LONDON – Fitch downgraded Afreximbank’s credit rating to one notch above junk on Wednesday, with a negative outlook, citing high credit risks and weak risk-management policies.
The one-notch downgrade to BBB- comes as the African lender battles to protect its loans from restructuring in Ghana, Zambia and Malawi, claiming that as a multilateral lender it has preferred creditor status.
Fitch pegged Afreximbank’s non-performing loans at 7.1 per cent at the end of 2024, while the bank itself reported a first-quarter NPL ratio of 2.44 per cent.
“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,” Fitch said.
A lower credit rating can increase the borrowing cost for an issuer, which can in turn impact how much they can lend and at what rates.
Afreximbank’s dollar-denominated bonds slipped with the 2031 maturity down 0.8 cents on the dollar to be bid at 86.5 cents – its lowest level since mid-January, Tradeweb data showed.
Fitch attributed the negative outlook, which effectively puts the bank on downgrade watch, to the risk that some of its debt to sovereign borrowers might be included in restructuring.
“This would put pressure on our assessment of the bank’s policy importance and heighten the risk associated with its strategy,” Fitch said.
Afreximbank did not immediately comment on the downgrade.
The bank, whose shareholders include African sovereigns as well as private investors, is viewed by many as an important source of capital for African countries, particularly when international bond markets are closed to them and as rich countries cut aid and concessional lending.
But ongoing debt restructurings in Ghana, Zambia and Malawi have put greater focus on the terms Afreximbank offers and whether its loans are “concessional”, particularly when compared with the International Monetary Fund and World Bank, whose lending is protecting from restructuring.
Fitch said the bank’s business profile risk remained “medium” but was negatively impacted by low transparency in reporting loan performance.
Reuters reported last week that Afreximbank told investors in a call that Ghana was “up to date” on its loan facilities and that it would not participate in restructuring loans to its member countries.
But Ghana said it had not made debt service payments in two years and that it wants to restructure its Afreximbank debt.
Fitch said that inclusion in sovereign debt restructurings “would likely lead us to revise our currently ‘low risk’ assessment of the bank’s policy importance.” (Reuters)
Hmmmmmmmm