Starting in the nineties, Tunisia implemented important reforms and modernization programs in many financial areas, and important progress has been achieved mainly in terms of modernizing the banking system (IMF 2000). However, exposure to high credit risks and other important weaknesses persist within this system; for instance, many banks continue to suffer heavily from non performing loans (NPL), a low level of provisioning, a large volume of non-interest bearing assets, and a high exposure to vulnerable and risky activities, for instance in tourism. Nevertheless, a more radical liberalization process is considered and it is expected that new actions will be taken in order to prepare the banking system for deeper integration : Tunisia (like many neighboring countries) is considering to open up gradually its service sector to EU competition ; that is to extend to trade of services its Free Trade Agreement with the EU (signed in 1995) so far covering only manufactured goods. The conclusion of Boughzala and Saidane (2007) is that it is not in the Tunisian interest to maintain the current level of protection of its banking sector. Openness is likely to generate efficiency and welfare gains directly and through the integration of the Tunisian banking system within a much more competitive environment. However, some important reforms have to be implemented before and along the process in order to allow the Tunisian banks to maximize its net gains.
Source: Adapted from Boughzala and Saidane (2007).
