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Standard and Poor’s Ratings Services has lowered its long-term counterparty credit rating on the Tunisian bank, Banque Tuniso-Koweitienne de Developpement (BTKD) to ‘BB’ from ‘BB+’. The outlook is stable.

The rating action reflects the impact on BTKD’s business and financial profiles of its planned expansion into the competitive field of commercial banking. It also reflects the difficult situation experienced by the Tunisian tourism sector, which represents a large portion of BTKD’s loan portfolio.

The rating remains supported by the joint ownership of the bank by the Republic of Tunisia (foreign currency rating: BBB/Stable/A-3) and the State of Kuwait (foreign currency rating: A+/Stable/A-1+) and expected forthcoming shareholder support. It also reflects BTKD’s high level of capital and capable management. With an adjusted equity to risk-weighted assets of 38% at year-end 2002, BTKD’s capitalisation is considered adequate in light of its risk profile and its concentrated portfolio.

A modest player in the Tunisian banking market with an estimated market share of about 2%, BTKD is transforming itself into a full-fledged bank from a specialised development bank in order to comply with the new regulation that ended the distinction between commercial banks and development banks in Tunisia . “The success of this challenging strategy in an increasingly competitive banking market is uncertain,” says Standard & Poor’s credit analyst Taos Fudji. The absence of retail funding puts BTKD at a disadvantage to commercial banks, and the pressure on interest spreads from the disappearance of the protective regulatory environment and intensifying competition have structurally reduced BTKD’s profitability.

“While the difficulties of the Tunisian tourism industry are expected to weigh on BTKD’s performance in the near future, profitability is expected to stabilize in the medium term, as the bank benefits from an improving macro-economic environment and from the gradual growth of its commercial banking activities,” adds Fudji.