Deterioration for credit risk of banks in North Africa and Jordan (S&P)

“We expect the asset quality of North African and Jordanian banks to deteriorate in 2021 once the regulatory suspension measures are lifted,” said Standard and Poor’s agency in a note published Tuesday, February 2, on the evolution of banks in Morocco, Tunisia, Egypt and Jordan. In the opinion of the agency, the current crisis continues to be profitable for the banks of these countries, except in Tunisia, where the banks present a more fragile profile because of the poor quality of assets and the high rate of debts in suffering (NPL).

Tunisian banks, which are lagging behind in terms of regulation and still apply local accounting principles, will gradually see deterioration in asset quality, as regulators recently extended their forbearance measures. “The Central Bank of Tunisia (BCT) has asked banks to make provisions on exposures affected by the pandemic, but in our opinion, these will prove insufficient to cover the full extent of the risks. We expect the NPL ratio to exceed 20% by 2022 and that provisions will gradually increase over the next few years, reaching the maximum level of around 350 basis points (bps) in 2022, eroding the capital buffer already. small banks, ”says S&P.

On the other hand, in Morocco and Jordan, the risks are increased by a high concentration, given the structure of their economies. For Moroccan banks, exposure to the rest of Africa is another source of risk that will lead to further write-downs, especially in countries with weak stimulus measures, S&P notes. Some Moroccan and Jordanian banks, subject to International Financial Reporting Standards (IFRS) 9, have already started to set aside provisions in 2020 in anticipation of a deterioration in asset quality. “For these banks, we expect credit losses to remain high in 2021, at a level similar to 2020”.

For Egyptian banks, the rating agency predicts that the losses will come mainly from their exposure to SMEs, which has increased in recent years due to the recommendation of the Central Bank of Egypt to extend loans to SMEs to 20% of total funding. At the same time, limited exposure to COVID-19 sensitive industries relative to their peers, low private sector debt, and low banking sector penetration will support asset quality metrics. “We expect that credit losses will continue to increase in Egypt in 2021, as the country absorbs much of the economic effect of the pandemic (Egypt data is presented on an accrual basis [FY] ending June 30, thus spreading the impact on FY2020-FY2021) ”.

Overall, banks’ growing exposure to sovereign debt to the risk of reform delays could affect their solvency.

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