Standard & Poor’s Ratings Services affirmed its ‘BB’ long-tem counterparty credit rating on Banque Tuniso-Koweitienne (BTK). The outlook remains stable.
“We have revised downward our assessment of BTK’s capital and earnings to “adequate” from “strong”, as our criteria define these terms, given the weaker economic environment in the Republic of Tunisia (BB/Stable/B). This has triggered a change in the bank’s stand-alone credit profile (SACP) to ‘b’ from ‘b+’. We have affirmed the ratings on the bank, however, reflecting our view of the capacity and willingness of its parent, French bank BPCE (A/Stable/A-1), to provide group support,” S&P in a statement said.
“Following the downgrade of the sovereign credit ratings on Tunisia on May 23, 2012, we lowered our economic risk score on Tunisia to ‘8’ from ‘7’. Our revised assessment of economic risk, one of two components of our BICRA, has led us to revise our assessment of BTK’s capital and earnings to “adequate” from “strong”. We assess BTK’s capital adequacy under our risk-adjusted capital (RAC) framework. We estimate that the bank’s RAC ratio before adjustments will reduce to about 7% over the next 12-18 months. We expect the bank’s low profitability will continue to constrain its internal capital generation,” the statement added.
The ratings on BTK factor in the bank’s ‘bb-‘ anchor, and our view of its “moderate” business position, “adequate” capital and earnings, “moderate” risk position, “average” funding, and “adequate” liquidity, as our criteria define these terms.
“The ratings reflect the bank’s ‘b’ SACP and incorporate uplift for group support. As we consider BTK to be a “strategically important” subsidiary of BPCE, we derive the issuer credit rating on BTK by adding three notches of uplift to its SACP. Under our criteria, we also cap the ratings at a level that is equal to the long-term rating on Tunisia. Consequently, the ratings on BTK remain at the same level as the ratings on Tunisia.”
The stable outlook on BTK reflects that on the sovereign and our view that the specific factors that drive the bank’s business and financial profiles will remain relatively unchanged over the next 12 months. In particular, we believe that the bank’s RAC ratio before adjustments will remain above 7% in the next 12-18 months.
“We could raise the ratings on BTK if we see a significant increase in capitalization or a material improvement in the bank’s risk profile. Any positive rating action would only occur, however, if we also took positive rating action on the sovereign ratings.”
“We could lower the ratings if the bank’s asset quality were to deteriorate significantly more than anticipated, owing to a more prolonged recession than we currently expect. We could also lower the ratings if we observe reduced commitment from the French parent to support BTK, particularly if this resulted in a change in the group status and therefore led us to lower the notches of uplift that we currently factor into the ICR on BTK.”