2017RAPPORT SUR LA SUPERVISION BANCAIRE 2017

CENTRAL BANK OF TUNISIA

Annual Report on Banking Supervision

December 2018

ANNUAL REPORT ON BANKING SUPERVISION 2017

TABLE OF CONTENT

NOTE OF THE GOVERNOR ...... 4 CHAPTER 1: TREND IN THE REGULATORY, PRUDENTIAL AND OPERATIONAL FRAMEWORK AND THE SUPEPRVISION ACTIVITY ...... 6

SECTION I- STRENGTHENING THE REGULATORY, PPRUDENTIAL AND OPERTIONAL FRAMEWORK OF THE BANKING SUPERVISION ...... 6 SECTION II- INTERNATIONAL COOPERATION ...... 15 SECTION III- BANKING SUPERVISION ACTIVITY ...... 17 CHAPTER 2: STRUCTURE AND PHYSIONOMY OF THE BANKING SECTOR .... 22

SECTION I- STRUCTURE OF THE BANKING SECTOR PER TYPE OF ACTIVITY ...... 22 SECTION II- STRUCTURE OF THE BANKING SECTOR PER TYPE OF SHAREHOLDING ...... 23 SECTION III- ANALYSIS OF THE BANKING SECTOR CONCENTRATION ...... 25 SECTION IV- USE OF THE BANKING SYSTEM ...... 27

CHAPTER 3: ACTIVITY AND FINANCIAL SITUATION OF BANKS AND FINANCIAL INSTITUTIONS ...... 29

SECTION I- ANALYSIS OF RESIDENT BANKS’ BALANCE-SHEET STRUCTURE ...... 29 SECTION II- ACTIVITY AND FINANCIAL SITUATION OF RESIDENT BANKS...... 29 SECTION III- ACTIVITY AND FINANCIAL SITUATION OF BANKS CARRYING OUT ISLAMIC OPERATIONS (ISB)..44 SECTION IV- ACTIVITY AND FINANCIAL SITUATTION OF LEASING INSTITUTIONS ...... 47 SECTION V- NON-RESIDENT BANKS’ ACTIVITY AND FINANCIAL SITUATION ...... 53 APPENDICES ...... 58

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ANNUAL REPORT ON BANKING SUPERVISION 2017

LISTE OF APPENDICES

Appendice 1 : General Department of baking supervision’s organizational chart ...... 59 Appendice 2 : Main indicators of the Tunisian banking sector ...... 60 Appendice 3 : Balance-sheet, off-balance-sheet commitment and statement of result of resident-banks ...... 61 Appendice 4 : Balance-sheet, and statement of result of leasing institutions ...... 64 Appendice 5 : Balance-sheet, off-balance-sheet commitment and statement of result of non-resident banks...... 66 Appendice 6 : Trend in average effective rates per financing category 2007-2017 ...... 68 Appendice 7: Trend in global effective rate by category of financing and by bank and financial institution over 2017 ...... 69 Appendice 8 : Breakdown by region, governorate and bank branches’ network as at 31/12/2017 ...... 71 Appendice 9 : Breakdown by region, by governorate and by leasing institution of bank branch network up to 31/12/2017...... 72 Appendice 10 : Trend in TUNINDEX and TUNBANK indexes ...... 73

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ANNUAL REPORT ON BANKING SUPERVISION 2017

LISTE DES ABRÉVIATIONS

ARP Assemblée des Représentants du Peuple BCT Banque Centrale de Tunisie BEF Banques et Etablissements Financiers BIS Banques s’adonnant à des opérations islamiques CAC Commissaire Aux Comptes CMF Conseil du Marché Financier DGSB Direction Générale de la Supervision Bancaire FMA Fonds Monétaire Arabe FMI Fonds Monétaire International FSB Conseil de la Stabilité Financière GAFI Groupe d'Action Financière IADI L'Association Internationale de Protection des Dépôts ICAAP Internal Capital Adequacy Assessment Process IHH Indice Herfindhal-Hirshman IRRBB Interest Rate Risk in the Banking Book LBA/FT Lutte contre le Blanchiment d’Argents et le Financement du Terrorisme LCR Liquidity Coverage Ratio MD Millions de Dinars md Mille Dinars NSFR Net Stable Funding Ratio PME Petites et Moyennes Entreprises PNB Produit Net Bancaire SNI Système de Notation Interne TEG Taux Effectif Global TMM Taux Moyen Mensuel du Marché Monétaire TPE Très Petites Entreprises

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Note of the Governor

Over 2017, the banking activity was marked by a sharp progress in the lending activity with a double-digit increase of some 12%, a rate that has not been recorded since 2010. This was in a context characterized by ongoing economic difficulties, a virtual stand-still in the effort to raise deposits in dinar (8.3%) and a sharp tightening of bank liquidity.

To bridge the gap of resources needed to accompany the important effort of additional financing, banks had to intensify recourse to the Central Bank of Tunisia’s financing, leading to high exposure of banks to transformation risk, as shown through the ongoing deterioration of the « Credit/Deposit » ratio which was around 130% at the end of 2017 compared to 122% at the end of 2016 and 110% at the end of 2013.

The major local banks, including public ones, managed to significantly improve their profitability indicators for the second year in a row thanks to an increase in the money market rate, the ongoing control of credit risk and the important income from Treasury bonds portfolio and foreign exchange gains.

Concurrently, the sector’s financial soundness indicators pursued their firming up as shown through the 2-percentage point decrease in non-performing loans, coming at below 14%, stabilization of these claims’ provisioning rate at about 57% and the increase in the banking sector’s overall solvency ratio by 0.6 percentage point, coming in at around 12% thanks to the sector’s better profitability.

Yet, and despite firmed up performance indicators by the banking sector, the liquidity risk went up in line with excessive maturity transformation.

Furthermore, an introduction, as of 2018, of a new macro-prudential norm, proves necessary to lead banks to progressively reduce their « Credit/Deposit » ratio with a view to better mastering their transformation risk and improving their assets-liability management.

As for the restructuring of three public banks, and though 2017 had been marked by set up of new organizations, this process has not yet reached its cruising speed mainly with the delay in the information systems’ set up, risk management mechanism development and effective implementation of resolution plans for non-performing loans.

On another level, reconfiguration the banking system starts to take shape in 2017, though timidly, through a leasing company’s merger- absorption of its factoring subsidiary and start up, by the State, of the process of withdrawal from the capital in three banks.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 This process which will undoubtedly be speeded up over the forthcoming years, reflects on the one hand the State willingness to rationalize its presence in the banking sector and on the other hand tightening of the regulatory and prudential requirements governing the banking activity as well as the deep-seated changes that the banking profession is witnessing in line with the technological innovation and the high digitalization of the financial services.

The momentum of reforms was pursued in 2017, in compliance with the five-year plan of the banking supervision 2016-2020, against the backdrop of convergence towards international standards and the establishment of transparency, sound governance and ethics principles in management of banking institutions.

The 2017 financial year and early 2018 one, which was marked by review for the third time in a row as of 2013 of the circular governing management of risk tied to money laundering and terrorism financing, reveals the BCT willingness to adopt the best practices and gain effectiveness by establishing a risk-based oversight to maintain integrity of the banking sector.

At the prudential level, the BCT set up in June 2018 a single regulatory framework of reference for capital adequacy standards similar to what is practiced by all the regulators. This framework defines the fund requirements with respect to «credit, operational and market» risks as per the first pillar of Basel 2 on a social basis.

Correlatively with this process and given the interconnection between Basel requirements and IFRS accounting standards, the BCT has, as of 2017, relaunched the project of the adoption of IFRS standards by banks and financial institutions. In this respect, the general assembly of the National Accounting Board held on 6 September 2018 approved adopting of IFRS norms by the banking sector as of 2012. Set up of this process, which is but a major strategic challenge for the banking sector, requires an appropriate readiness of banks and financial institutions, a strong adherence and a perfect cooperation on the part of all relevant parties.

Concurrently, and with a view to contributing to development of financial inclusion and decashing and promoting financial innovation, the BCT is at a very advanced stage in drawing up a regulatory framework governing the activity of payment institutions.

Marouane EL ABASSI

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ANNUAL REPORT ON BANKING SUPERVISION 2017 CHAPTER 1: Trend in the regulatory, prudential, and operational framework and the supervision activity Section I - Strengthening the Regulatory, Prudential and Operational Framework of Banking Supervision

In 2017, the BCT continued the process of reforms initiated in recent years, which particularly concerned ongoing elaboration of the application texts relative to the banking law promulgated in August 2016 and the implementation of the five-year plan for banking supervision in 2016- 2020.

1- Reforms of the regulatory framework

1-1- Regulatory framework governing management of risk tied to money laundering and terrorism financing Boosting the rule relative to internal control for the management of risk of money laundering and terrorism financing is an ongoing process initiated since 2013 in order to establish the principles of ethics in bank management, to contribute to the national effort for the fight against money laundering and terrorism financing and to ensure full convergence with international standards in this area and in particular those of the FATF (financial action task force).

In 2017, the BCT reviewed circular n° 2013-15 concerning the internal control rules for the management of risk of money laundering and terrorism financing in order to improve the Tunisian legal framework, in particular through:

. implementation of due diligence measures to be applied by banks in the area of electronic funds’ transfer as per international standards ,

. setting a risk-based approach for the management of risk of money laundering and terrorism financing; and

. boosting the due diligence to be observed by banks in their banking correspondence relations.

In 2018, the BCT continued to work to further strengthen and refine the process of management of risk of money laundering and terrorism financing by publishing circular 2018-09 in order to ensure full compliance with international standards, especially following the latest updates of FATF recommendations made in February 2018. Thus, the main improvements made to circular n° 2017-08 involved the following areas: . Strengthen identification procedures for beneficial owners. . Introduce specific procedures for the identification of trusts.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 . Take up FATF Recommendation 7 to lead banks to comply with the asset freezing obligations of individuals and entities in line with UN resolutions on financing the proliferation of weapons of mass destruction. . Review, while complying with FATF Recommendation 16, the originator's identification requirements with regard to international transfers. . Clarify, with regard to outsourcing, the obligation to know the customer, the diligences to be observed by third parties located in countries that do not apply or insufficiently apply the recommendations of FATF. . Strengthen the programs of fighting against money laundering and terrorism financing at the financial groups’ level. . Urge banks to provide the compliance control structure with appropriate means to fulfil its mission and to give it access, in due time, to all the documents and data necessary for this purpose. Box 1: Operational framework for the supervision of money laundering and terrorism financing risk Monitoring the risk of money laundering and terrorism financing comes in the framework of a risk-based supervision approach initiated since 2016 by the BCT. The money laundering and terrorism financing risk criterion is a main one in the rating system of banks and financial institutions which is fed by a set of qualitative and quantitative indicators namely:

. Results of the self-assessment questionnaire that banks are required to send each year to the BCT. . Review of the internal control report devoted to the description of diligence measures set up by banks with respect to fighting against money laundering and terrorism financing. . Assessment made by the auditors in their reports assessing the internal control system for management of money laundering risk. . Conclusions of on-site auditing missions and follow-up of the action plan. . Follow-up of banks’ declarative activity (Declaration of Suspicions submitted to the CTAF: Tunisian commission of financial analyses) and its possible reporting. . Build on findings of the national study on risks of money laundering and terrorist financing. The rating system makes it possible to assess efficiency of banks' mechanism for managing risks of money laundering and terrorist financing on the basis of pre-established criteria, to identify those whose internal control system has weaknesses elements and to calibrate works’ intensity and the monitoring level (light, normal or enhanced) in relation to their risk profile. Concomitantly, the on-site control missions are scheduled according to a frequency and intensity determined according to the risk profile of the banks and sent to ensure the efficiency of the established mechanism and follow up the implementation of remedial actions. The missions are conducted in compliance with an on-site control guide specific to the

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ANNUAL REPORT ON BANKING SUPERVISION 2017

mechanism relative to fight against money laundering and terrorism financing, by an inspection team dedicated to this risk. If an infringement is deduced and after the contradictory procedures have been exhausted, the BCT opens the disciplinary proceedings against the offending banks whose sanction may go up to application of a fine worth 15% of the minimum capital.

1-2- Projects underway of the texts of application relative to the banking law

1-2-1- Draft amendment to circular No. 2011-06 relative to strengthening the rules of sound governance in banks and financial institutions

In 2018, the BCT initiated a draft amendment to circular 2011-06 to capitalize on the feedback from the application of this circular since 2011 and to raise up recent developments in the area of sound governance rules to international level. The target is to set up the best practices in terms of governance, transparency and sound and prudent management within banking and financial institutions by:

. strengthening the role of the Executive Board in risk and compliance governance, . reviewing the selection criteria of independent Board members, and . subduing works of the Board to periodic assessment.

1-2-2- Draft circular on Islamic operations

Reflections on the institution of a regulatory and prudential framework specific to carrying out Islamic banking operations by conventional banks started up in 2018.

The main axes of this framework, which sets out the conditions and the obligations to be respected at the operational and functional level by the conventional banking and financial institutions to carry out Islamic banking, have been approved by the Executive Board of the Central Bank of Tunisia and will focus on: . terms for carrying out the activity through specialized agencies , . procedures and deadlines for granting authorizations, . the specific conditions to be respected, . minimum endowment , . organizational specificities, and . the operational, financial and accounting separation between conventional and Islamic transactions.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 1-2-3- Draft circular on payment institutions

Law No. 2016-48 on the Banking and financial institutions has expanded operating in payment systems management activity, previously reserved exclusively to banks and the National Post Office, to new resident operators through establishment of the status of Payment Institution. The objective is to promote financial inclusion, contribute to initiatives to decashing in a context marked by a large informal sector development and especially to boost innovation in the banking sector. In this context, the banking law entrusted the BCT with fixing, by circular, the operating conditions of these institutions and defining the relevant rules of governance. To this end, the BCT approved at the end of March 2018 a guideline that sets the strategic choices required to promote this activity. The draft circular governing the carry out of Payment Institutions’ activity is at the completion stage and is structured around the following axes: . conditions of access and operation, . rules governing the payment account , . regulation of the branches’ networks , . rules governing the global account , . governance, internal control and risk management rules specific to payment institutions, and . customer protection instruments .

1-2-4- Draft circular on the appointment of banks and financial institutions’ auditors

The banking law submitted banks and financial institutions to the obligation to inform the Central Bank of Tunisia about the identity of their auditors at least a month before the approval of these appointments by the General Assembly. The law entrusted the Central Bank of Tunisia with setting the regulatory conditions for accepting the appointment of these auditors.

To this end, a draft circular on these regulatory conditions is being drawn up to define:

. the criteria for selecting auditors according to the size and category of banks and financial institutions, and . the conditions and grounds for opposition of the Central Bank of Tunisia to the appointment of the auditors.

2- Reforms of the Prudential Framework

The implementation of the BCT's 2016-2020 five-year plan to bring the prudential framework into line with Basel 2 and 3 standards is at an advanced stage. The achievements in this respect concerned:

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ANNUAL REPORT ON BANKING SUPERVISION 2017 . the introduction of capital requirements to cover operational risk in 2016, . the publication of a circular instructing banks and financial institutions to develop internal rating systems for counterparties in 2016, and . the introduction of capital requirements to cover market risk in 2018. As part of this standard-setting process, the BCT has as of the second half of 2018, worked to finalize Basel pillar 2 by starting work on the transition of equity prudential framework from a company base to a consolidated base and review of the approach for calculating capital requirements for credit risk. This work will lead to review of the circular relative to equity from the second half of 2018. Starting from the second half of 2019, the BCT will begin work to finalize Basel 2 Pillar 2 relative to strengthening banking supervision and with particular emphasis on establishing an Internal Capital Adequacy Assessment Process, a process for measuring and managing the Interest Rate Risk in the Banking Book (IRRBB) and review of the supervision process in order to fully comply with the 29 fundamental principles of Basel for effective supervision. Starting in 2019, the BCT will accelerate these reforms to comply with the Basel 3 guidelines, particularly with regard to the counter-cyclical equity buffer, the conservation buffer and the systemic banks, as well as the implementation of an average liquidity ratio called: Net Stable Funding Ratio (NSFR). Correlatively to this process and given the interconnection between Basel requirements and the International financial reporting standards (IFRS) the BCT has relaunched since 2017 the project of the adoption of IFRS standards by banks and financial institutions. In this respect, the general assembly of the National Accounting Council held on 6 September 2018 approved the adoption of IFRS by banks and financial institutions as of 2021. The operational approach decided upon consists in creating a technical committee made up of experts and representatives of the regulatory authorities, including the BCT, which will be responsible, in particular, for proposing the practical arrangements for adoption of IFRS by banks and financial institutions and for examining the possible impacts of these standards on the capital of relevant institutions.

2-1- New circular on capital adequacy standards

The BCT published in June 2018 circular No. 2018-06 on capital adequacy standards. The objectives being: . to ensure compliance with the minimum capital requirements of the first pillar of Basel 2 on a company base , . to set a single regulatory and reference framework for capital adequacy standards, as it is the practice of all regulators, and

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. to ensure adequate coverage of market risks in a context marked by a substantial increase over the past two years of outstanding Treasury bonds in banks' balance sheets and a rise in foreign exchange risks . The main contributions of the circular revolve around: i. Additional guidance on defining equity . Split complementary equity into two components: Tier 1 equity and Tier II equity according to Basel II instrument. . Deduction of shareholding and subordinated debt in other banks and financial institutions from their corresponding component as per Basel 3 standards. . Fixing the rules of application of article 75 of the banking law n° 2016-48 on the legal norms of shareholding to ensure a certain coherence with the prudential requirements as regards shareholding deduction. . Deduction of basic net capital from overruns on the legal standards of shareholding. This norm inspired by international practices, is essential to lead banks and financial institutions to comply with the relevant legal provisions and avoid regulatory arbitrage. ii. Credit risk . Introduction of new capital requirements for counterpart risk on over-the-counter derivative instruments provided for in circular 2016-01 following the introduction of capital requirements for market risks. . Review of certain credit risk weights for consistency. iii. Market risks that cover: . Exchange risk on all foreign exchange positions of the relevant institution. . General and specific risk on the ownership title in the trading book and interest rate. . Settlement-delivery risk for the trading book and the banking book. iv. Prudential standards specific to Islamic banks: setting solvency standards that meet the specificities of Islamic banking operations.

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Box 2: Market risk

The new capital requirements of circular to banks and financial institutions N ° 2018-06 cover, in addition to the credit risk and operational risk already covered by the regulations into force1, other types of risks like:

. The foreign exchange risk on all the foreign exchange positions of the relevant institution which includes cash positions, forward positions and positions on off-balance sheet commitments (irrevocable guarantees). . General risk of interest rate on debt securities in the trading book resulting from an adverse price movement as a result of interest rates’ variation on the market. . The specific risk of interest rate on debt securities in the trading book resulting from an adverse price movement for reasons related to the issuer or the instrument. . The general risk on the property title in the trading book. . The specific risk on the property title in the trading book. . Settlement-delivery risk that covers losses on the trading book and the banking book from late or non-settlement of securities transactions. Commodity risk has been excluded as banks do not hold positions on these commodities. Another contribution of this circular is the recognition of the notion of the trading portfolio, the definition of which is that of Basel prudential norms and which groups together the positions taken with a view to transferring them on the short term (3 months at the level of accounting standards 25) and / or with the intention of benefiting from the favourable evolution of short-term prices and the positions held to cover them. Negotiating intent must be demonstrated by properly documented and approved negotiating policies, clearly defined procedures for active position management. The thresholds for submission to these requirements have been defined as follows: . for exchange risk: the threshold used is Basel threshold according to which an institution is subject to exchange risk when its overall net foreign exchange position exceeds 2% of its equity, and . for the trading book: two thresholds for the accounting value of the trading book were retained, a relative threshold of 5% of the total net balance sheet and an absolute threshold of 40 MD. The approaches used to calculate minimum capital requirements for foreign exchange risk and equity and interest rate risk are the standard approach and the maturity method respectively.

1 Circular to banks and financial institutions N° 91-24.

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Box 3: Solvency standard specific to Islamic banks The specificity of Islamic banks is the mobilization of funds in the form of investment and a (رب المال) accounts, governed by the Mudharaba contract that connects an investor :These investment accounts can be classified into two categories .(مضارب) contractor . Assigned investment accounts hold the funds with the use decided by the depositing client without any guarantee of return. . Unassigned investment accounts concern the funds whose client mandates management to the bank. Unlike funds placed in assigned investment accounts, these funds can be combined with those of the bank to form a pool of financing. Remuneration of investment accounts is backed by the actual return generated by assets financed by these funds on the basis of pre-determined allocation keys. This specificity exposes Islamic banks to a specific risk called displaced commercial risk that occurs in case holders of investment accounts are dissatisfied with the return served. To face this risk and under the commercial pressure, the Islamic bank smooths income from investment accounts by using two types of reserves: . The Profit Equalization Reserve (PER), which is used to rebalance the distributed return to bring it into line with the market. . The Investment Risk Reserve (IRR), used to absorb losses on invested capital in case of a negative return. These specificities of Islamic banks have been translated into the new circular 2018-06 relating to capital adequacy standards through adoption of a specific formula for calculating solvency better suited to risk management practices related to investment accounts and inspired by Islamic Financial Services Board (IFSB) international standards, namely: Equity

Assets weighted risks (푐푟e푑푖푡 + market + 표푝erational) −weighted risks of assets financed by restrictive investment accounts (푐푟e푑푖푡 + market) − (1 − 훼) weighted risks of assets financed by non-restrictive investment accounts (푐푟e푑푖푡 + market) −훼 weighted risks of assets financed by profit equalization reserves and investment risk reserve of non-restrictive investment accounts (푐푟e푑푖푡 + market) The α parameter was set at a fairly high level (80%) reflecting a cautious and progressive approach.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 2-2- Project underway: Minimum capital requirements on a consolidated basis

Since 2017, the BCT has been involved in the project for implementing the prudential framework on a consolidated basis. It involves setting of a regulatory and operational framework defining the scope of prudential consolidation and the methods for calculating capital and prudential ratios of consolidated equity.

3- Strengthening the operational framework of banking supervision

The process of enhancing efficiency of the banking supervision or Capacity Building of this structure continued in 2017 and early 2018 with the aim of gradually complying with Basel principles for efficient banking supervision and ensuring the foundations of a risk-based supervision.

3-1- Progress on the Reporting Project

The Reporting project, a structuring project initiated by the BCT since 2013 to ensure the transition from a compliance supervision to a risk-based supervision, was crowned in 2017 by publication of circular n ° 2017 -06 of 31 July 2017, relating to the accounting, prudential and statistical reporting to the BCT. Entry into force of this circular was fixed on 30 June 2018. Worth of note that this project aims to define a reference framework for the information to be declared to the BCT by banks and financial institutions and set the obligations to be observed regarding drawing up, presentation, control and declaration of this information by the relevant institutions. The implementation phase of the Reporting project by banks and financial institutions was initiated in 2018 and requires the implementation of the entire organizational, procedural and technical process required by the BCT in the framework the circular. In this respect, the BCT has made available to banks and financial institutions the technical specifications which include the collection of the items making up the Reporting and their definitions, the identification sheets of the appendices, the technical details of data declaration and an electronic signature guide that describes the electronic signature process. The BCT also made available to banks and financial institutions an IT and supervisors team to assist, both at the level of skill and IT, all banks and financial institutions subject to declaration and validation phase of the appendices and particularly those who encountered difficulties in complying with requirements of circular No. 2017-06. The General Department of banking supervision organizes continuously technical meetings with the Reporting Managers of banks and financial institutions, in order to review progress of implementation of provisions of the above-mentioned circular, including compliance with the regulatory deadlines of transmission of the new Reporting and the technical standards of declaration.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Hence, relevant banks and financial institutions are declaring the new Reporting according to the new models and the new format, namely the XML format. In this case, a transitional period of 6 months is necessary to stabilize and make more reliable the data reported by banks and financial institutions.

3-2- Strengthening supervisory skills

The number of banking supervisors came to 43 at the end of 2017 with a university degree staff rate of about 100%. The BCT pursued its efforts to strengthen the skills of supervisors by providing training to executives of the General Department of banking supervision in Tunisia and abroad for an overall duration of 122 days. These targeted training actions focused mainly on Basel capital adequacy, market risk, consolidated supervision, deposit guarantee fund, risk management in Islamic banks, IFRS norms, cyber security, the fight against money laundering and financing of terrorism in the banking sector, the resolution of banks in difficulties and financial stability, Basel principles and financial soundness indicators. The training courses abroad in which the supervisors participated were organized by regional and international institutions (IMF (International monetary fund), AMF (Arab monetary fund), FSI (Strategic investment fund), GIZ (German International Cooperation agency), Central Bank of Turkey, Central Bank of Jordan, Bank of Spain, the Middle East Centre for Economic and Financial Studies (CEF)...)

Section II- International Cooperation

1- Participations in conferences

The Executives of the General Department of banking supervision represented the BCT, during 2017, in regional and international working groups on banking supervision like: . Meetings of the Group of Arab Banking Supervisors under the auspices of the AMF. . The Annual High Level Meeting for the Middle East and North Africa organized by the AMF in partnership with Basel Committee and the Institute of Financial Stability on 13 and 14 December 2017. This meeting was devoted to discussing new developments in the field of banking supervision and financial stability. . Meeting of the advisory group of Financial Stability Board (FSB) for North Africa and the Middle East region , . The Annual seminar of the group of French-speaking banking supervisors on the prudential innovations,

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ANNUAL REPORT ON BANKING SUPERVISION 2017 . The second workshop of the World Bank and the International Banking and Financial Institute of the Banque de France on "Banking supervision in the Euro-Mediterranean countries ". This workshop was marked by participation of representatives of the European Banking Authority, the ECB, the BIS, the EBRD, and the IMF and was intended for the first managers of Banking Supervision in the countries around the Mediterranean. . The Global Forum on Financial Inclusion Policies organized annually by the Alliance for Financial Inclusion (AFI) in September 2017 in Sharm Eshikh. . The launching conference of Jordan's National Financial Inclusion Strategy jointly organized by the Central Bank of Jordan and the International German Cooperation Agency GIZ in partnership with AFI and AMF. These international events, which bring together senior central bank managers and the first managers of the banking supervisory authorities, enabled BCT executives to participate actively in the dialogue on structuring projects in terms of supervision and financial stability, and were forums for reflection and know-how exchange.

2- Organization of the second workshop of the technical assistance in the area of bank deposits’ guarantee

The Central Bank of Tunisia organized in partnership with the International Association of Deposits’ Insurers (IADI) from 21 to 23 November 2017 in Tunis, the second workshop of technical assistance in the area of bank deposit guarantee. This workshop, which was attended by senior executives representing countries in Africa and the Middle East including Saudi Arabia, Jordan and Libya, was devoted to examining various issues related to the legal and operational framework of the deposit guarantee instrument in the regions of Africa and the Middle East.

3- Giving training sessions for magistrates

As part of the dissemination of the new legal framework governing banking activity in Tunisia, the Central Bank of Tunisia led, under the auspices of the Higher Magistrate Institute, two training sessions for practicing magistrates that are part of their continuing training process. The two training sessions focused notably on the banking supervision process, management of banks in difficulty, the bank liquidation and the deposit guarantee instrument.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Section III- Banking Supervision Activity

1- Approvals

During 2017 and up to the end of August 2018, the General Department of Banking Supervision, has drawn up and presented to the committee of approvals, of which it ensures the secretariat, the files covering: . Seven applications for approval to cross thresholds: Favourable responses were granted to six requests for crossing the threshold in the capital of a bank and a financial institution. . An application for approval of a merger transaction between two financial institutions. One approval in principle and one final approval have been granted.

2- Authorisations

Under the provisions of Article 94 of Law No. 2016-48, banks and financial institutions must inform the BCT of the identity of the auditor (s) they intend to appoint. In this context, the BCT processed 26 appointment applications in banks and financial institutions.

3- Oversight activities at banks and financial institutions

3-1- Permanent Oversight of banks and financial institutions

Permanent oversight of banks and financial institutions took place in 2017 in accordance with the supervision manual set up in March 2017. The permanent oversight of key indicators has been carried out since 2016 on a quarterly basis, covering in particular activity, liquidity, credit risk, capital adequacy and respect of quantitative prudential norms. In 2017 annual assessment of banks and financial institutions, emphasis was placed on analyzing the risk profile, the adequacy of the governance and internal control systems and the adequacy of capital. In the framework of a proactive supervision, particular attention is given to the financial projections of banks to ensure their ability to continuously comply with the regulatory requirements regarding solvency and liquidity in view of the new reforms envisaged by the BCT in the framework of its five-year plan 2016-2020. During the first quarter of 2018, the General Department of Banking Supervision initiated a series of meetings with the major banks to examine advance in implementing their Counterparty Internal Rating Systems (IRS) and to check compliance with the minimum requirements introduced by Circular No 2016-06. For this purpose, priority has been given to major banks already having an IRS.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 The liquidity risk profit was particularly monitored by the BCT in connection with more tightening of bank liquidity recorded during this year. At the same time, the BCT invited major banks to carry out stress tests on their credit portfolios in order to assess the impact of the increase in interest rates observed since the second half of 2017 as well as the impact of the continued economic slowdown on their default parameters and hence on their financial situation. Moreover, these banks were asked to review their business plans taking into account the situation of bank liquidity, the economic situation impact and mainly the new prudential requirements that the BCT will set up by 2020. The operational balance sheet of the micro prudential analysis and the assessment of the risk profiles of banks and financial institutions for the year 2017 is as follows: Table 1: Operational balance sheet of the permanent oversight activity

Number of banks and financial institutions subject to an annual assessment report at the 31 end of 2017 Number of banks and financial institutions having annual meetings relating to their 13 financial situations Number of banks and financial institutions that have been subject of technical meetings 7 during the year 2017 Number of banks and financial institutions having been subject of a notification signed by 17 the Governor concerning the assessment of their financial situation at the end of 2017 Number of banks and financial institutions subject to a notification signed by the Governor 12 following an inspection mission Number of banks and financial institutions subject to other notifications signed by the 3 Governor Number of banks and financial institutions that were subject of a meeting on the 8 implementation of IRS

3-2- Close supervision of banks in restructuring

The banking supervision holds quarterly meetings with the three public banks to ensure progress in implementing the restructuring plans validated by the BCT and to intervene early whenever there are shortcomings.

This close monitoring focuses on the following areas:

. Strategic and operational steering of the restructuring programs (organization and efficiency). . Institutional Reforms: advance in the process of reorganization, information system, risk management and social clearing up. . Implementation of non performing loans’ resolution approach agreed with the BCT. . Action plan for regularizing the reserves of the statutory auditors. . Carrying out anticipated projections in the business plans especially in terms of compliance with solvency and liquidity standards.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 In the framework of the resolution of non-performing loans, the 3 public banks presented structured and sustainable approaches and undertook to reduce the non-performing loans to sustainable levels at the end of the restructuring program, on an individual basis and on a consolidated basis (between 10% and 12%) by improving the regulatory framework for write-offs and waiving of non-performing loans. To this end, the three banks have been invited to update their plans for the resolution of non performing loans in view of the two new laws2 easing the conditions for writing off and waiving claims that have just been promulgated on 6 June 2018. It should be also noted that pursuant to Article 2 of Law No. 2015-31 of 21 August 2015 on strengthening the financial soundness of STB and BH, the BCT has prepared its third report to the parliament to inform it of the progress in carrying out the restructuring plans of the two banks and the main conclusions of the supervision works by the BCT relative to these two banks. As in previous reports, this report includes the opinion of the BCT's auditors on the effectiveness of the BCT's supervision of these two banks and their compliance with Basel standards.

2 Law n°2018-36, amending and supplementing Law n° 2015-31 of 21 August 2015, on strengthening the financial soundness of the BH and the STB and Law n°2018-37, amending certain provisions of the individual income tax code and the corporate tax code.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 3-3- Compliance with standards

The assessment of compliance with quantitative prudential standards by banks and financial institutions for 2017 highlights the following:

Table 2: Banks and financial institutions’ compliance with prudential norms at the end of 2017

(In terms of number of banks and financial institutions not complying with standards) Resident Non-resident Financial Prudential standards banks banks institutions 1-Risk coverage ratio (10%) 1 1 0 2-Ratio Tier 1 (7%) 1 1 0

3 3-Standard of concentration of risks (25%) 3 2 0

4 4- Risk Division Standard (15%) 2 1 0

4 5-Risk Division Standard (5%) 2 1 0 6-Risk division standard for persons linked to banks and financial institutions (1 time net equity until the 1 1 0 end of September 2017 and 75% of net equity from the end of 2017) 7-Liquidity ratio 3 0 8-Foreign exchange position 0 Only one bank, which finds itself in a particular situation, has a structural insufficiency of equity.

3-4- On-site monitoring

In 2017, 13 on-site monitoring missions were carried out and divided between 10 thematic missions and 3 one-off missions on the basis of an annual program approved by the BCT Government Board and documented terms of reference.

These control missions focused on the following aspects: . Fight against money laundering and terrorist financing mechanism. . Credit risk assessment. . Assessment of governance mechanism

3 In compliance with Article 51 of Circular 2018-06, the risks incurred by a same beneficiary must not exceed 25% of the net equity of the relevant institution. 4 Pursuant to Article 50 of circular n ° 2018-06, the total amount of incurred risks must not exceed: . 3 times the net equity of the relevant institution, for beneficiaries whose risks are 5% or more for each; and . 1.5 times the net equity of the relevant institution, for beneficiaries whose risks are, for each, 15% or more of the said net equity.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 4- Main disciplinary measures

The on-site and off-site supervision activity resulted in the following actions: . Transmission of 8 notifications to 8 banks. . Pecuniary sanctions totalling 2315 thousand dinars against 11 banks and financial institutions in favour of the General Treasury of the Republic of Tunisia. Table 3: Major Disciplinary Actions

Number of sanctioned banks Amount(Fine / Penalty) Standard concerned by non-compliance and financial institutions (In thousand Tunisian dinar)) fines Liquidity Ratio 6 742 Standard of risks concentration 1 6 Solvency ratio 2 215 Total fines 963 Other penalties imposed in the framework of inspection missions Deficiencies in fighting against money laundering and terrorism financing and 2 1,352 governance Overall total 2,315

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ANNUAL REPORT ON BANKING SUPERVISION 2017 CHAPTER 2: Structure and physiognomy of the Tunisian banking sector Section I - Structure of the banking sector per type of activity

The year 2017 was marked by absorption of "Tunisie Factoring" by its parent company "Tunisie Leasing" that holds it at 100%5. Thus the number of banks and financial institutions regressed to 42 institutions distributed between 23 resident banks, 7 non-resident banks, 8 leasing institutions, 2 factoring companies and 2 merchant banks. Table 4: Trend in the number of approved establishments 2015 2016 2017 Banks 30 30 30 Resident 23 23 23 Non-resident 7 7 7 Financial Institutions 13 13 12 Leasing institution 8 8 8 Factoring companies 3 3 2 Merchant banks 2 2 2 Total 43 43 42 This merger-absorption operation was carried out with the aim of strengthening the competitiveness of the absorbing entity by valorising the factors of synergies between the two entities and realizing economies of scale in an environment marked by higher competition and tightening of prudential requirements initiated by the BCT since 2012. This operation illustrates start-up of the process to redesign the banking sector induced by the major changes in the regulatory environment governing the regulation of the banking sector and the deep-seated changes that characterize the banking profession.

According to their business model, the 23 resident banks are divided between 18 universal banks, 2 banks6 specialized in financing micro-projects and SMEs and 3 banks7 specialized in Islamic banking. Although the share of assets of banks operating in Islamic banking in the total banking assets remains low, at 5.1%, Islamic banking activity has significant growth potential that remains to be explored by Islamic banks or conventional banks through the opening of Islamic windows.

5 This decision was approved by the Extraordinary General Assembly of 12/12/2017 and the final approval was issued by the Approval Committee on 03 April 2018. 6 The BTS and the BFPME. 7 Wifak Intenational Bank (WIB), Zitouna Bank and Al Baraka Bank Tunisia.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Table 5: Islamic banks indicators at the end of 2017 Share in the 2017 total sector Total assets (MD) 5 709 5.1% Staff 1 633 7.8%

Network 161 8.7%

Total Deposits (MD) 3 503 5.6% Total Credits (MD) 3 056 4.2%

Section II - Structure of the banking sector by type of shareholding

1- Resident banks

The shareholding structure of these banks is almost the same. It did not change despite the increase in the overall capital of resident banks from 3,334 MD at the end of 2016 to 3,507 MD at the end of 2017. Indeed, the capital of these banks is divided between the Tunisian State8 ( 37.6%), foreign shareholders (32.1%) and Tunisian private shareholders (30.3%). Graphic 1: Capital Structure of Resident Banks by Shareholding type 2016 2017

Tunisian private 37.8% 37.6% shareholders Foreign 30.2% 30.3% shareholders 32.0% 32.1% State

Depending on the status of the reference shareholders, breakdown of resident banks is as follows:

. the Tunisian State in 7 banks9 , . foreign banks in 11 banks10 , . industrial and commercial business groups in 2 banks11 , . the shareholding of reference is mixed (shared equally between the Tunisian State and an Arab country) in the other 3 banks12 . However, it is important to note that this structure will undergo changes in the coming years with start-up of the process of withdrawal of the State from its holdings in 2 banks: BTE and Zitouna banks which are currently moving forward in the choice of investors. This reflects the State's orientation to rationalize its presence in the banking sector.

8 Direct and indirect government participation through public and parastatal enterprises. 9 STB, BNA, BH, BTS, BFPME, BFT and BZ. 10 ATB, Attijari, UBCI, UIB, Citibank, ABC Bank, BTK, QNB, Al Baraka, BT and WIB. 11 Amen Bank and BIAT. 12 Tunisian Saudi Bank (TSB ex-STUSID), BTE and BTL.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Table 6: Trend in the number of banks according to the shareholding status 2015 2016 2017 Public banks 7 7 7 Banks with foreign capital 9 1013 10 Banks with Tunisian private capital 3 3 3

Mixed banks 3 3 3

Total 22 23 23

1- Non-resident banks

The physiognomy of non-resident banking sector has not changed: . 4 banks : TIB, NAIB, LINC14 and ALUBAF ; and . 3 branches: Citibank, ABC, TFB. The capital of non-resident banks amounted to 394 MD at the end of 2017 and continues to be dominated with 81.1% by foreign shareholders, particularly the Libyans.

2- Leasing institutions

Over 2017, the capital of leasing institutions came to 253 MD. Its distribution among shareholders highlights the predominance of Tunisian private shareholders who hold 84.5% of the capital. Breakdown of capital according to the affiliation group shows a strong presence of banking groups which hold 48.9% of the capital and represent the reference shareholder of 6 institutions. Non-banking Tunisian private business groups hold 25.5% of the capital and represent the reference shareholder of the two other leasing institutions.

13 Following the transformation of El Wifak Leasing into a resident bank. 14 Bank approved but not currently active.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Graphic 2: Shareholding structure of leasing institutions at the end of 2017

According to type of shareholding According to the affiliation group

Banking groups 7.2% Tunisian 8.3% 48.9% private Private shareholders 25.5% business groups Public and parastatal Foreign investment shareholders 24.1% 1.5% funds 84.5% Foreign Others shareholders

Section III - Analysis of Banking Sector Concentration The activity of the banking system remains, as in previous years, concentrated on resident banks, which account for 92% of assets, 93% of loans and 97% of deposits. Table 7: Concentration of banking activity by type of institution 2015 2016 2017 Total assets (in MD) 97 388 107 701 121 145 Share of resident banks (in%) 91.6% 91.8% 91.6% Share of non-resident banks (in%) 4.5% 4.2% 4.2% Share of leasing institutions (in%) 3.6% 3.7% 3.9% Share of factoring companies (in%) 0.3% 0.3% 0.3% Credits to customer (in MD) 63 991 70 056 79 003 Share of resident banks (in%) 93.1% 93.1% 92.7% Share of non-resident banks (in%) 1.7% 1.4% 1.5% Share of leasing institutions (in%) 4.8% 5.1% 5.4% Share of factoring companies (in%) 0.4% 0.4% 0.4% Customer deposits (in MD) 53 569 58 086 64 559 Share of resident banks (in%) 97.2% 97.3% 97.2% Share of non-resident banks (in%) 2.8% 2.7% 2.8% Analysis of concentration at the level of each category of institution studied separately reveals disparities. Table 7: Concentration indicators of resident banking activity Concentration ratio % Index Herfindhal- Hirshman 4 first banks 8 first banks 2015 2016 2017 2015 2016 2017 2015 2016 2017 Total assets 46.5 47.2 47.9 75.5 75.4 76.0 0.083 0.084 0.085 Credits to customers 47.0 46.3 47.5 76.6 76.2 76.7 0.086 0.085 0.086 Customer deposits 47.4 47.5 47.8 79.6 79.3 79.3 0.091 0.092 0.093 Number of accounts 54.7 53.4 53.5 86.1 85.5 85.6 0.107 0.106 0.105

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ANNUAL REPORT ON BANKING SUPERVISION 2017 The Herfindahl-Hirshman index, which is almost stable compared to 2015 and 2016, shows the absence of a dominant position. The analysis of concentration of resident banking activity according to the nature of shareholding shows that: . the contribution of public banks remains the largest, with a market share of 40.2% in assets, 39.7% in credit and 34.7% in deposits , . Tunisian private banks hold 27.4% of total assets, 28% of loans and 30.4% of deposits, . foreign-capital banks hold 29.7% of assets, 29.6% of credits and 32.8% of deposits; and . mixed banks have market shares of 2.7% in terms of assets and loans and 2.1% in terms of deposits. Graphic 3: Breakdown of resident bank activity by type of shareholding

Breakdown of total assets Distribution of credits

29.7% 29.6% 2.7% 28.0% 2.7% 27.4% 39.7% 40.2%

Distribution of deposits

Public Banks 2.1% 32.8% Tunisian private banks

Banks with foreign 34.7% 30.4% capital Mixed banks

The activity of leasing institutions shows a concentration of assets with a share of the first 4 institutions in the total assets of the leasing sector, up by 1.4 percentage point compared to 2016, to reach a level well above 35 %, or 68.3%.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Table 9: Concentration indicators of leasing companies activity Total 2015 2016 2017 Share of the 4 first institutions (%) 65.8 66.9 68.3

Herfindhal-Hirshman Index 0.144 0.146 0.150

Based on the HHI index between 0.1 and 0.18 for the last three years, this concentration is classified as moderate.

The strong concentration of non-resident bank activity in deposits, loans and assets continued in 2017 despite a slight decline in concentration ratios and Herfindhal-Hirshman indexes.

Table 10: Concentration indicators of non-resident bank activity Total assets Credits Deposit 2015 2016 2017 2015 2016 2017 2015 2016 2017

Share of the 4 first banks (%) 80.8 84.1 81.1 89.5 90.5 89.4 92.7 92.8 88.0

Herfindhal-Hirshman Index 0.195 0.204 0.197 0.220 0.252 0.250 0.257 0.256 0.236

Section IV- Use of the banking system The banking network continued its strong expansion in 2017 with the opening of 86 branches against 73 branches in 2016. Over the last 5 years, the number of branches has increased from 1,518 to 1,860 marked by the opening of 342 new branches, of which 56.4% are open by 5 banks. Thus, the banking rate has improved to reach a branch for 6 154 inhabitants in 2017 against a branch for 7 177 inhabitants in 2013. Table 11: Key banking indicators 2013 2014 2015 2016 2017 Network 1 518 1 625 1 701 1 774 1 860 15 Density of the banking network 7 177 6 774 6 558 6 369 6 154 Number of accounts (in thousands) 7 039 7 328 8 110 8 319 8 742 Number of current accounts (in thousands) 2 644 2 875 3 150 3 024 3 152 Number of savings accounts (in thousands) 4 127 4 364 4 846 4 435 4 560 Number of accounts for 1000 adults 851 873 954 973 999 Number of savings accounts per 1000 adults 499 520 570 519 521 Number of ATMs & cash dispensers 1 939 2 070 2 249 2 154 2 275 Number of bank cards (in thousands) 2 409 2 721 3 067 3 186 3 655 Number of electronic transactions (in millions) 53.2 54.3 57.6 64.7 71.6 Volume of electronic transactions (in MD) 5 979 6 544 7 191 8 480 9 851

15 Number of inhabitants per branch.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 An important use of the banking system is still observed on the coast, which involves 87% of bank branches (41% of which are located in Greater Tunis area) and about 85% of the leasing network (out of a total of 59 branches, 50 are located on the coastline). The analysis of the banking system in terms of accounts shows that the number of bank accounts has evolved, over the last 5 years, by 5.6% per year to reach 8.7 million accounts at the end of 2017. The number of bank cards issued at the end of 2017 amounted to 3.7 million cards, ie an average annual evolution of 11% over the 2013-2017 period. At the same time, the number of ATMs / cash dispensers has increased on average by 4.1% annually to 2,275 units at the end of 2017. The number of electronic banking transactions recorded an average annual growth of 7.7% between 2013 and 2017. However, the activity of electronic payments in Tunisia remains weak insofar as only 13.5% of electronic money transactions are in the form of payments through the electronic payment terminals (TPE). The rest, 86.5%, represents withdrawals from ATMs and cash dispensers. .

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ANNUAL REPORT ON BANKING SUPERVISION 2017 CHAPTER 3: Activity and financial situation of banks and financial institutions Section I- Analysis of balance sheet structure of resident banks The structure of resident banks’ assets did not undergo significant changes compared to 2016 in so far as the shares of loans and Treasury Bonds stood at about 78% and 9% respectively, corresponding to almost the same level recorded in 2016. Against a backdrop of an exacerbated tightening of bank liquidity, the share of refinancing from the BCT in the banking sector’s liabilities firmed up for the 4th year in a row, reaching 8.4% against 6.3% at the end of 2016, at the expanse of the deposits’ share, down from 68.6% at the end of 2016 to 66.8% at the end of 2017. This trend shows that the funding effort made by banks was not accompanied by a sufficient mobilisation of deposits and that banks had to make further recourse to BCT resources to finance this gap. This means an accentuation of the maturity transformation risk to which banks are exposed. Table 12: Resident banks’ balance sheet structure Asset Components 2013 2014 2015 2016 2017

Loans 82.8% 80.4% 79.0% 78.5% 78.3% Loans to professionals 56.7% 55.4% 54.4% 53.9% 54.2% Loans to individuals 26.1% 25.0% 24.6% 24.6% 24.1% Treasury Bonds 6.0% 7.1% 8.3% 9.3% 9.1% Portfolio-securities (Excluding Treasury bonds) 5.8% 6.6% 6.4% 6.2% 5.7% Fixed assets 1.6% 1.5% 1.5% 1.5% 1.5%

16 Liquid assets 2.7% 3.0% 3.3% 3.0% 3.8% Contribution to specialised financial institutions 1.1% 1.4% 1.5% 1.5% 1.6% Liability Components 2013 2014 2015 2016 2017 Clients deposits 74.3% 72.4% 69.6% 68.6% 66.8% Medium and long-term borrowings 6.7% 6.1% 6.2% 6.2% 6.3% Equity and provisions 16.8% 17.0% 18.1% 17.8% 17.1% Borrowings from the BCT 2.2% 3.5% 5.0% 6.3% 8.4% Borrowings from non-resident institutions 0.0% 1.0% 1.1% 1.1% 1.4%

Section II- Activity and financial situation of resident banks

1- Trends in operating uses

At the end of 2017, banks’ operating uses reached 87 billion dinars up by 11.4% against 10.6% a year before. This trend stems notably from the strong progress of the outstanding balance of loan:

16 Treasury and deposits at the BCT and non-residents banks.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 12.2% in 2017 against 9.5% in 2016, and to a lesser degree from the ongoing consolidation of the Treasury bonds and State bonds portfolio (+714 MD or 8.7% against +1,447 MD or 21.3% in 2016).

Table 13: Trend in resident banks’ uses Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Loans 59 581 65 264 73 209 5 683 9.5 7 945 12.2 Loans to professionals 17 33 318 36 497 42 357 3 179 9.5 5 860 16.1 Loans to individuals 18 18 185 19 986 22 054 1 801 9.9 2 068 10.3 Portfolio-securities 10 745 12 537 13 456 1792 16.7 919 7.3 Of which Treasury bonds and State bonds 6807 8254 8968 1447 21.3 714 8.7 Total operating uses 70 509 78 004 86 934 7 495 10.6 8 930 11.4

1-1- Loans to customers

The financial year 2017 was marked by a speeded up progress rate of the outstanding balance of loan: 12.2% or 7,945 MD, a double-digit progress rate that has not been recorded since 2010. This acceleration arises from the strong revival of loans to professionals (16.1% against 9.5% in 2016), while loans to individuals evolved at almost the same pace (10.3% in 2017 against 9.9% in 2016). Table 14: Trend in resident banks’ loans Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Loans to professionnals17 33 318 36 497 42 357 3 179 9.5 5 860 16.1 Short-term loans 13 676 14 776 17 189 1 100 8.0 2 413 16.3 Medium and long term loans 15 613 17 555 20 431 1 942 12.4 2 876 16.4 Debtor accounts 4 029 4 166 4 737 137 3.4 571 13.7 Loans to individuals18 18 185 19 986 22 054 1 801 9.9 2 068 10.3 Housing 8 225 9 082 10 203 857 10.4 1 121 12.3 Fitting out 7 565 8 382 9 081 817 10.8 699 8.3 Vehicle 257 291 316 34 13.2 25 8.6 Consumer loans 2 138 2 231 2 454 93 4.3 223 10.0 Of which overdraft 709 754 851 45 6.3 97 12.9 Overdue and fixed assets 8 078 8 781 8 798 703 8.7 17 0.2 Total loans 59 581 65 264 73 209 5 683 9.5 7 945 12.2 The additional effort to finance professionals was relevant to corporate operating needs as shown by the progress made by short term loans (16.3% vs. 8% in 2016) and debtor accounts (13.7% in 2017 against 3.4% in 2016), as well as to corporate investment needs, as illustrated by the acceleration of medium and long-term loans for the second year in a row (16.4% in 2017 against 12.4% in 2016 and 5.3% in 2015).

17 Excluding overdue and non performing loans. 18 Excluding litigation.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 This acceleration meant a strong increase in corporate funding requests in line particularly with the higher prices of goods and services following the dinar’s sharp depreciation. The funding effort with respect to 2017 concerned basically both the industrial and the trade sectors which took up 70% of the funding effort while loans granted to the real estate and tourist sectors stagnated at their 2016 level. Table 15: Trends in loans by sector Sector of activity 2016 2017 Variation in MD Agriculture 1 984 2 193 209 Industry 15 910 17 215 1 305 Tourism 4 254 4 290 36 Real estate promotion 4 407 4 388 -19 Trade 8 530 9 409 879 Other services 8 545 9 154 609 Total 43 630 46 649 3 019 As a consequence, and compared with 2016, sectorial breakdown of the outstanding balance of professional loans posted, over 2017, an increase in the share of the trade (+0.6 percentage point, up to 20.2%) and industrial (+0.5 percentage point up to 37%) sectors, at the expanse of the real estate and tourist sectors. Graphic 4: Sectorial breakdown of resident banks’ loans to professionals

2016 2017

Agriculture 4.8% 4.5% Industry

19.5% 19.9% Tourism 36.5% 37.0% 19.6% 20.2% Real estate promotion 9.8% Trade 9.3% 8.8% Other services

10.1%

As for loans to individuals, the 2,068 MD increase recorded in 2017 comes, up to 54% or 1,121 MD, from housing loans, 34% or 699 MD in the form of fitting out loans and 11% or 223 MD in the form of consumer loans. Vehicle-financing loans did not record a significant increase for the second year in a row.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 1-2- Securities-Portfolio

The outstanding balance of the securities-portfolio rose by 919 MD or 7.3%: a less important pace than the one of 2016 (16.7% or 1,792 MD), posting13,456 MD. The trend recorded in 2017 comes, up to: . 77.7 % from Treasury bonds and State obligations which rose by 8.7% or 714 MD against 21.3% or 1,447 MD in 2016, . 24.3% from property title deeds, the progress of which is limited to 5.7%. The less accelerated pace of Treasury bonds and State obligations is likely to be attributable to the State’s recourse, in 2017, to a syndicated loan in foreign currency from 13 local banks for an amount worth nearly 700 MD. Taking account of this loan, the banking sector’s financing of the State would amount to 10 billion dinars, up by 17.5% compared to 2016.

Table 16: Trend in the outstanding balance of resident banks’ securities-portfolio Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Property title deeds 3 648 3 937 4 160 289 7.9 223 5.7 Debt securities 7 097 8 600 9 296 1 503 21.2 696 8.1 Obligations 290 346 328 56 19.3 -18 -5.2 Treasury bonds and State obligations 6 807 8 254 8 968 1 447 21.3 714 8.7 Securities-portfolio 10 745 12 537 13 456 1 792 16.7 919 7.3

2- Trends in operating resources

Operating resources made a 15% progress in 2017 against 10.2% in 2016, posting 77,160 MD. Table 16: Trends in resident banks’ operating resources Variations

2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Deposits 52 074 56 518 62 735 4 444 8.5 6 217 11.0 Medium and long term borrowing 4 604 5 091 5 941 487 10.6 850 16.7 resources Borrowings on the money market 4 209 5 490 8 484 1 281 30.4 2 994 54.5 Total operating resources 60 887 67 099 77 160 6 212 10.2 10 061 15.0

This increase comes, up to: . 29.8% or 2,994 MD from the higher volume of BCT refinancing which accounts for 11% of total operating resources against 8% in 2016,

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ANNUAL REPORT ON BANKING SUPERVISION 2017 . 23% or 2,304 MD from the increase in foreign currency deposits meaning the strong appreciation of both the Euro and the Dollar against the dinar and operators’ preference for the holding of assets in foreign currency given the dinar’s downward trend, and . 35.9% from the increase in sight deposits and savings deposits.

2-1- Deposits mobilisation

Deposits collected from clients continued to evolve at a sustained pace over 2017: 11% against 8.5% in 2016, reaching 62,735 MD. The outstanding balance of deposits in dinar came to 50,944 MD, up by 8.3%: evolving at the same pace as in 2016 as a result of: . the speeded up progress of sight deposits and savings deposits (12.1% and 10.4% respectively in 2017 against 11.2% and 10.1% a year before), . the lower progress of forward deposits and certificates of deposits (2% against 4% in 2016). As for foreign currency deposits, they grew by 24.3%: more than twice the progress recorded in 2016 (9.1%). This exceptional trend is mainly due to the dinar’s depreciation against the Euro and the US dollar. Table 17: Trend in the outstanding balance of resident banks’ deposits by category of deposits Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Deposits in dinars 43 381 47 031 50 944 3 650 8.4 3 913 8.3 Sight deposits 13 975 15 537 17 418 1 562 11.2 1 881 12.1 Savings deposits 15 066 16 589 18 320 1 523 10.1 1 731 10.4 Of which savings special accounts 13 081 14 494 16 124 1 413 10.8 1 630 11.2 Forward deposits 10 451 11 265 11 891 814 7.8 626 5.6 Certificates of deposits 3 889 3 640 3 315 -249 -6.4 -325 -8.9 Foreign currency deposits 8 693 9 487 11 791 794 9.1 2 304 24.3 Total deposits 52 074 56 518 62 735 4 444 8.5 6 217 11.0 These trends affected the structure of resident banks’ deposits with a firming up of the share of foreign currency deposits by 2 percentage points, posting 18.8%. The share of sight deposits in dinar increased by 0.3 percentage point, coming to 27.8% against a drop in the share of forward deposits and certificates of deposits (2.2 percentage points), reaching 24.2%. The share of savings deposits is still standing at about 30%.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Graphic 5: Trend in the structure of resident banks’ deposits

2017

Sight deposits in dinars 18.8% 2016 27.8% Savings deposits in dinars 16.8% 27.5% 26.4% Forward deposits and 24.2% 29.3% certificates of deposits in dinars Foreign currency deposits 29.2%

The structure of resident banks’ deposits by category of depositors shows a drop in institutional investors by 1.1 percentage point, coming to 8.8% against an increase in the share of non- residents by 1 percentage point, posting 14.3%. Concurrently, the share of resident individuals’ deposits stood at about 52.5%. Graphic 6: Trend in the structure of residents banks’ deposits by category of depositors

2016 2017 14.3% 13.3% Institutional investors

9.9% 8.8% 52.6% Private companies and Individual entrepreneurs 52.5% 24.4% Resident individuals

24.2% Non-residents

2-2- Medium and long term borrowing resources

Medium and long-term borrowing resources grew by 849 MD or 16.7% against 487 MD or 10.6% in 2016. This increase comes notably from external resources (+367 MD or 17.5%) raised from institutional donors (BIRD, CFD, BEI, Proparco) and from debenture loans (+276 MD or 16.7%) in the form of subordinate loans, a major part of which is underwritten by banks.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Table 18: Trend in resident banks’ medium and long-term borrowing resources

Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Budgetary resources 1 216 1 285 1 445 69 5.7 160 12.5 External resources 1 917 2 096 2 463 179 9.3 367 17.5 Debenture loans 1 427 1 655 1 931 228 16.0 276 16.7 Other borrowings 44 55 101 11 25.0 46 83.6 Medium and long-term borrowing 4 604 5 091 5 940 487 10.6 849 16.7 resources

3- Risk and financial soundness indicators

3-1- Liquidity risk

The maturity transformation risk to which banks are exposed did not stop exacerbating over the previous years, as illustrated by: . The ongoing increase in the « Loans/Deposits » ratio, up from 119.8% in 2015 to 121.9% in 2016 and 127.3% in 2017. . Further backing of the outstanding balance of loans by BCT resources, raising from 7.9% in 2015 to 9.4% in 2016, up to 12.8% in 2017, meaning banks’ dependency on BCT resources.

Table 19: Resident banks’ liquidity indicators 2015 2016 2017 Liquid assets19/Total asset in MD 7.0% 7.2% 6.7% « Loans / Deposits » ratio 119.8% 121.9% 127 .3% Rate of coverage of loans by the money market resources 7.9% 9.4% 12.8% Banks’ short-term liquidity situation is tougher than in 2016 with: . The lower share of liquid assets in banks’ total balance sheets which account for just 6.7% against 7.2% in 2016 and 7% in 2015. . 11 banks holding 28.2% of the sector’s assets post Liquidity/Coverage ratios that are higher than 100% against 13 banks in 2016 holding 53.7% of the sector’s assets. . 2 banks holding 12% of total assets do not comply with the liquidity ratio’s legal minimum.

19 Liquid assets as per the definition of circular n°2014-14 of 10 November 2014 related to the liquidity ratio.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Table 20: Trends in the breakdown of resident banks’ liquidity ratio Dec.-16 Dec.-17 LCR threshold Number of Share in total Number of Share in total banks assets banks20 assets Higher than 100% 13 53.7% 11 28.2% Higher than 90% 0 0.0% 3 15.5% Higher than 80% 0 0.0% 5 44.3% Lower than 80% 7 46.3% 2 12.0%

3-2- Credit risk

2017 was marked by a slight deterioration of default indicators meaning the continuation of economic difficulties. In fact, the average rate of current claims’ migration towards non- performing loans21 worsened from 2% to 2.3%, corresponding to an additional risk volume up by 410 MD or 34% compared to its 2016 level, amounting to 1,609 MD. However, the outstanding balance of non-performing loans stood at nearly the same level as in 2016 following transfer and revocation of a volume of non-performing loans worth 693 MD, notably within the framework of the public banks restructuring programme.

Table 21: Resident banks’ default parameters 2015 2016 2017 Rate of overdue 5.7% 5.8% 5.4% Outstanding balance of non-performing loans (MD) 11 580 12 106 12 192 Share of non-performing loans in total liabilities 16.6% 15.6% 13.9% Average migration rate 2.9% 2.0% 2.3% As a consequence, the share of non-performing loans in total liabilities carried on with its downward trend, down from 16.6% in 2015 to 15.6 % in 2016 and 13.9% in 2017, in line with the strong increase in banks’ liabilities. This improvement of non-performing loans’ share was relevant to: . 14 banks monopolising 81.5% of the sector’s assets, the overall share of which went down from 15.8% in 2016 to 13.5% in 2017, . All activity sectors except for the real estate promotion the share of which increased by 1.5 percentage points.

20 Including the WIB. 21 This rate expresses the rate of current claims in year n-1 that became non-performing loans in year n.

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ANNUAL REPORT ON BANKING SUPERVISION 2017

Table 22: Trend in the shares of sectorial non-performing loans (in %) Activity sector 2016 2017 Agriculture 38.0 29.6 Industry 16.7 13.7 Trade 14.6 12.7 Tourism 51.6 49.9 Real estate promotion 14.8 16.3 Total professional commitment 18.9 16.6 Individuals 6.5 5.8 Breakdown of non-performing loans by activity sector shows, like in the previous year, an emphasis on the industrial and tourist sectors which took up 46% of the outstanding balance of non-performing loans.

Graphic 7: Trends in the sectorial breakdown of resident banks’ outstanding balance of non- performing loans

2016 2017 Agriculture

6.4% Industry 10.9% 10.7% 5.6%

13.9% 16.5% Real estate promotion 28.9% 27.0%

Tourism

Trade

6.8% 14.9% 5.9% Other services 14.5% 19.1% 18.9% Individuals

A more granular analysis of non-performing loans’ levels accounts for the fact that this problematic remains a source of vulnerability in so far as: . 10 banks post a share of non-performing loans higher than 15% and hold 40.4 % of the sector’s total assets. Symetrically, 9 other banks holding 40.5% of the sector’s assets have a share of non-performing loans lower than 10%. . 49.9% and 29.6% respectively of the tourist and agricultural sectors’ claims are non- performing ones. However, the overall share of liabilities in these two sectors account for just 7.9% of banks’ total commitment. Table 23: Breakdown of the share of resident banks’ non-performing loans as of 2017 Threshold of non-performing loans’ Number of banks Share in total assets share Lower than 10% 9 40.5% Between 10% and 15% 4 19.1% Higher than 15% 10 40.4%

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Banks continued to make efforts as regards the coverage of non-performing loans by provisions as shown by: . The share of Equalisation provisions with respect to claims in banks’ Net Banking Proceed (NBP) which is 15.6%, . The coverage rate of non-performing loans by provisions which came to 57%. With respect to the year 2017, the coverage rate of category 4 claims dropped by 1.2 point, down to 64.4%, in line with the important volume of transferred claims and written off ones. Table 24: Resident banks’ risk coverage indicators 2015 2016 2017 Rate of coverage of non-performing loans by provisions 56.9% 57.9% 57.0% Rate of coverage of category 4 claims 67.2% 65.6% 64.4% Rate of collective provisions / liabilities 0 and 1 0.8% 0.8% 0.7% Risk cost 1.1% 1.0% 0.9% Equalisation provisions /NBP 21.3% 17.4% 15.6%

Analysis by bank of the rate of coverage of non-performing loans by provisions hides disparities. In fact, 8 banks holding 45.8 % of total assets post a rate higher than 70%. However, 9 banks holding 23.7% of the sector’s assets post a rate lower than 50%. Table 25: Breakdown of resident banks’ rate of coverage of non-performing loans by provisions as of 2017 Rate of coverage of non-performing loans by Number of banks Share in total assets provisions Lower than 50% 9 23.7% Between 50% and 60% 5 30.1% Between 60% and 70% 1 0.4% Higher than 70% 8 45.8%

4- Operation and profitability indicators

Analysis of the financial year 2017’s operating accounts reveals an ongoing improvement of all intermediate balances at more sustained paces than in 2016 thanks to an accelerated activity pace, a higher money market rate, a better credit risk profile for banks and significant foreign exchange gains achieved in 2017.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Table 26 : Trend in resident banks’ NBP components

Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Interests and similar revenues 3 818 4 005 4 731 187 4.9 726 18.1 Incurred interests and similar charges 2 128 2 244 2 679 116 5.5 435 19.4 Interest margin 1 690 1 761 2 052 71 4.2 291 16.5 Net service charges 698 834 941 136 19.5 107 12.8 Net gains on foreign exchange operations 502 582 739 80 15.9 157 27.0 Income from investment portfolio 207 297 390 90 43.5 93 31.3 Net banking proceed 3 097 3 474 4 122 377 12.2 648 18.7 In fact, the baking sector’s overall interest margin went upwards by 18.1% against 4.9% in the previous year in line with: . The accelerated activity pace in 2017. . The increase in the average money market rate by 61 base points which was more strongly reflected on interests on loans (+741 MD) as well as on interests on operating resources (+435 MD) given the weight of sight deposits, the remuneration ceiling of which is 2%. Taking account of these trends, both the loan yield and the deposits cost rose by 0.5 and 0.3 percentage point respectively. As a consequence, the net intermediation margin improved by 0.2 percentage point, coming to 2.9% for 2017. Graphic 8: Trend in resident banks’ resources cost and loan yield

6.3 65 7 6.0 6 5 3.6 4 3.4 3.3 3 2.9 2.9 2.7 2 2015 2016 2017

Loan yield (in %) resources cost (in %) Intermediation margin (in %)

The net banking proceed progressed strongly over 2017: 18.7% or 648 MD against 12.2% or 377 MD, due to the substantial increase in the net interest margin (16.5% vs. 4.2% in 2016), income from Treasury Bonds, the pace of which is less sustained but still important (66.5% against 91.2% in 2016) and net gains on foreign exchange operations (27 % against 15.9 % in 2016). On the opposite, net service charges evolved at a less important pace than the one of 2016: 12.8% against 19.5%. Following these trends, the NBP structure was marked by firmed up contribution of net gains on foreign exchange operations and income from investment securities-portfolio (1.1 percentage point and 1 percentage point respectively) against a drop in the contribution of service charges by

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ANNUAL REPORT ON BANKING SUPERVISION 2017 1.2 percentage point and an ongoing drop in the contribution of the interest margin, coming to a level that is lower than half of the NBP. Graphic 9: Trend in resident banks’ NBP structure 2016 2017 8.5% 9.5% Interest margin 16.8% 17.9% Net service charges

24.0% 22.8% Net gains on foreign exchange operations 49.8% 50.7% Income from investment portfolio

Despite the 14.6% increase in operating charges, the operating ratio improved by 1.7 percentage point, posting 47.3% following the significant increase in the NBP. Concurrently, the evolution of staff costs at a more important pace than net service charges led to a drop in the rate of coverage of staff costs by service charges by 1.3 percentage points, posting 63.8%. Table 27: Breakdown of resident banks’ NBP Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Net Banking proceed 3 097 3 474 4 122 377 12.2 648 18.7 (-) Net equalisation provisions and result of value adjustments on claims, excluding 660 625 678 -35 -5.3 53 8.5 balance sheet and liabilities (-)Net equalisation provisions and result of value adjustments on investment -31 -56 -56 -25 80.6 0 0.0 portfolio (+) Other operating products 42 41 46 -1 -2.4 5 12.2 (-)Operating charges 1 524 1 701 1 949 177 11.6 248 14.6 Of which Staff costs 1 152 1 283 1 476 131 11.4 193 15.0 (-)Depreciation provision and charge to 134 146 152 12 9.0 6 4.1 provisions on intangibles Operating result 852 1 099 1 445 247 29.0 346 31.5 (+/-)Other ordinary and exceptional -13 -99 -59 -86 - 40 - elements (-)Profit taxes 196 221 327 25 12.8 106 48.0 Net result 643 779 1 059 136 21.2 280 35.9

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Graphic 10: Breakdown of resident banks’ NBP22

2016 2017 Risk coverage 15.1% 22.8% 16.7% 25.8% Operating charges and 6.5% amortizations 8.0% 54.1% 51.1% Profit taxes

Net result

The total NBP achieved by the sector in 2017 was allocated as follows: . 51.1% to cover operating charges and amortisations, 47.4% of which to cover operating charges, . 15.6% to cover the credit risk against 16.7% in 2016, . 8% with respect to profit taxes, and . 25.8% related to the financial year’s net result. The amount of net equalisation provisions on investment portfolio remained negative as a result of the gain recorded by a bank following the transfer of a shareholding’s block of shares (96 MD). The year 2017 ended up with a net result of 1,059 MD, up by 35.9% or 280 MD compared to the previous year. Such a progress allowed for an ongoing improvement of the sector’s profitability indicators. In fact, excluding gains generated by the transfer of a bank’s shareholding to the capital of a company, return on assets« ROA » improved by 0.2 percentage point, up to 1.1% while return on equity « ROE » firmed up by 2.6 percentage points, up to 12.2%. Graphic 11: Trend in resident banks’ profitability indicators

15 12.2 2

9.6 10 8.7 1 1.1 5 0.9 0.8 0 0 2015 2016 2017

ROE in % ROA in %

22 Taking account of other operating products and gains or losses on other ordinary and exceptional elements.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 The number of banks posting a profit-making result with respect to the financial year 2017 amounted to 18 banks with cumulated profit of 1,166 MD (against 19 banks with a cumulated profit of 954 MD in 2016). 5 banks posted a loss-making result with respect to the financial year 2017, amounting to 107 MD (against a loss of 175 MD in 2016 posted by 4 banks). The cumulated profit of 2017 was allocated up to about 74.4% in reserves against 68.7% in 2016. The amount of dividends remained unchanged in 2017: 299 MD, accounting for just 25.6% of profits against 31.3% in 2016. Graphic 12: Trend in the breakdown of resident banks’ profits23 In MD 1200 Profit 800 assigned 867 62.8% 68.7% 655 74.4% as reserves 450 400 Allocated dividends 37.2% 266 299 299 31.3% 25.6% 0 2015 2016 2017 2015 2016 2017

5- Analysis of equity adequacy

Banks pursued, over 2017, their efforts to boost their equity, amounting to 9,364 MD, up by 17.2% and higher than the one recorded in 2016 (14.6%). This increase comes up to 63.2% from retained profits, 12.6% from capital increases. The remaining part comes from subordinate borrowings: 24.2%. Table 28: Trend in resident banks’ equity and incurred risks

Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Net core equity 5 401 6 060 7 010 659 12.2 950 15.7 Capital 3 117 3 334 3 507 217 7.0 173 5.2 Reserves 4 010 4 352 5 247 342 8.5 895 20.6 Deductions 1 726 1 626 1 744 -100 -5.8 118 7.3 Supplementary equity 1 571 1 933 2 354 362 23.0 421 21.8 Net equity 6 972 7 993 9 364 1 021 14.6 1 371 17.2 Incurred risks 58 082 70 576 78 981 12 494 21.5 8 405 11.9 The share of supplementary equity’s consolidation went on over 2017, reaching 25.1% compared with a share of 19.2% registered in 2014. Net basic equity still constitutes the predominant component in equity structure: 74.9%. This testifies to the consistent quality of the banking sector’s equity.

23 Excluding loss-making results.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Graphic 13: Trend in resident banks’ equity structure

2017

2016

25.1% Net core equity 74.9% 75.8% 24.2% Supplementary equity

Over 2017, incurred risks, made up of risks related to both credit risk and operational risk, evolved at a slower pace than the one of equity. This helped to firm up the banking sector’s average solvency ratios with an overall solvency ratio which approaches 12% against 11.3% in 2016 and a tier 1 at about 9% against 8.6% in 2016. Table 29: Trend in resident banks’ solvency average ratios and Tier1

2015 2016 2017 Solvency ratio 12.0 11.3 11.9 Tier 1 ratio 9.3 8.6 8.9 This improvement is confirmed at the level of breakdown, by bank, of solvency and Tier 1 ratios. In fact: . 17 banks monopolising 62.8% of the sector’s assets post a solvency ratio higher than 11% as of 2017 against 14 banks holding 53% of the sector’s assets in 2016. . Only one bank with an active market share of 0.6% is in a situation of non-compliance with the minimum solvency ratio of 10% in 2017 against 3 banks, in 2016, with an active market share of 4.4%, . 18 banks holding 73.2% of the sector’s assets post a Tier 1 ratio higher than 8% in 2017 against 14 banks holding 56.5% of the sector’s assets in 2016, . Two banks with an active market share of 1.1% are in a situation of non-compliance with the 7% minimum Tier 1 ratio in 2017, against 4 banks with a market share of assets of 4.8%.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Table 30: Breakdown of resident banks’ solvency ratio and Tier 1 ratio as of 2017

2016 2017 Number Share in Number of Share in of total assets banks total assets banks Solvency 1 ratio threshold Higher than 11% 14 53.0% 17 62.8% Between 10% and 11% 6 42.6% 5 36.6% Lower than 10%24 3 4.4% 1 0.6% Tier 1 ratio threshold Higher than 8% 14 56.5% 18 73.2% Between 7% and 8% 5 38.7% 5 39.7% Lower than 7%25 4 4.8% 2 1.1%

Section III- Activity and financial situation of banks carrying out Islamic operations (ISB) The Tunisian banking sector counts 3 ISBs: Zitouna into operation since 2010, Al Baraka, an ex non-resident bank transformed into a resident bank in 2013 and the WIB, a former leasing institution converted into a resident bank in 2015. The share of ISBs in the banking sector’s total assets is the same as in 2016: 5.1%. With a network of 161 branches, ISBs take up 5.6% of the banking sector’s total deposits and 4.2% of its overall loans. 1- Trend in operating uses ISB’s operating uses amounted to 3,443 MD at the end of 2017, leading to a 365 MD or 11.9% increase compared to 2016. ISB’s credit portfolio amounts to 3,097 million dinars and continues to be made up mainly of Mourabaha (68.7%) and Ijara (17.1%) operations. Table 31: Trends in ISB operating uses Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Mourabaha Portfolio 1 361 1 732 2 128 371 27.3 396 22.9 Hire purchase 205 181 134 -24 -11.7 -47 -26.0 Ijara Portfolio 472 486 530 14 3.0 44 9.1 Claims related to clients’ accounts 69 90 118 21 30.4 28 31.1 Overdue, fixed assets, arrangements and rescheduling 109 165 187 56 51.4 22 13.3 Placement and shareholding shares 401 424 346 23 5.7 -78 -18.4 Total operating uses 2 617 3 078 3 443 461 17.6 365 11.9

24 the regulatory minimum for the solvency ratio. 25 the regulatory minimum for the Tier 1ratio.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 The securities-portfolio posted 346 MD in 2017, made up mainly of intra-group placements. 2- Trend in operating resources ISB’s resources evolved, over 2017, at a sustained pace as in 2016: 16.7% or 540 MD. ISB’s deposits amount to 3,573 million dinars and are constituted up to 34% of sight accounts, 35.9% of savings accounts and 26.6% of participatory deposits. Table 32: Trend in ISB’s operating resources Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Sight accounts 894 1 075 1 215 181 20.2 140 13.0 Saving accounts 750 1 023 1 282 273 36.4 259 25.3 Unassigned participatory deposits 534 447 495 -87 -16.3 48 10.7 Assigned participatory deposits 296 319 455 23 7.8 136 42.6 Medium and long-term resources 328 250 200 -78 -23.8 -50 -20.0 other 80 119 126 39 48.8 7 5.9 Total operating resources 2 882 3 233 3 773 351 12.2 540 16.7

ISB’s medium and long-term resources dropped, over 2017, by about 20% or 50 MD attributable to a bank’s non-renewal of debenture loans falling due. Henceforth, these resources constitute just 5.3% of total ISB’s operating resources against 7.7% in 2016. 3- Credit risk The outstanding balance of ISB’s non-performing loans went upwards by 14 MD compared to 2016, up to 232 MD, 48.6% of which over only one relationship. Table 33: ISB’s risk coverage indicators

2015 2016 2017 Outstanding balance of non-performing loans (MD) 180 218 232 Share of non-performing loans in total liabilities (%) 7.9 7.7 6.9 Outstanding balance of provisions (MD) 38.2 44 48 Rate of coverage of non-performing loans by provisions (%) 22.3 21.6 21.5 ISB’s default indicators are weak on the whole with a share of non-performing loans in total liabilities of 6.9% against 7.7% following liabilities’ evolution at a more accelerated pace than the one of non-performing loans (19.4% vs. 6.7%). Excluding the above-mentioned relationship, the share of non-performing loans in total liabilities would be limited to 3.6%. ISB’s provisioning rate which does not exceed 21.5% is deemed weak. Excluding the above- mentioned relationship, this rate would be close to 40%.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 4- Operation and profitability indicators ISB’s NBP continues to improve over 2017, up to 196 MD against 161 MD in 2016. Table 34: Trends in ISB’s operating accounts Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % NBP 129 161 196 32 24.8 35 21.7 Depreciation charges and equalisation provisions on fixed assets 11 13 19 2 18.2 6 46.2 Net equalisation provisions 9 10 15 1 11.1 5 50.0 Operating charges 85 108 139 23 27.1 31 28.7 Net Result 23 21 14 -2 -8.7 -7 -33.3 The NBP’s structure remains dominated by the profit margin’s strong contribution: 69.1% and is characterized by an increasing contribution of service charges, the share of which in the NBP reached 18% in 2017. ISB’s operating ratio posted a higher level in 2017 than in 2016: 70.9% against 67.1% given that the 3 banks are going through an expansion phase. The net result of these banks dropped by 33.3%, in line with cumulated losses of about 6 MD recorded by two of ISB. Table 35: Trend in ISB’s profitability indicators

2015 2016 2017 Return on assets (ROA) 0.7% 0.5% 0.3% Return on equity (ROE) 6.0% 4.4% 2.7%

Operating and amortisation charges continue to weigh down on ISB’s profitability with a ROA of 0.3% and a ROE of 2.7%. 5- Analysis of equity adequacy

ISB’s overall solvency indicators are satisfactory on the whole with average ratios of 13.3% for Tier 1 ratio and 17.8% for the solvency ratio. ISBs are largely complying with the related regulatory requirements26. Table 36: Trend in ISB’s average solvency and Tier 1 ratios

2015 2016 2017 Tier 1 ratio 11.5% 15.0% 13.3% Solvency ratio 17.1% 19.3% 17.8%

26 7% for the Tier 1 ratio and 10% for the solvency ratio.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Section IV- Activity and financial situation of leasing institutions Leasing institutions’ assets structure did not undergo major changes between 2013 and 2017. In fact, leasing still constitutes the main component of assets by condensing an average share of about 94%. Table 37: Leasing institutions’ balance sheet structure 2013 2014 2015 2016 2017 Uses Leasing 94.3% 93.9% 93.8% 93.8% 94.2% Securities-portfolio 3.7% 4.2% 4.3% 4.4% 4.1% Fixed assets 2.0% 1.9% 1.9% 1.8% 1.7% Resources Banking resources 38.6% 37.0% 37.5% 38.9% 40.1% Bond resources 31.9% 32.9% 30.8% 31.5% 28.1% External resources 4.1% 5.7% 5.5% 8.4% 12.0% Equity and provisions 25.4% 24.4% 26.2% 21.2% 19.8% Resources’ structure was marked by the consolidation of the banking resources share, exceeding 40% in 2017. External resources continued their increase initiated since 2013, rising from 4.1% to 12% of resources in five years, recording thus, an annual average growth rate of 30.8%. Concurrently, the share of equity and provisions dropped over 2017, below 20% for the first time since 2013. This drop was also relevant to bond resources which constitute just 28.1% of resources against 31.9% in 2013.

1- Trend in operating uses

The leasing sector’s activity experienced a strong recovery over 2017 as shown, by the 21.4% increase in the outstanding balance of leasing against 5.4% in 2016, reaching 4,479 MD. Table 38: Trend in leasing institutions’ operating uses Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Outstanding balance of leasing 3 353 3 534 4 291 181 5.4 757 21.4 Securities portfolio 152 166 188 14 9.2 22 13.3 Total operating uses 3 505 3 700 4 479 195 5.6 779 21.1 This recovery was illustrated through the increase in enforcements at a much higher pace than the previous year: 31.7% or 595 MD against just 8.7% or 151 MD in 2016.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Table 39: Trend in leasing institutions’ enforcements

Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Enforcement (MD) 1 726 1 877 2 472 151 8.7 595 31.7 Of which : Real estate (MD) 99 88 110 -11 -11.1 22 25.0 The increase in enforcements went, up to 57% to the services sector while 19.7% went to the industrial sector. The latter’s share firmed up by 1.6 percentage point, accounting for 14.5% of enforcements in 2017 against 12.9% in 2016. Graphic 14: Sectorial breakdown of leasing institutions’ enforcements

2016 12.9% 2017 17.8% 12.2% Agriculture 12.9% 16.8% 14.5% Industry

56.4% 56.5% Services

Building and publics works

The volume of enforcements shows a strong focus on real estate leasing, particularly on the rolling stock: 82.3%.

Graphic 15: Sectorial breakdown of Graphic 16: Breakdown of movables leasing enforcements as of 2017 as of 2017

4.4% 1.5%

16.2% Rolling Movables stock Leasing Specific equipment Real state Leasing Other 82.3%

95.6%

2- Trends in operating resources

Borrowing resources rose by 21.9% or 589 MD, posting 3,274 MD at the end of 2017.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Table 40: Trends in leasing institutions’ borrowing resources Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % External resources 246 335 514 89 36.2 179 53.4 Bank borrowings 1 233 1 244 1 600 11 0.9 356 28.6 Debenture loans 1 037 1 106 1 160 69 6.7 54 4.9 Total operating resources 2 516 2 685 3 274 169 6.7 589 21.9

Unlike the year 2016 where the resource-mobilisation effort focused on external resources (52.7% of supplementary resources), in line with the different withdrawals on external credit lines (SANAD, PROPARCO, RESPONSABILITY, BERD), 2017 was characterized by an important recourse to banking resources which covered 60.4% of raised resources in 2017. Worth of note that leasing sector’s debenture loans involve a package of 158 MD, down by 12.1% compared to the amount raised in 2016.

3- Risk and financial soundness indicators

3-1- liquidity and rate risk

Despite the improvement of outstanding resources in the form of equity and external and bond resources, accounting for 56.7% of loans on average, the leasing sector is still dependent on banking resources that back up 39.1% of loans, which made it exposed to:

. High refinancing and maturity transformation risks , . An important rate risk given that uses are associated with fixed rates while 33.4% of resources are at variable rates. Table 41: Leasing institutions’ liquidity and rate risk indicators 2015 2016 2017 Rate of coverage of loans by bond and external resources, equity and provisions 58.3% 60.2% 56.7%

Rate of coverage of loans by bond and external resources 42.7% 40.8% 39.0% Banking resources/total resources 37.5% 31.6% 33.4% Bond resources /total resources 30.8% 28.1% 24.3%

3-2- credit risk

The leasing sector’s default parameters improved slightly in 2017, as shown by the increase in additional risk at a lower pace than a year before: 16 MD or 14.7% against 28 MD or 33.7%.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Table 42: Leasing institutions’ default parameters 2015 2016 2017 Rate of overdue 5.8% 5.4% 5.0% Outstanding balance of non-performing loans(MD) 257 290 322 Rate of non-performing loans 7.4% 7.8% 7.0% Average migration rate27 2.9% 3.5% 3.7% The outstanding balance of non-performing loans rose by 32 MD or 11%, reaching 322 MD at the end of 2017. The share of non-performing loans dropped by 0.8 percentage point, coming to 7% with disparities between different leasing institutions: Table 43: Breakdown of the share of leasing institutions’ non-performing loans as of 2017

Non-performing loans’ rates Number of institutions Share in total assets Higher than 10% 1 5.1% Between 7% and 10% 3 35.4% Lower than 7% 4 59.5% Concurrently, leasing institutions carried on with their provision-constitution effort, accounting for 12.5% of the net leasing proceed in 2017 against 14.9% in 2016. Table 44: Leasing institutions’ risk coverage indicators 2015 2016 2017 Depreciation charges/Net leasing proceed 16.0% 14.9% 12.5% Depreciation charges/Additional Risks 27.7% 20.9% 18.0% Risk cost 0.7% 0.7% 0.6% Rate of coverage of non-performing loans by provisions 67.8% 61.7% 62.5% Rate of coverage of category 4 claims 85.6% 85.1% 84.5% Rate of collective provisions 0.5% 0.5% 0.5% On the whole, coverage indicators of non-performing loans by provisions remain satisfactory, accounting for 62.5% of the outstanding balance of non-performing loans and 84.5% of the outstanding balance of category 4 non-performing loans given that the credit portfolio is rolling stock-oriented. Table 45: Breakdown of the rate of coverage of non-performing loans by provisions for leasing institutions as of 2017

Rate of coverage of non-performing loans by Number of institutions Share in total assets provisions Lower than 50% 2 11.2% Between 50% and 70% 3 35.4% Higher than 70% 3 53.4%

27 This rate expresses the rate of current claims in year n-1 that became non-performing loans in year n.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 4- Operation and profitability indicators

Over 2017, leasing institutions’ net proceed totalled 185 MD, up by 29 MD or 18.6% compared to its previous year level in line with a higher money market rate. Subsequently to the increase in operating charges at a more sustained pace than the one of leasing net proceed, the operating ratio rose by 1.5 percentage points, reaching 40%.

Table 46: trend in leasing institutions’ operating account Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Interest margin 127 138 168 11 8.7 30 21.7 Leasing net proceed 143 156 185 13 9.1 29 18.6 Operating charges 56 60 74 4 7.1 14 23.3 Net depreciation charges28 23 25 24 2 8.7 -1 -4.0 Operating result 60 69 82 9 15.0 13 18.8 Net result 48 49 59 1 2.1 10 20.4 The drop in the intermediation margin depends on the increase in resources cost by 50 base points. Graphic 17: Trends in leasing institutions’ resources cost, loans yield and average effective rate

10.8 10.8 10.5 10.0 9.5 9.7 9.7

7.1 7.5 7.5 7.0

5.0 2015 2016 2017

Resources cost (In %) Loans yield (In %) Average effective rate (In %)

The year 2017 was marked by a drop in net depreciation charges by 1 MD or 4%, posting 24 MD: 13% of leasing net proceed for 2017 against 16% at the end of 2016. The sector’s overall net result posted 59 MD, up by 10 MD or 20.4% against 1 MD or 2.1% in 2016.

28Net depreciation charges and value adjustment result on claims and investment portfolio.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Worth of note that 54.2% of profits with respect to 2017 were distributed to shareholders: 32 MD. Graphic 18: Trend in leasing institutions’ profits assigned as reserves In MD 70 60 50 34.0% 36.7% 45.8% Profits assigned 27 as reserves 40 18 16 30 Distributed 20 66.0% 63.3% 31 31 32 54.2% dividends 10 0 2015 2016 2017 2015 2016 2017

Assets’ yield stood at the same level as in 2016: 1.4% while equity profitability rose by 1 percentage point, coming to 11.8%. Table 47: Trend in leasing institutions’ profitability indicators

2015 2016 2017 ROA 1.4% 1.4% 1.4% ROE 8.0% 10.8% 11.8%

5- Analysis of equity adequacy

The leasing sector’s equity posted 611 MD at the end of 2017, up by 91 MD or 17.5% compared to 2016, notably from unassigned profits and subordinate borrowings issued in 2017. Table 48: Trend in leasing institutions’ equity Variations 2015 2016 2017 2016/2015 2017/2016 In MD In % In MD In % Net core equity 553 411 469 -142 -25.7 58 14.1 Of which capital 375 235 253 -140 -37.3 18 7.7 Supplementary equity 114 109 142 -5 -4.4 33 30.3 collective Provisions 18 18 21 0 0.0 3 16.7 Other 96 91 121 -5 -5.2 30 33.0 Net equity 667 520 611 -147 -22.0 91 17.5

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ANNUAL REPORT ON BANKING SUPERVISION 2017

Graphic 19: Trend in leasing institutions’ equity structure 2017

2016 Net core equity 76.8% 79.0% 21.0% 23.2% Supplementary equity

Solvency and Tier 1 ratios decreased by 0.7 and 0.8 percentage points respectively, posting 12.9% and 9.9%. Table 49: Trend in leasing institutions’ solvency and Tier 1 ratios

2015 2016 2017 Solvency ratio 19.7% 13.6% 12.9% Tier 1 ratio 17.5% 10.7% 9.9% The analysis of these ratios shows that no leasing institution is in a situation of non-compliance with minimal regulatory requirements: 10% for the solvency ratio and 7% for Tier 1 ratio. Section V- Non-resident banks’ activity and financial situation

1- Trends in operating uses

2017 was marked by the recovery of the increase in non-resident banks’ uses after the drop recorded in 2016, reaching 1,692 MUSD. This recovery was relevant to loans (+62 MUSD or +14.9%), as well as to treasury operations (+32 MUSD or +3.1%), while the securities-portfolio declined by 17 MUSD or 9.4%. Table 50: Trend in non-resident banks’ uses

Variations 2015 2016 2017 2016/2015 2017/2016 In MUSD In % In MUSD In % Treasury operations 1 128 1 019 1 051 -109 -9.7 32 3.1 Placements at banks 841 691 713 -150 -17.8 22 3.2 Based in Tunisia 292 262 387 -30 -10.3 125 47.7 Based abroad 549 429 326 -120 -21.9 -103 -24.0 Ordinary and cash accounts 287 328 338 41 14.3 10 3.0 Loans 531 416 478 -115 -21.7 62 14.9 to residents 219 196 330 -23 -10.5 134 68.4 to non-residents 312 220 148 -92 -29.5 -72 -32.7 Securities-portfolio 180 180 163 0 0.0 -17 -9.4 Total operating uses 1 839 1 615 1 692 -224 -12.2 77 4.8

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Graphic 20: Trend in non-residents banks’ operating uses’ structure

2017 2016 Securities-Portfolio 9.6% 11.1% 63.1% 62.1% Loans

25.8% 28.3% Treasury operations

Loans’ structure posted a drop in the share of loans granted to non-residents by 21.9 percentage points, posting 31%. Table 50: Trends in non-residents banks’ surety bonds

Variations 2015 2016 2017 2016/2015 2017/2016 In MUSD In % In MUSD In % Total surety bonds 851 404 473 -447 -52.5 69 17.1 Of which letters of credits’ confirmations 477 182 256 -295 -61.8 74 40.7 Opening of letters of credits 171 41 22 -130 -76.0 -19 -46.3 Guarantees and endorsements 189 164 175 -25 -13.2 11 6.7

Over 2017, surety bonds rose by 69 MD or 17.1% compared to a drop recorded a year before. 2- Trends in operating resources

Over 2017, non-resident banks’ resources which amounted to 1,397 MUSD increased again after a drop which has gone on since 2013. These resources increased by 111 MUSD or 8.6%. This recovery concerned mainly bank borrowings (+14.2% or +72 MUSD) and clients’ deposits (+9.5% or +64 MUSD).

Table 51: Trend in non-residents banks’ operating resources

Variations 2015 2016 2017 2016/2015 2017/2016 In MUSD In % In MUSD In % Baking resources 619 615 662 -4 -0.6 47 7.6 Bank borrowings 549 508 580 -41 -7.5 72 14.2 Based in Tunisia 134 169 180 35 26.1 11 6.5 Based abroad 415 339 400 -76 -18.3 61 18.0 Ordinary accounts 70 107 82 37 52.9 -25 -23.4 Clients deposits 735 671 735 -64 -8.7 64 9.5 Resident 21 10 55 -11 -52.4 45 450.0 Non-resident 714 661 680 -53 -7.4 19 2.9 Total operating resources 1 354 1 286 1 397 -68 -5.0 111 8.6

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ANNUAL REPORT ON BANKING SUPERVISION 2017 The share of clients’ deposits in resources’ structure remained roughly the same compared with 2016. Graphic 21: Trend in the structure of non- residents banks’ operating resources 2016 2017

47.4% 47.8% Clients’ deposits Banking resources 52.2% 52.6%

3- Credit risk

The outstanding balance of non-performing loans rose by 16 MUSD over 2017, posting 315 MUSD, 260 MUSD or 82.5% of which belong to a bank which is going through difficulties tied to the regional economic situation. The share of non-performing loans worsened by 0.4 percentage point compared to 2016, posting 40.2%. Excluding this bank, the share of non-performing loans would be 12.6%. Graphic 22: Trend in the outstanding balance and share of non-resident banks’ non- performing loans

In MUSD In % 40.0 320 39.6 39.8 40.2 35.0 30.0 240 25.0

20.0 160 337 299 315 15.0 10.0 80 5.0 0 0.0 2015 2016 2017 Outstanding balance of non-performing loans Share of non-performing loans The rate of coverage of non-performing loans by provisions increased by 2.8 percentage point, reaching 73.1%.

4- Operation

Over 2017, non-resident banks’ net banking proceed increased by 6.9 MUSD or 11.6% against 0.2 MUSD or 0.3% in 2016. This increase concerned all NBP components except for net service charges which dropped by 2.8 MUSD or 18.8%. However, this drop is less significant than the one recorded in 2016: 6.8 MUSD or 31.3%.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Following these trends, the net result increased by 4.8 MUSD or 16.6% against 8.9 MUSD or 44.5% in 2016. Table 52: Trend in non-resident banks’ operating account

Variations 2015 2016 2017 2016/2015 2017/2016 In MUSD In % In MUSD In % Interest margin 17.2 17.7 21.0 0.5 2.9 3.3 18.6 Net commissions 21.7 14.9 12.1 -6.8 -31.3 -2.8 -18.8 Net gains on foreign exchange operations 13.9 21.5 26.9 7.6 54.7 5.4 25.1 Income from investment portfolio 6.6 5.5 6.5 -1.1 -16.7 1.0 18.2 Net banking proceed 59.4 59.6 66.5 0.2 0.3 6.9 11.6 Operating charges 25.6 26.0 27.7 0.4 1.6 1.7 6.5 Net depreciation charges29 9.3 -1.8 -2.2 -11.1 -119.4 -0.4 22.2 Operating result 22.8 33.6 39.3 10.8 47.4 5.7 17.0 Net result 20.0 28.9 33.7 8.9 44.5 4.8 16.6 As it was the case in 2016, non-resident banks’ NBP’s structure is focused on both net gains on foreign exchange operations and the interest margin which took up 40.5% and 31.6% of NBP respectively. Concurrently the drop in net service charges meant a decrease in their share of NBP by 6.8 percentage points, reaching 18.2%. Graphic 23: Trend in non-resident banks’ NBP structure

2016 2017 9.7% Interest margin 9.2%

40.5% 36.1% Service charges

29.7% 31.6% Net gains on foreign exchange operations 25.0% 18.2% Income from investment portfolio

As a consequence of the increase in the NBP at a more significant pace than operating charges: 11.6% against 6.5% respectively, the operating ratio improved by 1.9 percentage point, going to 41.7% in 2017 against 43.6% in 2016.

5- Analysis of equity adequacy

Non-resident banks’ net equity with respect to 2017 increased by 9.4 MUSD or 9.1%, reaching 112.4 MUSD.

29Net depreciation charges and value adjustment result on claims and investment portfolio.

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ANNUAL REPORT ON BANKING SUPERVISION 2017 Taking account of the decline in incurred risks by 14.4 MUSD or 3.1% at the end of 2017, non- resident banks’ solvency ratio improved by 2.9 percentage points, posting 25.3% against 22.4 % in 2016. Table 53: Trend in non-resident banks’ equity and solvency ratio

Variations 2015 2016 2017 2016/2015 2017/2016 In MUSD In % In MUSD In % Net equity 98.8 103.0 112.4 4.2 4.3 9.4 9.1 Incurred risks 502.4 459.3 444.9 -43.1 -8.6 -14.4 -3.1 Solvency ratio 19.7% 22.4% 25.3% - 2.7 - 2.9

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ANNUAL REPORT ON BANKING SUPERVISION 2017

APPENDICES

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ANNUAL REPPORT ON BANKING SUPERVISION 2017 Appendices 1: The General Department of Banking Supervision’s organisational chart

General Department of Banking Supervision Deputy General Manager in charge Mrs Nadia GAM2H, A (43) of Permanent and General Oversight Deputy General Manager in Mr Nabil FELFEL (24) charge of the inspection of Banks and Financial Institutions (12) Supervision Methods Permanent oversight General Oversight and Development Direction: Direction: Mr Mohamed Banking Regulation Mrs Mayada ABID (5) Ali NAFFOUTI (13) Direction: Mr Sofiene

BENNOUR (10)

Inspection Team 1: Mrs Deputy Director of Permanent Oversight: Raja Mr Mourad KHAZRI MERSNI (12) Deputy Director of General Oversight and DAHMEN (10) Regulation: Mr Fethi AKKERI(9)

Inspection Supervision Permanent Oversight Permanent Oversight General Oversight and Regulation and Team 2: (2) Methods Team A Sub- Team B Sub- Direction: Banking Risks sub- Authorization granting Development Sub- Direction (6) Mrs Olfa LAADHARI Direction: Mr Manef Sub- Direction: Mr Kamel SAIDI (4) Direction (4) (5) BOUAZIZ (4)

Regulation and Supervision Permanent Inspection Permanent Oversight A1 Risk Analysis and relationships with procedures Oversight B1 Early Warning supervision entities Team 3 Division: Ms. Imen standardisation Division: Ms. Division: Mr Wajdi JEMAI (2) Division: Mrs Manel Division (1) Faouzia YAHIA (2) DALHOUMI (2) NAJJAR (2)

Banking Data Inspection Base Division Permanent Oversight A2 Team 4 Mrs Farah Division: Ms. AZIZA Reforms and Approvals and GARA (1) MANAI (1) Permanent Banking Authorisations Oversight B2 Restructuring granting Division: Division: Mrs Follow up Division: Mrs Habiba Fatma Mrs Rym BEN ELOUNI (1) Inspection MEDYOUNI (2) SELMA (1) Supervision Team 5 Process Permanent Oversight A3 Development Division: Mrs Ines Division (2) BELKAHIA (2) 59

ANNUAL REPPORT ON BANKING SUPERVISION 2017

Appendice 2 Main indicators of the Tunisian banking sector30 Size and use of banking services indicators (*)

2016 2017 Total assets MD 98 951 110 987 Total Staff number 21 146 20 821 Supervision rate % 68.9 69.3 Network 1 774 1 860 Number of accounts (In thousands) 8 319 8 742 Number of cash dispensers (DAB & GAB) 2 154 2 275 Number of banking cards (In thousands) 3 186 3 655 Number of monetic transactions in millions 64.7 71.6 Volume of monetic transactions (MD) 8 480 9 851 (*)SMC raw data addressed to the BCT

Activity and operating indicators

2016 2017 Total Deposits MD (*) 56 518 62 735 Total loans MD (*) 65 264 73 209 NBP MD 3 474 4 122 Operating ratio % 49.0 47.3 Net result 779 1 059 ROA (%) 1.0 1.2 ROE (%) 10.9 13.4 (*)SMC raw data addressed to the BCT

Financial indicators

% 2016 2017 Solvency ratio 11.3 11.9 Tier 1 ratio 8.6 8.9 Share of non-performing loans 15.6 13.9 Rate of coverage of non-performing loans by 57.9 57.0 provisions

30 23 resident banks.

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ANNUAL REPPORT ON BANKING SUPERVISION 2017 Appendice 3: Balance sheet, off-balance sheet liabilities statement and statement of resident banks’ result

1- Balance sheet (in thousand dinars)

2016 2017 Assets 1- Treasury and assets at the BCT and CCP 2 641 238 3 389 892 2- Claims on banking and financial institutions 5 071 908 5 178 560 3- Claims on clients 58 956 113 67 724 472 4- Trade securities-portfolio 6 590 198 5 575 431 5- Investment portfolio 5 762 445 7 756 718 6- Fixed assets 1 221 103 1 317 030 7- Other assets 2 086 721 2 501 967

TOTAL ASSETS 82 329 727 93 444 070

LIABILITIES 1- Central Bank, CCP 4 061 360 5 899 912 2- Banking and financial institutions’ deposits and assets 5 252 329 6 237 674 3- Clients’ deposits and assets 57 026 951 63 220 859 4- Borrowings and special resources 5 999 810 6 811 633 5- Other liabilities 2 955 307 3 108 049

TOTAL LIABILITIES 75 295 757 85 278 126

CORE EQUITY 1- Capital 3 312 737 3 586 829 2- Reserves 3 767 187 4 279 746 3- Treasury shares -4 100 -1 327 4- Other equity 242 049 259 196 5- Differed results -1 062 668 -1 017 996 6- Financial year results 778 565 1 059 295 7-Accounting charges 200 200 TOTAL EQUITY 7 033 970 8 165 944 TOTAL LIABILITIES AND EQUITY 82 329 727 93 444 070

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ANNUAL REPPORT ON BANKING SUPERVISION 2017

2- Statement of off-balance sheet liabilities (in thousand dinars)

2016 2017

CONTINGENT LIABILITIES

Trusts, endorsements and other guarantees granted to 8 282 680 8 892 699 clients’

Letters of credit 4 031 982 4 412 976

Assets as collateral 3 582 000 5 001 101

Total contingent liabilities 15 896 663 18 306 776

COMMITMENTS GIVEN

Financing commitments granted to clients 3 262 535 3 941 512

Commitments on securities 40 238 59 374

Total commitments given 3 302 773 4 000 886

COMMITMENTS RECEIVED

Financing commitments received 2 501 823 2 661 310

Guarantees received 19 589 105 22 483 069

Total commitments received 22 090 929 25 144 379

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ANNUAL REPPORT ON BANKING SUPERVISION 2017

3- Statement of result (in thousand dinars)

2016 2017

BANKING OPERATING PROCEEDS 5 785 082 6 875 473 (+) INTERESTS AND RELATED INCOME 4 004 928 4 730 784 (+) SERVICE CHARGES 889 376 1 002 968 (+) GAINS ON TRADE SECURITIES-PORTFOLIO AND 593 796 751 589 FINANCIAL OPERATIONS

(+) INCOME FROM INVESTMENT PORTFOLIO 296 982 390 132 BANKING OPERATING CHARGES 2 311 141 2 753 740 (-) INCURRED INTERESTS AND RELATED CHARGES 2 244 224 2 678 720 (-) INCURRED SERVICE CHARGES 54 881 62 409

(-) LOSSES ON TRADE SECURITIES PORTFOLIO AND 12 036 12 611 FINANCIAL OPERATIONS

INTEREST MARGINS 1 760 704 2 052 065 NET BANKING PROCEED 3 473 941 4 121 734 (-) DEPRECIATION CHARGES AND OFF-BALANCE SHEET AND LIABILITIES RESULT OF VALUE ADJUSTMENTS ON 625 311 678 310 CLAIMS (-) DEPRECIATION CHARGES AND RESULT OF VALUE ADJUSTMENTS ON INVESTMENT -56 131 -56 032 PORTFOLIO (+) OTHER OPERATING PROCEEDS 40 574 46 059 (-) STAFF COSTS 1 282 887 1 475 968 (-) GENERAL OPERATING CHARGES 417 679 471 829 (-) AMORTIZATION AND DEPRECIATION CHARGES ON 145 989 152 316 FIXED ASSETS OPERATING RESULT 1 098 780 1 445 401 BALANCE IN PROFIT (+) /LOSS COMING (-) FROM OTHER -23 604 -10 144 COMMON ELEMENTS (-) PROFIT TAX 221 012 326 989 RESULT OF BUSINESS OPERATIONS 854 164 1 108 268 BALANCE IN PROFIT (+) / LOSS COMING (-)FROM OTHER 75 599 48 974 COMMON ELEMENTS FINANCIAL YEAR’S NET RESULT 778 565 1 059 294 (+) EFFECTS OF ACCOUNTING CHANGES 200 201 (net taxes) RESULT AFTER ACCOUNTING CHANGES 778 765 1 059 495

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ANNUAL REPPORT ON BANKING SUPERVISION 2017

Appendice 4: Leasing institutions’ Balance sheet and statement of result

1- Balance sheet (in thousand dinars)

2016 2017 ASSETS 1- Cash and cash equivalents 67 806 52 006 2- Advances to customers 3 355 990 4 260 258 3- Placement securities-portfolio 18 876 26 133 4-Investement portfolio 145 957 146 080 5- Fixed assets 40 067 48 118 6-Other assets 52 094 104 584 TOTAL ASSETS 3 680 789 4 637 180 LIABILITIES 1-Bank financing and other financial liabilities 31 338 51 573 2-Due to customers 43 902 98 204 3- Borrowings and special resources 2 801 538 3 434 708 4- Suppliers and related accounts 267 476 438 419 5- Other liabilities 43 181 54 710 TOTAL LIABILITIES 3 187 435 4 077 614 EQUITY 1-Share capital 234 950 252 680 2- Reserves 165 645 179 073 3-Issue premium 8 830 15 996 4-Deffered results 38 168 46 326 5-Other core funds -2 425 7 480 6-Reserves for general risks 0 0 7- Accounting change -552 -552 8- Financial year result 48 737 58 562 TOTAL EQUITY 493 354 559 565 TOTAL EQUITY AND LIABILITIES 3 680 789 4 637 180

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ANNUAL REPPORT ON BANKING SUPERVISION 2017

2- Statement of result (in thousand dinars)

2016 2017 OPERATING PROCEEDS (+) INTEREST AND SIMILAR LEASING PROCEEDS 318 715 381 577 (+) INTERESTS AND RELATED CHARGES -180 855 -213 778 (+) PROCEEDS FROM PLACEMENTS 11 351 8 280 (+) OTHER OPERATING PROCEEDS 7 799 9 173 TOTAL OPERATING PROCEEDS 157 011 185 252 OPERATING CHARGES (-) STAFF CHARGES 38 082 48 979 (-) DEPRECIATION CHARGES OF CAPITAL 4 493 5 409 ASSETS (-) NET DEPRECIATION CHARGES AND RESULT OF 20 388 23 096 WRITTEN-OFF CLAIMS (-)NET DEPRECIATION CHARGES TO OTHER PROVISIONS 3 249 957 (-) OTHER OPERATING CHARGES 21 450 24 530 TOTAL OPERATING CHARGES 87 662 102 971 OPERATION RESULT 69 350 82 280 (+) OTHER COMMON GAINS 2 524 1 558 (-)OTHER COMMON LOSSES -1 261 -1 136 RESULT OF PRE-TAX BUSINESS OPERATIONS 70 612 82 703 (-) CORPORATE TAX -21 875 -24 140 FINANCIAL YEAR’S RESULT 48 737 58 562

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ANNUAL REPPORT ON BANKING SUPERVISION 2017 Appendice 5: non-resident banks’ balance sheet, off-balance sheet statement of liabilities and statement of result

1- Balance sheet (in thousand dollars)

2016 2017 Assets 1- Treasury and assets at the BCT and CCP 83 363 112 885 2- Claims on banking and financial institutions 1 024 279 1 068 009 3- Claims on clients 213 868 259 860 4- Trade securities-portfolio 71 490 50 145 5- Investment portfolio 106 522 106 599 6- Fixed assets 15 295 14 645 7- Other assets 19 601 18 924 TOTAL ASSETS 1 534 419 1 631 067 LIABILITIES 1- Central Bank, CCP 11 454 13 431 2- Banking and financial institutions’ deposits and assets 538 528 521 359 3- Clients’ deposits and assets 670 211 722 134 4- Borrowings and special resources 32 211 65 200 5- Other liabilities 48 233 52 982 TOTAL LIABILITIES 1 300 637 1 375 107 CORE EQUITY 1- Capital 154 169 158 520 2- Reserves 55 203 59 520 3- Treasury shares 0 27 4- Other core funds 1 000 1 000 5- Differed results -5 499 3 180 6- Financial year results 28 910 33 714 7-Accounting changes 0 0 TOTAL EQUITY 233 783 255 961 TOTAL LIABILITIES AND EQUITY 1 534 419 1 631 067 2- State of off-sheet liabilities (in thousand dollars)

2016 2017 CONTINGENT LIABILITIES Trusts, endorsements and other guarantees granted in favour of clients 259 363 250 851 Letter of credit 216 831 288 342 Assets given as guarantees 7 830 6 519 Total contingent liabilities 484 023 545 712 COMMITMENTS GIVEN Financing commitments granted to clients 27 733 20 791 Commitments on securities 286 0 Total commitments given 28 019 20 791 COMMITMENTS RECEIVED Financing commitments received 46 513 34 095 Guarantees received 220 451 265 375 Total liabilities received 266 965 299 470

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ANNUAL REPPORT ON BANKING SUPERVISION 2017 3- Statement of result (in thousand dollars)

2016 2017

BANKING OPERATING PROCEEDS 65 315 73 692 (+) INTERESTS AND RELATED INCOME 22 944 27 715 (+) SERVICE CHARGES 15 360 12 561 (+) GAINS ON TRADE SECURITIES-PORTFOLIO AND FINANCIAL 21 527 26 957 OPERATIONS

(+) INCOME FROM INVESTMENT PORTFOLIO 5 483 6 459

BANKING OPERATING CHARGES 5 672 7 197

(-) INCURRED INTERESTS AND RELATED CHARGES 5 236 6 712 (-) INCURRED SERVICE CHARGES 411 420

(-) LOSSES ON TRADE SECURITIES PORTFOLIO AND FINANCIAL 24 64 OPERATIONS NET BANKING PROCEED 59 643 66 495 (-) DEPRECIATION CHARGES AND OFF-BALANCE SHEET AND LIABILITIES RESULT OF VALUE ADJUSTMENTS ON -3 707 -2 733 CLAIMS (-) DEPRECIATION CHARGES AND RESULT OF VALUE ADJUSTMENTS ON INVESTMENT PORTFOLIO 1 939 564

(+) OTHER OPERATING PROCEEDS 86 20 (-) STAFF COSTS 17 079 16 382 (-) GENERAL OPERATING CHARGES 8 891 11 332

(-) AMORTIZATION AND DEPRECIATION CHARGES ON 1 917 1 692 FIXED ASSETS OPERATING RESULT 33 610 39 280 BALANCE IN PROFIT (+) /LOSS (-) COMING FROM OTHER COMMON ELEMENTS 100 49

(-) PROFIT TAX 2 975 3 737 RESULT OF BUSINESS OPERATIONS 30 734 35 592 BALANCE IN PROFIT (+) / LOSS (-) COMING -1 825 -1 877 FROM OTHER COMMON ELEMENTS FINANCIAL YEAR’S NET RESULT 28 909 33 714

(+) EFFECTS OF ACCOUNTING CHANGES 0 0 (net taxes) RESULT AFTER ACCOUNTING CHANGES 28 909 33 714

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ANNUAL REPPORT ON BANKING SUPERVISON 2017 Appendice 6: Trend in the average effective rates by category of financing 2007-2017

Overdrafts Consumer loans Short-term loans other than overdraft

Medium-term loans Long-term loans Loans to finance housing 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0

University loans Movables and real estate leasing Trends in the money market rate over 2017

5.3 5.2 5.1 5.0 4.9 4.8 4.7 4.6 4.5 4.4 4.3

4.2

July

May

June

April

March

August

January

October

February

December

November September

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ANNUAL REPPORT ON BANKING SUPERVISION 2017

Appendice 7: Trend in overall effective rates (OERs) by category of financing and by Bank/Financial institution over 2017

Breakdown of banks by OER on Breakdown of banks by OER on short-term loans overdrafts 11 Max (10.20%) Max (7.93%) 10

Average (8.83%) Average (6.94%)

Min (6.06%) Min (6.41%)

Breakdown of banks by OER on Breakdown of banks by OER on medium-term loans consumer loans 9 Max (8.42%) 11 10 Max (9.42%)

Average (7.21%) Average

(8.55%)

Min (5.06%) Min (3.88%) 3

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ANNUAL REPPORT ON BANKING SUPERVISION 2017 BANCAIRE

Breakdown of banks by OER on Breakdown of banks by OER on housing loans long-term loans 10 Max (7.93%) Max ( 8.78%)

Average Average (7.35%) (7.94%) Min (6.62%) Min (7.33%)

Breakdown of Banks and Financial institutions by OER on movable and real estate leasing 12 Max (11.31%)

11

10 Average (9.83%)

Min (8.40%)

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ANNUAL REPPORT ON BANKING SUPERVISION 2017 BANCAIRE Appendice 8 : Breakdown by region, governorate and by bank of the branches network as of 31/12/2017

REGIONS PUBLIC BANKS TOTAL PUBLIC PRIVATE BANKS TOTAL MIXED TOTAL PRIVATE TOTAL BANKS BANKS AMEN CITI- Al BANKS GOUVERNORATES BNA STB BH ZITOUNA BTS ATB BFT ATTIJARI BT BIAT UBCI UIB BTK QNB ABC WIB BANKS (2) TSB BTE BTL (1)+(2)+(3) (1) BANK BANK Baraka (3) GREATER TUNIS 43 42 54 43 1 183 61 6 88 54 90 80 46 50 1 20 17 12 16 4 541 13 14 5 32 760

TUNIS 23 29 29 30 1 112 38 4 55 32 60 53 28 34 1 13 11 6 11 1 347 8 8 2 18 477

ARIANA 6 4 10 4 0 24 8 1 18 9 15 12 7 9 0 4 2 2 1 1 89 1 3 1 5 118

BEN AROUS 10 7 14 8 0 39 12 1 12 11 12 11 9 5 0 3 3 3 3 2 87 3 3 1 7 133

MANOUBA 4 2 1 1 8 3 0 3 2 3 4 2 2 0 0 1 1 1 22 1 0 1 2 32

MIDEAST 41 38 39 30 1 149 25 1 47 31 37 68 37 42 1 7 11 3 14 4 328 8 7 5 20 497

SFAX 16 13 12 13 1 55 11 1 19 9 16 28 19 14 1 4 5 1 6 3 137 2 2 2 6 198

SOUSSE 11 12 15 7 0 45 8 0 16 8 12 22 11 16 0 2 5 1 2 1 104 3 3 1 7 156

MAHDIA 5 4 5 3 0 17 3 0 4 3 4 6 1 2 0 0 0 0 1 24 1 0 0 1 42

MONASTIR 9 9 7 7 0 32 3 0 8 11 5 12 6 10 0 1 1 1 5 63 2 2 2 6 101

MIDWEST 22 8 6 3 0 39 3 0 6 4 4 5 2 7 0 0 1 0 1 0 33 1 1 0 2 74

SIDI BOUZID 5 3 1 1 0 10 1 0 2 1 1 2 1 3 0 0 0 0 0 11 0 0 0 0 21

KASSERINE 6 3 3 1 0 13 1 0 2 1 2 1 0 2 0 0 1 0 0 10 0 0 0 0 23

KAIROUAN 11 2 2 1 0 16 1 0 2 2 1 2 1 2 0 0 0 0 1 12 1 1 0 2 30

NORTH-EAST 25 23 18 15 0 81 17 0 27 17 16 27 16 22 0 3 2 0 3 1 151 2 2 3 7 239

NABEUL 15 15 9 8 0 47 9 0 17 10 13 16 10 11 0 2 2 0 2 1 93 1 1 2 4 144

BIZERTE 7 6 8 5 0 26 7 0 8 5 2 8 5 9 0 1 0 0 1 46 1 1 1 3 75

ZAGHOUANE 3 2 1 2 0 8 1 0 2 2 1 3 1 2 0 0 0 0 0 12 0 0 0 0 20

NORTH-WEST 25 11 7 6 0 49 9 0 8 10 4 8 4 5 0 1 1 0 1 0 51 0 1 0 1 101

SILIANA 6 1 1 1 0 9 2 0 1 1 1 1 0 0 0 0 0 0 0 6 0 0 0 0 15

EL KEF 5 3 1 1 0 10 1 0 3 2 1 2 1 1 0 0 0 0 0 11 0 0 0 0 21

BEJA 8 2 2 1 0 13 3 0 1 2 2 3 2 1 0 1 1 0 1 17 0 1 0 1 31

JENDOUBA 6 5 3 3 0 17 3 0 3 5 0 2 1 3 0 0 0 0 0 17 0 0 0 0 34

SOUTH-EAST 11 12 7 7 0 37 14 0 15 8 10 6 5 7 0 3 2 0 2 2 74 2 1 2 5 116

GABES 5 4 2 2 0 13 6 0 5 3 4 2 2 3 0 1 1 0 1 28 1 1 1 3 44

MEDENINE 6 8 5 5 0 24 8 0 10 5 6 4 3 4 0 2 1 0 1 2 46 1 0 1 2 72

SOUTH-WEST 9 9 6 8 0 32 5 0 16 2 4 4 1 8 0 0 0 0 0 1 41 0 0 0 0 73

KEBILI 1 2 1 2 0 6 1 0 3 0 1 1 0 0 0 0 0 0 0 6 0 0 0 0 12

TATAOUINE 1 2 2 3 0 8 1 0 4 0 1 1 0 2 0 0 0 0 0 9 0 0 0 0 17

TOZEUR 2 1 1 1 0 5 1 0 2 1 1 1 0 3 0 0 0 0 0 9 0 0 0 0 14

GAFSA 5 4 2 2 0 13 2 0 7 1 1 1 1 3 0 0 0 0 0 1 17 0 0 0 0 30

T O T AL 176 143 137 112 2 570 134 7 207 126 165 198 111 141 2 34 34 15 37 12 1223 26 26 15 67 1860

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ANNUAL REPPORT ON BANKING SUPERVISION 2017 BANCAIRE Appendice 9: Breakdown by region, governorate and leasing institution of the branches network as of 31/12/2017

REGIONS LEASING INSTITUTIONS 2017 TOTAL GOVERNORATES TL CIL ATL ATTIJ.L ML AIL BL HL GREATER TUNIS 2 2 2 3 1 1 2 1 14 TUNIS 1 1 1 2 1 1 1 1 9 ARIANA 0 0 0 0 0 0 0 0 0 BEN AROUS 1 1 1 1 0 0 1 0 5 MANOUBA 0 0 0 0 0 0 0 0 0 MIDEAST 3 4 2 2 2 2 2 2 19 SFAX 1 2 1 1 1 1 1 1 9 SOUSSE 1 2 1 1 1 1 1 1 9 MAHDIA 0 0 0 0 0 0 0 0 0 MONASTIR 1 0 0 0 0 0 0 0 1 MIDWEST 1 0 0 0 0 0 0 0 1 SIDI BOUZID 1 0 0 0 0 0 0 0 1 KASSERINE 0 0 0 0 0 0 0 0 0 KAIROUAN 0 0 0 0 0 0 0 0 0 NORTH-EAST 1 1 2 0 0 1 3 1 9 NABEUL 1 1 1 0 0 1 1 1 6 BIZERTE 0 0 1 0 0 0 1 0 2 ZAGHOUANE 0 0 0 0 0 0 1 0 1 NORTH-WEST 1 1 0 0 1 0 1 1 5 SILIANA 0 0 0 0 0 0 0 0 0 EL KEF 0 0 0 0 0 0 0 0 0 BEJA 1 1 0 0 1 0 1 1 5 JENDOUBA 0 0 0 0 0 0 0 0 0 SOUTH-EAST 2 1 1 0 0 1 1 2 8 GABES 1 1 0 0 0 1 1 1 5 MEDENINE 1 0 1 0 0 0 0 1 3 SOUTH-WEST 1 1 1 0 0 0 0 0 3 KEBILI 0 0 0 0 0 0 0 0 0 TATAOUINE 0 0 0 0 0 0 0 0 0 TOZEUR 0 0 0 0 0 0 0 0 0 GAFSA 1 1 1 0 0 0 0 0 3 T O T AL 11 10 8 5 4 5 9 7 59

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ANNUEL REPPORT ON BANKING SUPERVISION 2017

Appendice 10: Trend in TUNINDEX and TUNBANK indexes

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ANNUAL REPPORT ON BANKING SUPERVISION 2017

TABLE OF CONTENTS

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ANNUAL REPPORT ON BANKING SUPERVISION 2017

CONTENTS PAGES NOTE OF THE GOVERNOR ...... 4 CHAPTER 1: TREND IN THE REGULATORY, PRUDENTIAL, AND OPERATIONAL FRAMEWORK AND THE SUPERVISION ACTIVITY ...... 6 SECTION I - STRENGTHENING THE REGULATORY, PRUDENTIAL AND OPERATIONAL FRAMEWORK OF BANKING SUPERVISION...... 6 1- Reforms of the regulatory framework ...... 6 2- Reforms of the Prudential Framework ...... 9 3- Strengthening the operational framework of banking supervision ...... 14 SECTION II- INTERNATIONAL COOPERATION ...... 15 1- Participations in conferences ...... 15 2- Organisation of the second workshop of the technical assistance in the area of bank deposits’ guarantee 16 3- Presenting training sessions for magistrates ...... 16 SECTION III- BANKING SUPERVISION ACTIVITY ...... 17 1- Approvals ...... 17 2- Authorisations...... 17 3- Oversight activities at banks and financial institutions ...... 17 4- Main disciplinary measures ...... 21 CHAPITRE 2: STRUCTURE AND PHYSIONOMY OF THE BANKING SECTOR ... 22

SECTION I- STRUCTURE OF THE BANKING SECTOR PER TYPE OF ACTIVITY ...... 22 SECTION II- STRUCTURE OF THE BANKING SECTOR PER TYPE OF SHAREHOLDING ...... 23 1- Resident banks ...... 23 2- Non-resident banks ...... 24 3- Leasing institutions ...... 24 SECTION III- ANALYSIS OF THE BANKING SECTOR CONCENTRATION ...... 25 SECTION IV- USE OF THE BANKING SYSTEM ...... 27 CHAPITRE 3: ACTIVITY AND FINANCIAL SITUATION OF BANKS AND FIANANCIAL INSTITUTIONS ...... 29

SECTION I- ANALYSIS OF RESIDENT BANKS’ BALANCE-SHEET STRUCTURE ...... 29 SECTION II- ACTIVITY AND FINANCIAL SITUATION OF RESIDENT BANKS...... 29 1- Trends in operating uses ...... 29 2- Trends in operating resources ...... 32 3- Risk and financial soundness indicators ...... 35 4- Operation and profitability indicators ...... 38 5- Analysis of equity adequacy ...... 42 SECTION III- ACTIVITY AND FINANCIAL SITUATION OF BANKS CARRYING OUT ISLAMIC OPERATIONS (ISB) ...... 44 1- Trends in operating uses ...... 44 2- Trends in operating resources ...... 45 3- Credit risk ...... 45 4- Operation and profitability indicators ...... 46 5- Analysis of equity adequacy ...... 46 SECTION IV- ACTIVITY AND FINANCIAL SITUATION OF LEASING INSTITUTIONS ...... 47

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ANNUAL REPPORT ON BANKING SUPERVISION 2017

1- Trends in operating uses ...... 47 2- Trends in operating resources ...... 48 3- Risk and financial soundness indicators ...... 49 4- Operation and profitability indicators ...... 51 5- Analysis of equity adequacy ...... 52 SECTION V- NON-RESIDENT BANKS’ACTIVITY AND FINANCIAL SITUATION ...... 53 1- Trends in operating uses ...... 53 2- Trends in operating resources ...... 54 3- Credit risk ...... 55 4- Operation ...... 55 5- Analysis of equity adequacy ...... 56 LISTE OF APPENDICES Appendice 1 : General Department of banking supervision’s organizational chart ...... 59 Appendice 2 : Main indicators of the Tunisian banking sector ...... 60 Appendice 3 : Balance-sheet, off-balance-sheet commitment and statement of result of resident-banks ...... 61 Appendice 4 : Balance-sheet, and statement of result of leasing institutions ...... 64 Appendice 5 : Balance-sheet, off-balance-sheet commitment and statement of result of non-resident banks .. 66 Appendice 6 : Trend in average effective rates per financing category 2007-2017 ...... 68 Appendice 7: Trend in global effective rate by category of financing and by bank and financial institution over 2017 ...... 69 Appendice 8 : Breakdown by region, governorate and bank branches’ network as at 31/12/2017 ...... 71 Appendice 9 : Breakdown by region, by governorate and by leasing institution of bank branch network up to 31/12/2017 ...... 72 Appendice 10 : Trend in TUNINDEX and TUNBANK indexes ...... 73

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