The Tunisian banking sector needs ambitious reforms, according to S&P Global Ratings.
The rating agency said Dec. 14 that it views the sector as a significant source of contingent liabilities for the country's government and a weakness for its economy.
The banks had a nonperforming loan ratio of 15.6% at the end of 2016, and NPL coverage was "relatively low" at 60%, S&P said. Tunisia's protracted economic recovery coupled with downward pressure on real estate prices could lead asset-quality indicators to deteriorate further, it said.
The rating agency proposed the financial restructuring of government-related entities to improve credit quality and borrowers' debt-repayment capacity. It also thinks the country should implement regulation that is more write-off friendly, which would support bad loan reduction. Furthermore, it should tighten supervision, classification and provisioning requirements of NPLs.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.