political revolution, with economic growth returning to around 2.4% in 2018. This growth has been driven mainly by investment and exports, and will be expanded in the medium term by improving agricultural production, developing the manufacturing sector and expanding tourism. Subject to preserving social stability and macroeconomic aggregates, Tunisia should also take advantage of economic opportunities arising from its geographic proximity to Europe. Composed mainly of external borrowing, the public debt increased by 71% between 2010 and 2018 and is a major challenge for macroeconomic balances. The business climate is improving as a result of structural public reforms and relatively stable security. Tunisia is rated fifth among Africa’s best investment destinations in the Doing Business ranking, after Mauritius, South Africa, Morocco and Seychelles.
Financial Sector Overview
The Tunisian financial sector is dominated by commercial banks, which contributed TND 81.32 billion or USD 33.13 billion to finance the national economy in 2017. The private sector benefits from access to direct financing instruments through the Tunis Stock Exchange (BVMT), the market capitalisation of which increased by 37% between 2015 and the first quarter of 2018, even though the number of listed companies increased only slightly. Ninety per cent (90%) of the bond volume is issued by the State. The offer of inclusive financial services remains fragmented, incomplete and inaccessible. A national strategy for 2018-2022 is being implemented by the Ministry of Finance jointly with the Financial Inclusion Observatory, under the supervision of the Central Bank of Tunisia (BCT).
As of end-2017, the Tunisian banking sector comprised 30 banks, including 23 resident and seven non-resident banks, eight leasing institutions, two factoring companies and two merchant banks, bringing to 42 the number of banks and related financial institutions operating in the country. The largest players are public-owned banks - Société Tunisienne de Banque (STB), Banque Nationale Agricole (BNA) and Banque de l'Habitat (BH) - which account for 40.1% of total assets and 34.7% of bank deposits. Internal difficulties in these banks have led to the explosion of the level of bad loans in recent decades. These banks are structurally illiquid and regularly resort to refinancing from the Central Bank. Various recapitalisation and restructuring plans initiated by public authorities and donors have been implemented since end-2014.
Between 2016 and 2017, total sector assets grew by 12.6% and the share of banking and financial institutions assets in the gross domestic product (GDP) stood at 124.6%. Sector profitability has increased steadily and the level of loans granted to customers has been in excess of deposits. This relatively low level of bank deposits could increase the risk of sector vulnerability due to the high level of bad debts, especially in public banks. In 2018, the level of bad debts in the public banking sector was estimated at 22% of credits, compared to 10% in the private banking sector. To reduce the risk of transformation in the medium and long term, the Central Bank introduced a new ceiling ratio for “loans on deposits” at 120%. This measure, which should limit risk-taking by banks and encourage them to finance their activities with sufficiently stable resources, has the adverse outcome of tightening credit.
The Central Bank of Tunisia (BCT), which regulates and supervises the banking sector, and the government have taken measures to sanitise the sector and strengthen its profitability. These include the drafting of a banking sector law approved by parliament, the strengthening of prudential supervision by the Central Bank, the State’s gradual withdrawal from holding shares in banks and the establishment of a deposit guarantee fund to protect savers.
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.
Findings of a survey conducted by the Ministry of Finance in 2017 indicate that only 9% of Tunisians are active clients of the domestic financial system, 3% of the population uses mobile financial services, 2% have access to insurance services, 16% have access to formal credit and only 17% save in the formal financial sector. On average, the national financial inclusion rate is 32.1%, implying that more than two-thirds (2/3) of the working population does not have access to financial services.
Microfinance Sector and Digital Finance
Financial inclusion in Tunisia was initially driven by microfinance institutions. Microfinance operations emerged in the 1980s although the micro-credit law, the first regulatory instrument in the sector, was introduced in 1999. Until the regulatory reform of 2011, this legal framework had encouraged the emergence of micro-credit associations (AMCs), which benefited from a mechanism in which the Banque Tunisienne de Solidarité (BTS) played the role of exclusive (re)financing institution. However, this mechanism has demonstrated its shortcomings over the years, given the poor performance resulting from the AMCs’ technical and financial weaknesses, and adaptation difficulties.
Since 2014, public limited company-type microfinance institutions (MFI - SA) have emerged. They now dominate the domestic market and coexist with associative institutions. As of 31 December 2018, the sector included 7 MFI-SAs with 151 branches, 2 associative MFIs with 6 branches, and 287 micro-credit associations. Microfinance activity remains limited to micro-credit. Despite progress made in the sector in terms of customers and financing granted, its development potential remains under-tapped. Tunisian microfinance institutions have been unable to meet the high demand expressed by low- and modest-income earners. Estimates from a national survey put the potential micro-credit target in 2013 at 950,000 individuals and 245,000 small- and micro-sized enterprises, although the sector served fewer than 300,000 active lenders in the same year.
Despite the steady increase in the level of premiums issued in recent years, the insurance sector’s penetration rate remains low at around 1.9% in 2015, compared to South Africa (14.7%), Morocco (3.1%) or the global average (6.2%). In 2017, the domestic insurance market consisted of 22 insurance companies, 16 of which cover risks in various branches and six with a specialised niche. Three quarters (3/4) of insurance company turnover is obtained by limited companies and the balance by mutual insurance companies. The sector remains dominated by compulsory insurance (cars in this case), which accounts for 82% of national turnover, while the life sector represents only 18%.
The Capital Market
The capital market is mainly run by the Tunis Stock Exchange (BVMT), under the regulatory supervision and control of the Financial Market Council (CMF). In 2018, the Tunis Stock Exchange comprised 82 listed companies, with 2 new introductions in 2017 and the firm "Tunisie Valeurs" in 2018. Banks and financial sector firms account for almost half of Tunisian market capitalisation. Its benchmark, Tunindex, tracks the weighted performance of all listed companies while Tunindex20 measures the performance of the 20 most liquid market capitalisations. The Tunis Stock Exchange’s cumulative capitalisation amounted to TND 24.4 billion (USD 8.25 billion) as of 31 December 2018, or 19.8% of the nominal GDP of the same year. Over the last ten years, capitalisation of the Tunis Stock Exchange has risen significantly, which demonstrates the increasingly significant role of the local financial market in financing investments. According to the 2017 CMF report, the stock market's participation in financing private investment increased from 9% to 13.2% between 2016 and 2017, while the amount of capital raised in the issue market more than doubled between 2012 and 2017, from TND 580.1 million (USD 191.5 million) to TND 1,265.1 million (USD 417.5 million).
Tunisia received 13% of the value of private equity transactions in North Africa between 2010 and the first half of 2016, and captured 25% of the number of transactions made on the continent. According to data from the Tunisian Association of Capital Investors (ATIC), private equity firms invested TND 1,621 million (USD 534.9 million) between 2013 and 2018 and more than 158 local enterprises have benefited from TND 443 million in investments (USD 146.2 million). Most of the amounts invested were made by venture capital investment companies (SICARs) set up by local banks, accounting for 90% of the total annual financing volume.
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.