1. Introduction
Tunisians’ standard of living has improved and the country’s poverty rate has declined in recent decades. However, the COVID-19 pandemic, and the economic crisis it ushered in, has deeply affected tourism, industrial activity and exports, and has had a severe impact on Tunisia’s economic and social fabric. As part of the European Union’s Programme d’Appui à la Gouvernance Economique, the OECD was invited in 2021 to conduct a market study and competition assessment of the country’s retail banking sector, jointly with the Competition Council. The programme has also included a Peer Review of Competition Law and Policy, published in 2022, and a Competition Assessment of the Tourism Sector, published in 2023. In 2019 the OECD conducted a competition assessment of wholesale and retail trade, and road and maritime transport. This chapter describes the services in the scope of the review and the approach and the sources used.
The banking services included in the scope of this report are: personal current accounts (PCAs), business current accounts (BCAs), bank loans for micro, small and medium-sized enterprises (MSMEs), and mobile payment services.
Current accounts are typically used to store money and access it quickly, make and receive payments, and access short-term credit through overdraft facilities. Current accounts are provided by banks and by La Poste Tunisienne, or the Tunisian Post Office. Current accounts are often regarded by businesses as a means by which to establish banking relationships with current account providers.
A wide range of debt and equity financing instruments is available to MSMEs. Debt instruments include bank lending, leasing, factoring and microfinance. Equity instruments include the stock market and venture capital. This report focuses on bank loans, and it includes some information on leasing and factoring when relevant. Bank lending to MSMEs in Tunisia includes overdraft facilities, short-term credit (with maturity of less than one year), medium-term credit (with maturity of between one and seven years) and long-term credit (with maturity longer than seven years). Microfinance products are not included in the scope of this review.
Mobile payment services include all financial operations initiated using mobile phones, such as opening payment accounts, making cash payments and withdrawals, transferring money, making electronic payments, and using pre-paid electronic cards. The mobile payment services segment in Tunisia is still developing and concerns among stakeholders revolved around potential barriers to entry. For this reason, Chapter 6 uses the OECD Competition Assessment Toolkit to examine relevant legislation and identify barriers to competition.
This project is a market study combined with a competition assessment. The market study follows the approach set out in the OECD Market Studies Guide (OECD, 2018[1]). A market study involves assessing how competition works holistically to understand the impact of market forces and structures. It is in-depth and evidence-based, and it considers the behaviour of consumers and firms (both those currently operating in the market and potential market entrants) alongside the regulatory framework. Market studies can be used for a variety of purposes. One aim is competition advocacy to identify poor outcomes for consumers and reforms needed to make markets work more effectively for consumers. A market study can also enhance knowledge of a specific sector, which can be leveraged in future work by policy makers, or it can be used to support competition authorities’ enforcement activities by uncovering evidence of anti-competitive conduct.
The competition assessment follows the framework set out in the OECD Competition Assessment Toolkit (OECD, 2019[2]), developed by the OECD Competition Committee’s Working Party 2. The toolkit outlines the methodology for identifying potential obstacles to competition in laws and regulations. This project adopts a combined approach using both the Market Studies Guide and the Competition Assessment Toolkit.
Financial services are extensively regulated because of their importance to the entire economy. Consumers rely on banks to receive and make payments, store savings, and obtain credit. Businesses need to access finance to engage in and develop their activities. One key objective of financial regulation is to mitigate the risks that financial institutions may pose to financial stability, for example by taking excessive risks without considering the effects of their conduct on the rest of the economy.
However, restrictions imposed on financial firms must be proportionate to their expected benefits. If not, excessive regulation may negatively affect competition by increasing barriers to entry or expansion in the market. To identify poor outcomes in financial markets, it is vital to understand how those markets work, because harm often arises from a combination of multiple causes and because interactions between market practices, consumer behaviour and regulation determine market outcomes.
The relationship between banking competition and financial stability is complex. According to Vives (2016[3]), competition may hinder financial stability through either the liability or the asset side of financial intermediaries’ balance sheets. First, competition may exacerbate the co-ordination problem between depositors and investors, increasing the likelihood of bank runs. Second, competition may add to incentives to take risks and increase the likelihood of bank failures.
However, Vives (2016[3]) suggests that the trade-off between competition and financial stability can be mitigated by introducing regulation to internalise the effects of externalities and capital requirements, and by co-ordinating competition with prudential policies. For example, competition policy that eases market entry and increases contestability – for example by lowering switching costs and improving the availably of information to consumers – may be accompanied by stricter prudential requirements. Or prudential regulation may represent a barrier to entry, especially for smaller banks, and particularly when compliance costs increase because of new regulation.
There are also areas in which competition policy aligns with and complements prudential policy. For example, increased competition mitigates the “too big to fail” problem and reduces distortions associated with the funding advantages of larger banks. Also, the introduction of market infrastructure such as credit information bureaus may both reduce lending risk by shrinking information asymmetries and reduce the competitive advantages enjoyed by larger banks with larger customer bases.
The OECD has in this assessment adopted a holistic approach, using its competition toolkit and market study tools to identify market dynamics and make recommendations that consider market practices and Tunisia’s regulatory framework.
The analysis presented in this report is based on information obtained from a wide range of sources, including information gathered during interviews with several stakeholders, reviews of legislation for the banking sector, a survey of consumers, a survey of MSMEs, data publicly available from Tunisian stakeholders and international bodies, data from analytics supplier Refinitiv, and qualitative and quantitative data provided by the Central Bank of Tunisia (BCT). This section provides a brief description of each source.
1.3.1. Meetings with stakeholders
The OECD project team held 52 meetings with different stakeholders, 19 virtual and 33 in person. The project team met with representatives of Tunisian public institutions, private market participants, senior staff of several banks and international organisations.
1.3.2. Legislation
To identify relevant regulatory provisions, research was carried out using the Qanouni online legal database and a list of relevant legislation available on the website of the BCT. This research was complemented by input received from the BCT. The research resulted in 68 pieces of legislation applicable to the banking sector being analysed during the course of the project.
1.3.3. Surveys
The OECD commissioned two surveys by Emrhod Consulting, a market research company with offices in Tunis and Algiers. A consumer survey was carried out among individuals and an enterprise survey was conducted among MSMEs.
The main research questions in the consumer survey concerned:
whether individuals had PCAs or deposit accounts (or neither).
what factors influenced individuals’ decisions when choosing PCA providers.
how individuals engaged with the PCA market; for example, their propensity to shop around for PCAs, whether individuals had switched PCAs, and what factors had motivated their choices.
The main questions in the MSME survey involved:
what factors influenced individuals’ decisions when choosing BCA providers.
what MSMEs’ perceptions were concerning international transaction services.
the MSME journey to obtaining financing and the key barriers preventing MSMEs from accessing it.
Annex C provides details of the methodology used in both surveys.
1.3.4. Publicly available data
The analysis relied on a wide range of publicly available data.
World Bank Enterprise Surveys: Firm-level surveys of a representative sample of private enterprises that collect data on companies’ characteristics and performance, and on a range of topics including access to finance. The enterprise surveys are conducted on a rotating basis throughout Europe, Central Asia, the Middle East and North Africa, South Asia, East Asia and the Pacific, and Latin America and the Caribbean (World Bank, 2022[4]).
The World Bank’s Global Findex Database: The 2021 database provides almost 300 indicators for 160 countries on account ownership, payments, savings, credit and financial resilience. Data can be broken down by gender, income, labour force participation, age and rural or urban residence (World Bank, 2021[5]).
Global Financial Development Database: This dataset includes 108 measures of the depth, accessibility, efficiency and stability of financial systems for 214 economies (World Bank, 2022[6]).
The International Monetary Fund’s World Economic Outlook Databases: These databases include information on national accounts, monetary policy, trade, government finance and balances of payments (International Monetary Fund, 2023[7]).
Data from the World Federation of Exchanges’ databases that include information on national equity and corporate bond markets (The World Federation of Exchanges, 2022[8]).
Data from the website of the BCT: The BCT’s site and reports provide a wide range of information on Tunisia’s banking sector.
Data from the website of the Bourse des Valuers Mobiliéres de Tunis (BVMT), or Tunis Stock Exchange. The exchange’s site provides information on major shareholders (those with stakes exceeding 5%) of listed companies and membership of companies’ boards of directors (Bourse des Valuers Mobiliéres de Tunis, 2023[9]).
Data from the website of the Institut National des Statistiques, or National Institute of Statistics: This site offers information on the number of enterprises in Tunisia, broken down by a number of characteristics such as geographical location, numbers of employees and economic activity.
Where appropriate and feasible, data on Tunisia’s retail banking sector has been compared with data from a set of peer countries. This offers an opportunity to understand whether outcomes are different from what could be expected under more competitive conditions. Although a perfect benchmark does not exist, because financial services may differ and competition may not work well in peer countries, Tunisian data has been compared with data available from MENA, EU and OECD countries. One the one hand, countries geographically close to Tunisia may share cultural, economic and regulatory characteristics that make them insightful benchmarks. On the other hand, geographically proximate countries may also share some of the factors contributing to the market outcomes observed in Tunisia. Given that the MENA countries in each comparison may vary, a note will specify which countries are included.
1.3.5. Proprietary data
The report uses data from Refinitiv, a provider of financial market data and infrastructure, that includes high-level information on banks’ balance sheets, income statements and shareholders.
1.3.6. Information from the BCT
Following initial conversations with stakeholders, the OECD prepared detailed qualitative and quantitative questionnaires requesting a range of information from public and private stakeholders.
The BCT provided qualitative information on the cap on lending interest rates, public registries of credit information, and the public policy objectives of certain legal provisions. It also provided anonymised aggregate data on: 1) average interest rates charged by banks over time on various lending products; 2) the largest banks’ loan portfolios; 3) the volume of current accounts and related non-interest revenues; 4) listed fees for current accounts; 5) banks’ branch networks; and 6) average interest rates charged by banks for lending products over time.
However, a significant portion of the qualitative and quantitative information requested was either not available or not shared. Notably, the OECD did not have access to: 1) detailed qualitative information on banks’ strategies and practices; 2) data on the volume of lending to related borrowers to assess concerns around practices favouring lending to connected borrowers; 3) granular, loan-level data including prices, amounts and borrower characteristics (such as information on the size of borrowers to identify MSMEs) to assess the impact of the cap on lending interest rates; and 4) comprehensive information on ownership structures and membership of boards of directors, especially for non-listed banks.
Limitations on the information available made assessing how competition works in the focus sectors challenging and, in some instances, made it impossible to assess the impact of certain market features on market outcomes.
The structure of the report is as follows:
Chapter 2 presents an overview of Tunisia’s retail banking sector, the main market participants, and the institutional and regulatory framework.
Chapter 3 discusses several factors in Tunisia’s banking sector that affect how competition works. These include the presence of the state in financial services, the influence of large industrial groups on banks, the role of the Conseil Bancaire et Financier, the ineffective mediation mechanisms available to Tunisian consumers, and the limited co-operation between the BCT and the Competition Council.
Chapter 4 presents an assessment of competition in the market for the provision of current accounts for individuals and businesses.
Chapter 5 presents an assessment of competition in the market for the provision of bank loans to MSMEs.
Chapter 6 assesses legislation relating to mobile payments, using the OECD’s Competition Assessment Toolkit.
Chapter 7 presents an assessment of the barriers to entry and expansion in the retail banking sector.
Chapter 10 concludes with the quantification of consumer benefits that would result from the implementation of the OECD’s recommendations.
References
[9] Bourse des Valuers Mobiliéres de Tunis (2023), Listed companies, https://www.bvmt.com.tn/fr/entreprises/list (accessed on 25 May 2023).
[7] International Monetary Fund (2023), World Economic Outlook Database, https://www.imf.org/en/Publications/WEO/weo-database/2023/April (accessed on 22 May 2023).
[2] OECD (2019), OECD Competition Assessment Toolkit, https://www.oecd.org/competition/assessment-toolkit.htm.
[1] OECD (2018), Market Studies Guide for Competition Authorities, https://www.oecd.org/competition/market-studies-guide-for-competition-authorities.htm.
[8] The World Federation of Exchanges (2022), Welcome to the future of markets, https://www.world-exchanges.org/ (accessed on 22 May 2023).
[3] Vives, X. (2016), Competition and stability in banking : the role of regulation and competition policy, Princeton University Press.
[4] World Bank (2022), Enterprise Surveys Indicators Data, https://www.enterprisesurveys.org/en/enterprisesurveys (accessed on 22 May 2023).
[6] World Bank (2022), Global Financial Development Database, https://www.worldbank.org/en/publication/gfdr/data/global-financial-development-database (accessed on 22 May 2023).
[5] World Bank (2021), The Global Findex Database 2021, https://www.worldbank.org/en/publication/globalfindex (accessed on 22 May 2023).