Fitch Ratings' Tunisian affiliate Maghreb Rating has downgraded Union Tunisienne de Leasing (UTL)’s Long-Term National Rating to A from A+ and affirmed its Short-Term National Rating at F1. The Outlook for the Long-Term rating is Stable.
At the same time Fitch has assigned UTL a Support Rating of 3. UTL's Long-Term National Rating was downgraded reflecting necessary adjustments to ensure that consistent relativities are maintained on Maghreb Rating's National scale.
UTL's National ratings are driven by the indication of support extended by Union Bancaire pour le Commerce et l'Industrie (UBCI). Were it not for this support, the rating would reflect the company's deteriorating profitability and weak asset quality.
UTL, Tunisia's sixth largest leasing company with a modest eight percent market share, is 73 percent controlled by Union Bancaire pour le Commerce et l'Industrie (UBCI), which, in turn, is 50 percent owned by BNP Paribas through its wholly-owned subsidiary BNP Intercontinentale.
Fitch has received written confirmation of UBCI's support for UTL and is further assured by its track record in providing support. However, there are uncertainties regarding UBCI's ability to provide such support since it is not rated by either Fitch or MR. Thus, a Support Rating of 3 is assigned.
UTL provides medium-term finance to the private sector, mainly to small to medium businesses (SMEs) and individuals. Its performance indicators, amongst the lowest of its peers, are worrying. Management's strategy is to address profitability through loan portfolio expansion, tighter credit risk selectivity and improved recovery efforts.
In addition, UTL is working more closely with UBCI, which is providing valuable commercial and technical support. As of end-June 2003, 40 percent of new leases were introduced by UBCI's network. Risk management procedures and IT systems were totally reviewed over 2002-03 leading to closer control from the parent.
All leases are approved by UBCI's credit risk management team which reports to BNP Paribas. These new operating rules should enable UTL to bring down a high-impaired loan ratio.
The UBCI group provides the bulk of UTL's funding. Medium-term local bonds and multilateral medium-term bank lines are also in place.
Liquidity ratios are tight but UTL's ability to call on a €15 million BNP Paribas medium-term line and a further Citibank eight million Tunisian dinar ($6.2 million) revolving short-term line provides some comfort, even though these are not confirmed lines, said Fitch. Maturity mis-matches are being addressed.
Capital ratios, in excess of 14 percent according to local standards, may be overstated given the high level of impaired loans. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
