The African Export-Import Bank (Afreximbank) has said that Fitch Ratings' negative outlook on the institution is based on the erroneous view that the treaty establishing the pan-African bank can be violated without consequences.
Last week, the American credit rating agency lowered Afreximbank’s long-term foreign currency issuer default rating to ‘BBB-’ with a negative outlook from ‘BBB’, which “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”
In a statement on Tuesday, Afreximbank stated that the treatment of its loans and other activities is governed by the bank’s establishment agreement treaty and not by classifications created outside its framework.
“Accordingly, Afreximbank would like to reaffirm that it is not participating in debt restructuring negotiations related to any of its member countries. To do so would be inconsistent with the Bank establishment treaty,” it said.
The pan-African bank said it operated under very high standards of financial transparency, adhering to International Financial Reporting Standards (IFRS), including IFRS 9.
This standard governs the classification and staging of loan performance, including the treatment of non-performing loans, among other matters.
Afreximbank said it was important to note that Fitch acknowledged the bank’s financial resilience, highlighting 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”.
It said Fitch had also acknowledged Afreximbank’s strong capitalisation, including its “strong equity to assets and guarantees ratio” and “excellent internal capital generation”. Concentration risk is also reported as “low”, and its liquidity assessment of “a” reflects the Bank’s “strong quality of treasury assets”.
- Currency crisis haunts listed firms
- Currency crisis haunts listed firms
- Breaking down IPSAS standards
- Afreximbank pushes back after Fitch downgrade
Keep Reading
The bank believes that these factors reinforce the overall soundness of the risk management framework.
Afreximbank said its financial resilience, robust governance, and unwavering commitment to excellence, and to Africa, “are critical to the delivery of its mandate”.
“The bank remains committed to supporting its member countries in navigating their economic challenges while promoting trade-led growth, economic development and general macroeconomic stability.”
The African Peer Review Mechanism (APRM) has urged Fitch Ratings to re-examine its criteria and assumptions in this case and to engage in technical consultations with Afreximbank and other relevant African stakeholders. Objective, transparent, and context-intelligent credit assessments are critical to ensuring fair treatment of African institutions in the global financial system, it said.
APRM described as “legally incongruent” to classify a loan to member countries as non-performing, especially when the borrower States are shareholders in the lender institution and no formal default has occurred, and none of the sovereigns have repudiated the obligation.
