The dilemma of Tunisian public banks : The 3 Giants
In Tunisia, it's not the banks that finance the economy...
It's the economy that finances the banks.
This is what we call a dysfunctional system that will lead to a crisis sooner or later.
It's the economy that finances the banks.
This is what we call a dysfunctional system that will lead to a crisis sooner or later.
A bank is a financial institution that provides financial services to their
customers. These services are mainly accepting deposits and providing loans. A less complex definition is " a bank is a place where people can keep their money and borrow money.
Banks play an important role in today's economies, a large number of business and individuals benefit from their services. Since these financial institution provide loans on short terms or long terms, individuals and companies benefit from these loans to buy real estate, cars, machines...etc So these loans contribute to the movement of the economic cycle in a general way.
There are different types of banks that provide different services for a specific ranges of customers, like industrial, agriculture, housing , tourism ..etc
There are different types of banks that provide different services for a specific ranges of customers, like industrial, agriculture, housing , tourism ..etc
Tunisian banking sector
A relatively young sector, the Tunisian banking sector was born post the country's independence. The sector has been going through major transformations and upgrades in the past three decades or so.
It is currently composed of 29 institution 11 of which are publicly traded in the Tunisian stock market.
According to the Tunisian Central Bank report in 2012, the banking sector has been providing the economy with credits of amount up to 45.5 million dinars, where the total customer deposit has reached 43.9 million dinars ($26.4 million).  |
| (Source: Bulletin Statistiques Financières n°191, Juillet 2015, Banque Centrale de Tunisie, page A24 ) |
Which gives Tunisia a deposit-loan ratio of about 83% , a ratio considered low if compared to that countries such as Morocco, Jordan and Egypt.
The 3 public banks
Among the 29 banking institutions in Tunisia, there are 3 public banks: STB, BNA and BH. These 3 banks hold about 38% of the banking assets, which means that the fate of these banks is or immense importance to the country's economic equilibrium.
Mainly held by the Tunisian state, these banks attract the interest of many private investors. These interests has been publicly manifested through the speculations made on the banks publicly traded stock in the Tunisian Stock Market.
The stocks of the Tunisian public banks have reached record performances during the year 2015, according to the public records of the stock market.
Never the less, the health of these banks has been the subject of public discussions from the early days of the year 2011. Many analysts and financial Experts have explicitly expressed their concerns that the Tunisian economy is at great risk if we do not find urgent and drastic solutions for the serious situation these banks are facing.
It is to note that similarly to any other economic sector, the financial sector is a very competitive one, having almost thirty institutions providing practically the same services in term of nature, makes the game won based on small details, like better customer services, better communication strategies , embracing technological innovations and integrating them into the bank's process and services .
These points just mentioned, are not verified for these public banks. Being ran by government employees who don't have to answer to any share holders like the other institutions and don't really have any financial targets to reach, makes for a very poor governance and slows down any development for the banks
What is this situation Exactly?
The answer is quite complicated to explain, so I will try to put it as simple as possible :
As I said before, about 38% of the total assets in the economy are detained by these public banks.
Which means that 4 of 10 loans given in the Tunisian economy to companies, are financed by one of the 3 Tunisian public banks.
Which means that 4 of 10 loans given in the Tunisian economy to companies, are financed by one of the 3 Tunisian public banks.
So if one day these banks find themselves in difficulties, more than one third of the companies operating in the economy will be facing serious liquidity problems since these banks wont provide the cash these companies need to function. And It is also known that most companies are under-capitalized, this means that cash is a vital element to the survival of these companies.
But our public banks have almost 35% of the total deposits in the Tunisian economy.
Any potential collapse or the inability to honor daily liquidity needs will have a disastrous consequence on the economy and on the people who saved their money in these banks.
Any potential collapse or the inability to honor daily liquidity needs will have a disastrous consequence on the economy and on the people who saved their money in these banks.
At any given time, when a certain financial institution of which the weight is heavy in terms of impact (loans/ deposits/client number..), the government is systemically obliged to back it with funds to save the little regular employee who saved his money in this institution and would lose all his savings if the bank goes down.
A famous case of banks being rescued by government is the case of the 'Société Générale' , a French bank that faced in 2008 deep issues following the sub-primes crises. This bank benefited of a loan of 1.7 Billion Euros from the French government. And the bank have benefited from a similar loan with the same amount a second time later.
Many other French banks were facing the same destiny, and were put in the situation of having cash injection from the government to survive or to shut down. We can state the example of the 'Crédit Agricole' , BNP, Crédit Mutuel..
Totally, the French government spent about twenty billion Euros to help the major banks in France recapitalize and surpass the global financial crisis.If the French government have put all this money to help these institutions, this means that they know that any eventual crash of one of these banks will cause economic damage of which the amounts will be higher than the money initially put to their rescue.
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| If one falls, they all follow: Systemic Risk |
This risk we are talking about it called 'Systemic Risk'
What is exactly the current situation?
Well, let's see closely :
The STB: the Tunisian State detains about 52% of the bank's capital. The rest are shares of private Tunisian investors (37%) and external investors (10%)
The BNA: the Tunisian state has 23% of it's capital. But if we add the shares of the public and semi-public companies, the participation of the Tunisian state in the BNA's capital gets as high as 64%.What's left is detained by private investors.
The BH: the state has about 56% of its capital, the rest is held by private investors.
So as you can see, the Tunisian state is seriously involved in the 3 banks, in a manner that really affect the health of the public interest and the strength of the Tunisia economy.
The STB: the Tunisian State detains about 52% of the bank's capital. The rest are shares of private Tunisian investors (37%) and external investors (10%)
The BNA: the Tunisian state has 23% of it's capital. But if we add the shares of the public and semi-public companies, the participation of the Tunisian state in the BNA's capital gets as high as 64%.What's left is detained by private investors.
The BH: the state has about 56% of its capital, the rest is held by private investors.
So as you can see, the Tunisian state is seriously involved in the 3 banks, in a manner that really affect the health of the public interest and the strength of the Tunisia economy.
Let's see what are the options exactly:
the only direct options the Tunisian state had to deal with the matter of these 3 public banks were two:
to give capital (inject more money) or to lend these banks cash.
The choice between these two options actually depends on the duration in which the banks can get over this potential inevitable crisis and recover .
If it will be from 2 to 5 years, lending them cash on this short term would seem logical and smart. Other than that, injecting more money in the capitals of the banks would be a better strategic solution.
So to get the answer to our question: which of these two methods is the more adequate to the situation of the Tunisian public banks, we had to have an audit of the accounts of the banks.
Why an audit?
Because the origin of the current situation is the inflated loans given to the relatives and friends of the escaped dictator Ben Ali with the total value of 2300 million Tunisian Dinars and about two thirds of this debt concerns the tourism sector with approximately 1500 million Tunisian Dinars.
But, we ally know that tourism in Tunisian has taken the strongest hits in the country's history, with the Bardo and Sousse terrorist attacks, so the ability of the tourism sector to pay the debts and regain it's forma activity is very difficult in the current situation.
So the audit is very important for the Tunisian government to know the structure of the liabilities of these banks and to evaluate the seriousness of the situation in answering a simple question :
Are these problems are dues to miss-management and wrong decisions by the banks, or is it a general economic problem due to the inability of many large clients of the banks to repay the debts.
In the light of these facts, we hope that the capital injection was decided based on the financial evaluation of the banks accounting and not based on a political decision.
And in order for the operation of capital injection to not be a lost for the Tunisian tax payers, the 3 banks need to find a long term solution for it's structural problems, especially for it's miss-management from within and the resolution of the over-indebtedness of the over 800 touristic establishments in the country.
Otherwise, in 4 to 5 years, the same process will be repeated again, and we will see the government asking the deputies to approve an other capital injecting of the public banks because of major losses and other issues.
What are the guaranties for the Tunisian government to assure that public money is not wasted?
Like every creditor, the Tunisian national assembly need to act like a good manager of the public money, the tax payers money. A special committee needs to be created to oversee and control the restructuring and the good management of the 3 public banks.
And here is where all the ways end!
We did not see such steps taken to insure that the banks follow certain good governance guidelines.
One of the possible suggestions is to have some of this committee to be board members of these banks as an observer to oversee the decisions taken inside the board and to report the details to the committee.
It is of high importance the CEO's of the public banks are selected by this committee as well, and the selection should be based on high standards of experience and work ethics and the ability to perform a total restructuring of these banks.
Final thoughts..
We really need to admit that the tourism as a sector has been taking a very large chunk of the total monetary mass dedicated to finance the economy . A sector that is very sensitive to political events, worldwide image of Tunisia and the ability to present good products that compete with other close destinations like Morocco or Greece.
Money that could have been set to regional development, in infrastructure, education, it, finance, highly innovative technological projects and to reduce regional disparities.
I would personally advice for the investment in making Tunisia the number one technological destination in Africa.
We have the human resources necessary to build that, a various number of competent engineers and skilled professionals are leaving the country to go work for tech-companies in Europe, why don't we attract these companies to come and work here.
The cost will be cheaper, the Tunisian government will provide the necessary infrastructure and legislation to encourage innovative companies to come and be based here.
The health sector is very interesting sector to invest in, on the long term.
We have some of the best doctors and specialist in the world in the medical field, but the country is not quiet benefiting from their skills due to the lack of investment in research labs and the non existence of companies that provide innovative opportunities for these skills.
I can go on and on with examples and suggestions, but I want to keep this article specifically about the banking sector. I will try to cover these topics in future posts.
We have the human resources necessary to build that, a various number of competent engineers and skilled professionals are leaving the country to go work for tech-companies in Europe, why don't we attract these companies to come and work here.
The cost will be cheaper, the Tunisian government will provide the necessary infrastructure and legislation to encourage innovative companies to come and be based here.
The health sector is very interesting sector to invest in, on the long term.
We have some of the best doctors and specialist in the world in the medical field, but the country is not quiet benefiting from their skills due to the lack of investment in research labs and the non existence of companies that provide innovative opportunities for these skills.
I can go on and on with examples and suggestions, but I want to keep this article specifically about the banking sector. I will try to cover these topics in future posts.
Please feel free to comment or leave me a message, and if you have any question about this article or any other publication on my blog, do not hesitate to reach out!
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Opinions and thoughts expressed here are my personal analysis of the subject and the advice I give is based on my full personal analysis of the current situation. I'll be more than happy to further discuss with details, some of the things published in this article.
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All the numbers mentioned in this article are publicly available on the 3 bank's websites, wikipedia, Tunisia's Central Bank.
I have taken the time to read about a hundred publications and articles online from BusinessNews, Nawaat, analysis of Tunisie Valeurs, Ilboursa,African Manager and many publication by economist friends and colleagues on Facebook or personal websites.