(Ecofin Agency) - • Fitch downgrades Afreximbank’s rating from BBB to BBB- with a negative outlook
• Concerns include loan quality transparency and exposure to high-risk countries
• Downgrade may raise borrowing costs and affect investor confidence

Fitch Ratings has expressed concerns over a lack of transparency and heavy dependence on countries in difficulty, calling on the bank to revisit its strategy to avoid further downgrades. The rating firm announced on June 4, that it had downgraded the long-term credit rating of the African Export-Import Bank (Afreximbank) from BBB to BBB-, indicating a negative outlook.

This long-term rating, one notch above speculative, reflects a perceived decrease in Afreximbank’s credit quality, translating to a slightly higher long-term non-repayment risk. According to Fitch, the negative outlook suggests a higher likelihood of further downgrade in the medium term if the institution’s financial condition worsens.

Fitch also downgraded the bank’s short-term rating from F2 to F3, indicating a more limited capacity to meet short-term obligations. The ratings tied to its Global Medium-Term Note Program were also cut from BBB to BBB-, which could impact the bank’s financing costs.

The decision was justified by Fitch based on the bank’s non-performing loan (NPL) ratio, which reached 7.1% at the end of 2024, above the 6% high-risk threshold. This increase is largely linked to exposures considered non-performing, such as Ghana (2.4% of the loan portfolio), South Sudan (2.1%), and Zambia (0.2%).

Fitch also highlighted the bank’s opaque communication about loan quality. Unlike similar institutions, Afreximbank uses accounting rules that mask risky loans. Several borrowing countries may soon restructure their debts, including those owed to Afreximbank, raising potential losses.

The bank mainly operates in countries facing significant risks such as political instability, low revenue, and weak credit ratings. It also has severe geographical concentration, with over half of its loan book tied to Egypt and Nigeria, its two largest shareholders. The agency raised concerns about governance, given the financial fragility of key borrowing shareholders.

This downgrade may have serious implications. A lower credit rating could increase the bank’s borrowing costs on international markets, as investors seek higher interest rates to offset perceived risks. The decision could also undermine market confidence among partners, creditors, and member states, potentially impacting the terms of its funded projects.

If Afreximbank is forced to finance loans at higher costs, this could be passed on to African borrowers, especially in priority sectors. Reduced financial capacity might also delay or scale down project funding.

Fitch advised the institution, led by Benedict Oramah, to improve transparency around loan quality, adopt clearer communication, reduce exposure to high-risk clients, and increase its equity base.

A year ago, in June 2024, Fitch had maintained Afreximbank’s long-term rating at BBB with a stable outlook, citing a strong profile supported by access to capital markets and alternative credit lines even in adverse conditions.