Fitch downgrades Afreximbank’s rating to ‘BBB-‘, cites loan transparency concerns

Fitch Ratings has downgraded the African Export-Import Bank’s (Afreximbank) long-term issuer default rating (IDR) to ‘BBB-’ from ‘BBB’ — “a negative outlook”.

The global ratings agency also downgraded the bank’s short-term IDR to ‘F3’ from ‘F2’, and the long-term ratings on its global medium-term note programme and debt issuances to ‘BBB-‘ from ‘BBB’.

In a statement on Wednesday, Fitch said the downgrade reflects the downward revision of its solvency assessment from ‘a-’ to ‘bbb+’, reflecting ‘high’ credit risks (previously ‘moderate’) and ‘weak’ risk management policies (previously ‘moderate’).

“The increased credit risk stems from the rise in the bank’s non-performing loans (NPLs) ratio as calculated by Fitch, which exceeded the 6% ‘high risk’ threshold outlined in Fitch’s criteria at end-2024,” the statement reads.

“The revision of risk management to ‘weak’ reflects low transparency in the recent reporting of loan performance relative to multilateral development bank peers and that Fitch’s definition of NPLs differs from the bank’s approach, which makes use of flexibilities offered by IFRS 9.

“The Negative Outlook reflects the risk that the debt owed to Afreximbank by some of its sovereign borrowers might be included in the perimeter of these sovereigns’ debt re-structuring.

“This would put pressure on our assessment of the bank’s policy importance and heighten the risk associated with its strategy.

“The ratings are driven by the bank’s Standalone Credit Profile (SCP) of ‘bbb-‘, reflecting the lower of the solvency (‘bbb+’) and liquidity (‘a’) assessments, and its ‘high risk’ (-2 notches) business environment.

“The solvency assessment of ‘bbb+’, which Fitch has revised from ‘a-‘ at the previous review, balances the bank’s ‘strong’ capitalisation and ‘moderate’ risk profile.”

Fitch also downgraded its evaluation of the bank’s risk management from ‘moderate’ to ‘weak’, pointing to weak transparency in loan performance reporting compared to peers and increased risk linked to the bank’s sovereign loan exposures.

“We note that the bank operates with a high level of collateral and credit risk mitigants and has already taken relatively large provisions on some sovereign exposures, which would reduce any potential further negative financial impact for the bank,” the agency added.

Fitch said the high-risk business environment assessment partly reflects the bank’s exposure to a ‘high-risk’ operating environment, with weak credit quality, low income per capita, and high political risk in the countries of operation.

The rating agency said the assessment of Afreximbank’s business profile risk remains ‘medium’ but is negatively affected by the low transparency in reporting loan performance, which has led to a revision of the quality of governance assessment to ‘high risk’ from ‘medium risk’.

Fitch highlighted Afreximbank’s capitalisation, with a moderate capital to risk-weighted assets ratio of 21 percent and a strong equity-to-assets and guarantees ratio of 19 percent at the end of 2024.

This, the organisation said, is supported by internal capital generation and a capital increase approved in 2021.