The African Export-Import Bank (Afreximbank) has dismissed a downgrade in credit rating by Fitch Ratings, following an assessment that some of its state borrowers were at a higher risk of defaulting on their debt, and reiterated that its founding treaty can’t be violated ‘without consequences.’
- •Fitch Ratings downgraded Afreximbank, lowering its long-term foreign currency issuer default rating from ‘BBB’ to ‘BBB-’ with a negative outlook, citing a perceived increase in credit risk and weak risk management policies, based on its estimate that the bank’s non-performing loans (NPLs) stood at 7.1%.
- •The multilateral institution has now said that it is not currently in any debt restructuring negotiations with member countries.
- •Its response matches a similar rebuttal by the APRM, a body spearheading establishment of parallel credit rating agency for the African Union, with both disputing the higher risk exposure Fitch used while assessing Ghana, Zambia, and South Sudan on their obligations to the multilateral banking institution.
“Fitch’s ‘negative outlook’ decision, which it says reflects “the risk that the debt owed to Afreximbank by some of its sovereign borrowers may be restructured”, is hinged on the erroneous view, in some quarters, that the treaty establishing Afreximbank, executed by its 53 participating African states, can be violated by the Bank without consequences,” the multilateral institution said in a statement on Tuesday.
The rating firm’s estimate stems from its classification of exposures to the sovereign Governments of Ghana (2.4%), South Sudan (2.1%) and Zambia (0.2%) as NPLs. Notably, this 7.1% figure is significantly higher than the 2.44% ratio reported by Afreximbank in its own disclosures.
“The assumption that Ghana, South Sudan and Zambia would default on their loans to Afreximbank is inconsistent with the 1993 Treaty establishing the Bank to which Ghana and Zambia are both founding members, shareholders and signatories,” the APRM said in the immediate aftermath of the downgrade.
“…loans extended by Afreximbank to its member countries are governed by a framework of intergovernmental cooperation and mutual commitment, rather than typical commercial risk principles,” Afreximbank added in its statement.
The bank said it operates with a high level of collateral and credit risk mitigants and has already taken relatively large provisions on some sovereign exposures.