Global Arab Network | Tunisia: Banque de l'Habitat And Societe Tunisienne de Banque Ratings Not Affected By Potential Merger

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Tunisia: Banque de l'Habitat And Societe Tunisienne de Banque Ratings Not Affected By Potential Merger

Global Arab Network - - Hannan Taha

Friday, 07 January 2011 18:26

Tunisia (Tunis) - Standard & Poor's Ratings Services said today that its counterparty credit ratings on Tunisia-based Banque de l'Habitat (BH; BBB-/Stable/A-3) and Société Tunisienne de Banque (STB; 'BBpi'; public information rating) are not immediately affected by the banks' separate announcements that on Dec. 16, 2010, their respective boards of directors agreed on a merger project, Global Arab Network reports according to a press statement.

The agency said that Tunisian government, which owns majority stakes in both banks, supports the proposed merger. S&P therefore believes the transaction is highly likely to occur.

The agency considers BH to have a stronger financial profile than STB, whose asset quality and capitalization are weak, in its view. Consequently, the financial profile of the combined group may be weaker than that of BH. However, elements of uncertainty make the assessment of the combined group's creditworthiness more difficult:

* First, the timing of the merger is uncertain and could go beyond the two-year horizon S&P typically has for its outlooks on ratings that are 'BBB-' or higher.
* Second, even if S&P acknowledges that both banks have strong competitive positions in complementary segments, the operational and financial terms of the merger have not yet been decided. In particular, S&P has little information on whether the Tunisian government would financially support the combined operations. Such support could include a capital increase; compensation for the write-off of nonperforming loans that, in its view, currently impair STB's financial profile; or any other kind of one-time financial support. Government support could also bolster the new entity's capitalization ratios toward the new regulatory capital requirements as of 2012.
* Third, after the merger, S&P would need to reassess the likelihood of extraordinary government support for the new entity in the event of financial distress. S&P currently believes that the likelihood of support is "high" for both BH and STB, according to its methodology for rating government-related entities.

The agency will continue to discuss these issues with the banks' management teams and the authorities. S&P will update its rating assessments as soon as S&P has enough information on the terms and conditions of the merger and the likely implications for both banks.

Negative pressure on its ratings on BH could arise if the agency conclude that government support does not sufficiently compensate for the negative impact on BH's financial profile from the combination with STB's weaker asset quality, earnings, and capitalization.

The 'BBpi' rating on STB could, conversely, benefit from STB's merger with BH, a financially stronger entity.

Global Arab Network

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