OREANDA-NEWS. Fitch Ratings has affirmed Tunisie Factoring's (TF) and Union de Factoring's (UF) National Long-term Ratings at 'BBB(tun)' and 'BB(tun)', respectively. The Outlooks on both National Long-term Ratings are Stable. A full list of ratings actions is provided at the end of this rating action commentary.

The rating actions follow a periodic review of Tunisian factoring companies' National Ratings. National Ratings reflect the creditworthiness of an issuer relative to the best credit and to peers in the country.

KEY RATING DRIVERS - NATIONAL RATINGS AND SENIOR DEBT
TF's National Ratings reflect Fitch's opinion of a limited probability of support, if required, from its 98.2%-owned shareholder, Tunisie Leasing (TL, BBB+(tun)/Stable/F2(tun)). While Fitch considers TF as a strategically important subsidiary of TL, we consider the probability of support being provided as limited due to TL's ability to support, as reflected in its National Long-term Rating. The Stable Outlook is in line with that on TL's National Long-term Rating.

TF has maintained stable asset quality ratios. Single debtor concentration risk is high but is mitigated by TF's risk management procedures and underwriting approach that are more conservative than peers'. TF's capital and leverage ratios compare well with those of peers. Profitability has been resilient despite increased funding costs. Reliance on wholesale funding and tight liquidity - common to the sector - remains adequately-managed compared with peers.

UF's National and senior debt Ratings are driven by the company's standalone creditworthiness. The National Long-term Rating reflects UF's improving asset quality, above -peers profitability and capital and leverage ratios that are in line with peers. It also takes into account UF's higher risk appetite than peers and inherently tight liquidity as with the rest of the sector in Tunisia. UF, however, benefits from ordinary support made available by its bank shareholders, in case of need.

UF's market position has strengthened over the past three years in Tunisia (53% market share of outstanding loans at end-1H15, up from 41% at end-2012), reflecting a more aggressive commercial strategy and stronger loan growth than its main Tunisian competitor, TF. UF's asset quality has improved over the past three years. Its impaired loans ratio is high (11.1% at end-1H15) but largely comprises legacy exposures dating back to pre-2008 (82% of total impaired loans, 94% reserved). The portfolio originated post-2008 is performing adequately (2.2% impaired loan ratio at end-1H15). Fitch expects asset quality metrics to slightly improve in 2016 on the back of further write-offs. Concentration risk per obligor is material, in common with the factoring sector.

UF's profitability is above peers' despite pressure on net interest margins. Fitch expects profitability to be flat in 2016 in the absence of economic recovery in Tunisia. Loan impairment charges are expected to increase due to a continued decline in write-backs. Cost of funding is expected to benefit from the recent decrease in the Tunisian monetary policy rate.

UF's capital and leverage ratios are in line with peers. Fitch does not factor in any shareholder support in the ratings because of UF's fragmented shareholding base. The agency considers UF's liquidity tight, in common with the sector, due to its reliance on short-term debt and the lack of contingency funding plans. However, liquidity risk has to date been mitigated by ordinary support from its bank shareholders.

RATING SENSITIVITIES - NATIONAL RATINGS AND SENIOR DEBT
TF's National Ratings are mostly sensitive to changes in TL's National Ratings and would benefit from stronger integration with TL. Nevertheless, they could also suffer from a material deterioration of TL's propensity to support TF, which Fitch believes is highly unlikely.

UF's National and senior debt ratings could benefit from material and sustained improvements in asset quality as well as improved disclosures and continued strengthening of internal controls and liquidity risk management procedures. A revised shareholding structure could also benefit UF's ratings. Downside risk for the ratings could result from rapid growth leading to material deterioration in asset quality and/or capital ratios.

The rating actions are as follows:
TF
National Long-term Rating: affirmed at 'BBB(tun)'; Outlook Stable
National Short-term Rating: affirmed at 'F3(tun)'

UF
National Long-term Rating: affirmed at 'BB(tun)'; Outlook Stable
National Short-term Rating: affirmed at 'B(tun)'
National senior unsecured debt rating: affirmed at 'BB(tun)'.