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Tunisia Credit Growth Spurs Recovery Ahead of Vote: Arab Credit

October 20, 2011

Oct. 20 (Bloomberg) -- Tunisia, the birth place of the so- called Arab Spring, may stage a faster economic recovery than other countries that witnessed uprisings in the region this year, helped by a surge in bank lending.

Tunisians head to the polls on Oct. 23 to elect an assembly that will write a new constitution after the revolt that toppled President Zine El Abidine Ben Ali in January. The new government may encourage banks to boost lending to support growth, said Chokri Jaoua, head of operational management at Banque Internationale Arabe de Tunisie, the country’s biggest publicly traded bank known as BIAT.

The central bank’s decision to cut its key interest rate twice and slash reserve requirements helped credit grow 10.5 percent in the first nine months of 2011. Egyptian bank credit expanded 3.8 percent in the first seven months, central bank data show, as a breakdown in security and sectarian clashes led companies to scale back expansion plans. In Bahrain, credit will rise 1 percent this year, according to HSBC Holdings Plc.

“We expect activity to continue improving in the coming months particularly if the elections and the political transition thereafter take place in a smooth manner,” said Alia Moubayed, London-based senior economist at Barclays Capital. “The latest economic indicators actually point out that most sectors have started showing signs of recovery and growth, or at least the pace of deterioration has slowed significantly.”

Declining Yield

The yield on the central bank’s 4.5 percent euro bond due June 2020 declined 20 basis points, or 0.20 of a percentage point, this month to 5.47 percent today. Tunisia’s default risk tumbled 46 basis points since this year’s peak on Sept. 26 to 244 today, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted in the privately negotiated market. Egypt’s credit default swaps were at 447 basis points, the data show.

Tunisia’s economic expansion, which may grind to a halt this year, will grow 4 percent in 2012 and 5.2 percent in 2013, more than any other Arab country that experienced uprisings including Egypt, Syria and Bahrain, International Monetary Fund forecasts show. Industrial exports such as food, auto parts and textiles grew 9.3 percent in the first nine months of 2011, Hichem Elloumi, spokesman for the Tunis-based Tunisian Industry and Trade Association, said in a telephone interview on Oct. 18.

Reliance on Agriculture

Tunisia’s economy relies on agriculture, exports, tourism and mining for growth. Harvest for cereals may almost double after “excellent rainfall”, Philippe Dauba-Pantanacce, Dubai- based senior Middle East and North Africa economist at Standard Chartered Plc, said in an e-mailed report.

“The Tunisian economy is built on the right foundations and that’s why it’s able to grow despite the crisis,” Bilel Ben Dhifallah, who teaches economics at Tunis University, said in a telephone interview on Oct. 18. “There’s demand from the private sector for financing.”

The return on average equity for shareholders of the Tunis- based BIAT may increase to 12.3 percent in 2011 from 9.5 percent at the end of last year, Jaoua said in an e-mailed response to questions. The ratio of non-performing loans to gross loans may fall to 7.6 percent this year from 8.2 percent in 2010, he said.

The shares of the bank jumped 36 percent in the quarter that ended Sept. 30, compared with an 8.6 percent advance for Tunisia’s benchmark stock index. By contrast, Egypt’s EGX 30 retreated 23 percent in the period.

New Constitution

The assembly Tunisians will create in the country’s first- ever free vote will be charged with writing a constitution, leading to another round of elections in a year.

Bank lending “virtually froze” in January and February as the aftermath of the revolt caused a “severe” disruption on business activities and tourism, said Nicolas Charnay, a Dubai- based associate analyst at Moody’s Investors Service.

The conflict in neighboring Libya, where rebels stormed the capital Tripoli in August after a six-month armed struggle to end Muammar Qaddafi’s role, has caused a 50 percent plunge in tourism revenue in Tunisia this year, Central Bank Governor Mustapha Kamel Nabli said in Washington last month.

Four Tunisian banks -- Amen Bank, Banque de Tunisie, BIAT and Societe Tunisienne de Banque -- had their credit worthiness cut by Moody’s Investors Service in August, seven months after the rating company cut the government’s credit rating one level to Baa3, the lowest investment grade.

While noting the surge in bank lending, Moody’s remains “cautious on the evolution of the Tunisian economy in 2011 and 2012,” Charnay said in an e-mailed response to questions on Oct. 18. “Also, the quality of the loans booked after the revolution remains to be tested.”

Still, some foreign investors are upbeat about the prospects of Tunisia’s economy. Albaraka Banking Group, an Islamic bank based in Bahrain, plans to double the number of its branches in Tunisia to 20 by 2015, Chief Executive Officer Adnan Ahmed Yousif said.

For BIAT bank’s Jaoua, the election also represents an opportunity. The government will try to create jobs and “encourage banks to finance the Tunisian companies and in general to support the national economy.”

--Editors: Andrew J. Barden, Claudia Maedler

To contact the reporters on this story: Alaa Shahine in Dubai at; Mariam Fam in Cairo at

To contact the editor responsible for this story: Claudia Maedler at

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