Interview: Ahmed El Karm
What is your assessment of the authority given to the central bank by the new banking law?
AHMED EL KARM: The new banking law gives too much supervisory authority to the Central Bank of Tunisia (Banque Centrale de Tunisie, BCT) over management decisions. For example, banks must seek authorisation to introduce new products, modify fees, open new branches, develop new digital channels, determine compensation and appoint administrators and directors. This transfer of authority from banks to the BCT creates a high risk of bottlenecks. The BCT will receive a significant volume of authorisation requests, which will delay the decision-making process of banks and financial institutions.
Nevertheless, the new law could have been more audacious regarding the consolidation of the banking system. For example, the text specifies the minimum capital requirement of a bank to be about TD50m (€21.4m). However, the banking sector has recommended against doing so because the minimum capital requirement should be a function of market factors and the objectives of the bank. Legislation on this matter has the risk of enshrining a minimum capital requirement that may soon be outdated and pose legislative difficulties when updating becomes necessary. Rather, the determination of minimum capital requirement should be up to the central bank as the regulator and should be communicated through circulars.
How can access to financing be improved for small and medium-sized enterprises (SMEs)?
EL KARM: It is currently very difficult for SMEs to obtain financing from banks and financial institutions. The risk of financing SMEs is quite high, given their rate of failure. Nevertheless, SMEs need more than just financing, they also need coaching and support from public and private institutions that can facilitate their start-up and growth. SMEs are the backbone of the Tunisian economy and it is therefore imperative to implement solutions, however audacious they may be, that will help SMEs have easier and greater access to the financing they need to grow.
For example, Tunisia’s governorates could each create a fund management company that would promote SME-led projects, guide these SMEs, ensure their good governance and underwrite bank loans for SMEs under the company’s tutelage. The creation of this kind of company would help banks provide more financing to SMEs by better managing and sharing the associated risk. Moreover, interest rate ceilings currently prevent banks from granting credit at a price that allows banks to adequately hedge against the risk of financing SMEs. So a liberalisation of bank loan interest rates would also help banks increase their financing of SMEs.
In what ways can banks boost financial inclusion?
EL KARM: To further reduce financial exclusion, Tunisian banks must exploit mobile applications and the country’s increasing connectivity. Another instrument for inclusion is microfinance. Universal banks participate indirectly in microfinance by providing long-term financing to microfinance companies, and some banks participate in the capital of microfinance companies and serve on their boards of directors to ensure good governance and sustainability.
How can banks reduce the volume of non-performing loans (NPLs) that they carry?
EL KARM: Over the last few years the BCT has been gradually enforcing the norms codified by Basel II and III. By applying these norms, banks have already begun reducing the volume of NPLs on their balance sheets and are now selecting better credit applicants. A comprehensive reform of legal debt collection procedures would also allow banks to better protect their interests. Continuing to apply international banking standards and a modernisation of the country’s judiciary system would also better help secure banks and recover debts.
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