In June 2016 Tunisia’s Parliament adopted a wide-ranging piece of new financial sector legislation, the New Banking Law No. 2016-48, which went into effect the following month. The law not only brings about a number of sizeable amendments to existing rules and regulations, but also lays out new frameworks for non-banking institutions and sharia-compliant services, as well as provides more detail on regulatory interventions.
Oversight & Reforms
Notable changes in the law include revisions of the country’s banking supervision and oversight regime. Prominent among these is a doubling of minimum bank capital requirements to TD50m (€21.4m), which compares to average capitalisation across the sector of TD80m (€34.4m). Furthermore, the new law allows the central bank, Banque Centrale de Tunisie (BCT), to demand banks raise their capital to levels higher than the minimum level should it judge their risk profile to require this. The law also establishes a new sanctions committee for the sector that will be presided by a magistrate. Perhaps most notable from a corporate governance perspective, the law expands BCT’s investigatory powers to include conglomerates of which banks form part of and other member companies of the same conglomerate as a given bank, as well as giving BCT new powers to approve changes to a bank’s majority ownership, legal status and activities. In addition, the law includes several other reforms to governance, such as a new requirement mandating the separation of the roles of director-general of a bank from that of chairman of the board of directors, as well as guidelines on what exact roles the board and other entities within banks should play. The law also obliges banks to establish management appointment and remuneration committees, and include independent administrators on their boards.
Stabilisation
Another category of changes under the new banking law covers measures to help stabilise the national banking system in the event of a bank facing financial difficulties or even failing altogether, including provisions. “The law lays a structured sequence of interventions in cases where a bank shows signs of weakness, creates a new commission to deal with institutions in real difficulties and allows for banks to be closed down if necessary, breaking with a previous culture of perpetuity for local institutions,” Nadia Gamha, director-general for banking supervision at BCT, told OBG.
The law also establishes a new deposit guarantee fund that will guarantee deposits of up to TD60,000 (€25,700) in the event of a bank failure, which should provide coverage to around 95% of customers, according to BCT.
Licensing
One of the aspects of the law that is less commented upon is a new provision that allows BCT to award a variety of licences and approvals to banks, replacing the previous system based around a single universal banking licence. “The new law, while maintaining universal licences for institutions that have the capacity to do it all, also provides for ‘à la carte’ licences for banks that, for example, target client niches, allowing for specialisation in different areas,” Gamha told OBG, explaining that this is intended to enrich the banking landscape.
“People often say that there are too many banks in Tunisia, but there are smaller countries with more banks, and while BCT is in favour of consolidation, a bigger problem is that all banks currently have more or less the same business model,” she told OBG, adding that the new law would allow for more diversification in the sector. The law also transfers the power to issue bank licences from the minister of finance to a new committee headed by the chairman of BCT. Licensing requirements have been tightened and the process is now split into two stages, with a provisional licence given first to allow banks to put structures in place before awarding a full licence.
Developing Niches
The law also contains provisions seeking to develop various aspects of the country’s financial system, including measures that authorise the creation of new non-bank payment institutions that can offer services such as pre-paid payment cards and mobile payments. More notably, it establishes a dedicated regulatory framework for sharia-compliant financial services in the country for the first time. While Islamic banks were already active prior to the passage of this legislation, they were regulated in the same way as conventional banks. Under an initial draft of the law, only specialised sharia-compliant institutions were allowed to offer Islamic banking products, but this was changed in the final version approved by Parliament in June 2016, which allowed both conventional and dedicated Islamic institutions to operate in the segment via so-called Islamic windows.
Hicham Seffa, director and CEO of Attijari Bank, told OBG that the change was largely welcome. “Allowing conventional banks to also offer Islamic financial products will increase the supply of products and increase competition.” The legal changes and reforms also expand the range of activities available to investment banks, including allowing them to do more financial engineering and provide bridging loans to companies. “Investment banks will now be able to act as a link between the banking market and financial markets,” Gamha told OBG.
Implementation
In order for the banking law changes to come into effect, the authorities will need to issue a range of circulars and applicatory decrees. Gamha told OBG that the decrees on the creation of the deposit guarantee fund, and the new licensing and sanctions committees were nearly ready, and that all the required instruments would be in place by the end of 2017. The new rules and regulations also update a number of key elements of the country’s banking framework.
Reforms
While few argue about the need for these reforms or take issue with the actual substance of the changes, the approach of the new law has engendered some concern among stakeholders. The policies are very detailed and prescriptive, and several rules related to some of the more dynamic and rapidly changing aspects of banking, rather than administrative policy.
Ali Kooli, CEO at Bank ABC, told OBG, “The law could have set out a broad legal framework the details of which would have been laid out later through policy circulars, rather than regulating everything in detail itself,” adding that he felt the legislation also failed to respond to current needs in some respects. “For example, the law does not do enough to accommodate the increasing importance for innovation within the sector.”
Seffa echoed similar concerns, noting that elements of the banking and finance laws that stipulate that financial institutions receive permission from BCT before opening new branches would lead to administrative delays that could be detrimental to product innovation. He also expressed concern over the increased capital requirements that are enshrined in the text. “Legislating on this matter has the risk of enshrining a minimum capital requirement that may soon be outdated and pose difficulties when updating becomes necessary,” Seffa told OBG.
Some banking industry figures in Tunisia have noted that while increased capital requirements will drive consolidation in the sector, there was room to raise the requirements further. Habib Benhadj-Kouider, CEO of Banque Nationale Agricole, told OBG that the advantages of the new banking law largely outweigh the disadvantages, although he added that the “new capital requirements could have been at least twice as high to encourage mergers and acquisitions in the sector”.
Liberalisation Drive
In addition to the law, Tunisia’s central bank is also planning to liberalise the industry in other respects, including introducing changes regarding the amount that banks can lend to related parties, such as companies that are members of the same conglomerates or holding groups as the bank in question.
In 2017 such loans will be capped at 75% of the value of a bank’s capital, with the figure to be reduced to 25% in 2018. While such a change could impact the profitability of some banks, the authorities are working to liberalise the sector in ways that may help mitigate this effect.
Most notably, BCT is planning to relax a cap on lending interest rates that currently limits loans to 1.2 times the recent market average. BCT first raised the limit in 2016, and is planning to replace the current system of a single interest rate ceiling with a range of different caps in 2017. The new maximum limits will instead be based on the profile of specific types of borrowers.
Regulation
Recent years have seen a range of regulatory changes in the banking sector. “The next step in reforming Tunisia’s banking sector will relate to enforcing compliance with Basel II and III,” Ahmed Rjiba, CEO of Banque de l’Habitat, told OBG. In 2014, for example, BCT raised the liquidity coverage ratio from 60% to 80% as part of efforts to meet Basel III norms. BCT aims for the sector to be fully compliant with Basel III standards by the end of the decade.
In 2015 the central bank also started work on a new five-year banking supervision plan, with the aim of moving towards a risk-based oversight system. The central bank also recently issued a new circular on operational risk and is currently working on a range of others, including a circular on market risk norms. “We have a wide-ranging calendar of reforms in the pipeline to bring the banking sector to compliance with Basel III by 2020,” Gamha told OBG.
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