TUNIS, Tunisia — The Central Bank of Tunisia denied in a statement Sept. 6 any intention to reduce funding and loans granted to banks, specifying instead that it seeks to put an end to consumer loans that banks give to borrowers.
The statement comes after the Central Bank announced June 18 that it will issue a circular forcing banks to respect a new credit-deposit ratio not exceeding 110%, given that most banks have already significantly exceeded this ratio. The announcement caused concerns among banks, which pushed the Central Bank to issue the September statement.
This measure aims at reducing the volume of refinancing and controlling inflation. Banks would also be required to limit the allocation of consumer loans.
The Central Bank explained in its September statement that it seeks, through this circular that is still in its draft form, to push the banks with high credit-deposit ratios only — reaching 150% for some banks — toward a gradual decrease by 3% every three months. The statement specified that the new measure will not include banks that have a ratio of 110% and less.
The statement further said that this ratio comes in light of an unusual liquidity shortage in banks, which led to an extensive recourse to the Central Bank of Tunisia’s short-term resources and made banks more vulnerable to the risks of maturity transformation.
The Central Bank did not specify when it would start implementing the measure that will raise the funds of most banks — raising capital and limiting profit distribution, among other measures — and limit the granting of loans and exposure to market risks.
The circular issued by the Central Bank in June sets out new rules for calculating the solvency ratio of banks, taking into account, for the first time, market risks (foreign exchange and interest rates), and excluding certain elements from the calculation of the banks' own funds.
Hatem Zaara, an expert in exchange and stock markets, told Mosaique radio station Sept. 7 that the decision to be taken by the Central Bank led to a 6.1% decline of bank stocks in the financial market since the beginning of September.
Walid Ben Salah, former chairman of the Order of Chartered Accountants in Tunisia, also wrote in a Facebook post Sept. 5 that banks would be obliged to limit the granting of new loans and improve coverage and collection of deposits. According to Ben Salah, compliance with the requirements of the new circular requires an increase in the capital of most banks (increase capital, limit the distribution of dividends, launch subordinated loans if there is liquidity) and the limitation of credit granting and exposure to market risks, particularly foreign exchange risk (financing of foreign trade).
Ain ed-Dine Saidane, head of the International Arab Bank of Tunisia from 1998 to 2003, told Al-Monitor that the economic and financial situation in Tunisia is very difficult given the soaring inflation rate that reached 7.5% in July and August. This threatens to destabilize the economic and financial balance and threatens to further depreciate the Tunisian dinar. He also noted that public debt tripled between 2010 and 2018, from 25 billion dinars ($9 billion) to 75 billion dinars ($27 billion).
Saidane noted that the trade balance deficit is deepening and has exceeded 12 billion dinars ($4.32 billion) from the beginning of the year until the end of August, recording a 20% increase compared to the same period of 2017, in an unprecedented level in the history of Tunisia.
Saidane added that the decline in the foreign currency reserves, which can last for 63 days only, makes it insufficient to cover expenses of medicine, food and fuel supply, even though Tunisia exported 2 billion dinars (around $720 million) in olive oil and 700 million dinars ($251 million) in dates.
Meanwhile, Noureddine Taboubi, the secretary-general of the Tunisian General Labor Union (UGTT), announced in media statements Sept. 5 that the union might resort to a general strike (the date of which is not set yet) to protest unreasonable price hikes and delay in the negotiations concerning the public sector wage increase. The strike could cause further economic collapse.
Taboubi confirmed in another statement to the private radio station Jawhara FM Sept. 5 that there are no personal conflicts between the UGTT and government officials, and described the union’s strike as a means to express and defend social benefits.
In a related context, the deputy secretary-general in charge of the department of trade union formation and labor education in the UGTT, Mohamed Muslimi, told Al-Monitor that the union is threatening to go on a general strike in the public sector because of the government's attempt to sell some public institutions to the private sector. The strike also comes as the government is failing to execute agreements signed therewith concerning the public sector wage increase. He noted that the government is responsible for the deterioration of the economic situation because of its failing policies.
The Tunisian Confederation of Industry, Trade and Handicrafts, a trade union organization concerned with defending businessmen and owners of free economic institutions, is accusing the UGTT of leading the country into bankruptcy. Organization member Khalil Ghariani said in a statement to the private radio station Shems FM Sept. 6 that strikes are unacceptable and might adversely affect Tunisian investment and further sink the Tunisian economy.
In this regard, Maaz al-Salami, another member of the confederation, said that the economic situation cannot afford more labor strikes and disruption of production, which could cause bankruptcy in a country drowning in foreign debt.
Speaking to Al-Monitor, Salami called on all governmental, political and trade parties to work in a spirit of patriotism in order to save the country from bankruptcy.