International rating agency, Fitch Ratings has upgraded African Export-Import Bank’s (Afreximbank) Long-Term Issuer Default Rating (IDR) to ‘BBB’ from ‘BBB-’ with a stable outlook.
Fitch has also upgraded Afreximbank’s Short-Term IDR to ‘F2’ from ‘F3’, and the long-term ratings on the bank’s Global Medium-Term Note Programme and debt issuances to ‘BBB’ from ‘BBB-’.
Fitch, in its rating note, said the upgrade of Afreximbank’s ratings reflects a strengthening in the bank’s Standalone Credit Profile (SCP) to ‘bbb’ from ‘bbb-’. “The improvement in the SCP follows Fitch’s revision of its assessment of the bank’s business profile to ‘moderate’ from ‘high’ risk.
“Afreximbank has strengthened its institutional role and raised its profile as the main multilateral development bank focused in supporting the public and private sectors in the African continent. The improvement in the bank’s business profile follows Fitch’s revised assessment of Afreximbank’s policy importance.
“This is primarily underpinned by the recent large capital increase, which in Fitch’s view, highlights the increased importance of the bank for its shareholders.
number of key mandates given to the bank by the African Union (e.g. to implement the health response to the Covid-19 crisis, or more recently to support access to grains and fertilisers in the context of the Russia-Ukraine conflict) is further evidence of the bank’s rising profile.
“Afreximbank’s ratings are driven by its SCP, reflecting the lower of the solvency and liquidity assessments, and the ‘high risk’ business environment in which the bank operates. The solvency assessment of ‘a-’ balances the bank’s ‘strong’ capitalisation and ‘moderate’ risk. The ‘high risk’ business environment now leads to a two-notch negative adjustment to the lower of solvency (a-) and liquidity (a) assessments versus a three-notch adjustment previously,” it pointed out.
Fitch’s capitalisation assessment takes into account the bank’s ‘strong’ equity to assets and guarantees ratio (E/A; 17 per cent at end-2021), the ‘moderate’ usable capital to risk-weighted assets (FRA; 18 per cent) ratio and the ‘excellent’ internal capital generation (ICG). Fitch expects the E/A and FRA ratios to remain broadly unchanged over the forecast period to 2024.
Fitch’s projections assume a 12 per cent year on year growth in the banking operations and capital injections under the general capital increase approved by Afreximbank’s board of directors in June 2021, totalling $2.6 billion in paid-in capital, of which $1.053 billion has been already paid.
The rating agency also said: “the average rating of loans and guarantees before accounting for credit risk mitigants remained stable at ‘B-’ as of end-2021. The low credit quality of the portfolio reflects Afreximbank’s exposure to non-sovereign entities (83 per cnet of total loans), whose credit quality are deemed very weak as per Fitch’s assessment, and sovereign borrowers with an average rating of ‘B-’.
“Fitch’s credit risk assessment also takes into account a high degree of loan collateralisation (87 per cent of total loans at end-2021), including cash collaterals (covering 28 per cent of the loans) and credit insurance (nine per cent) from ‘A-’-’AA’ rated insurers, which provide an uplift of three notches above the average rating of loans to ‘BB-”