Fitch Affirms Afreximbank at 'BBB-'; Outlook Stable

Fitch Ratings has affirmed African Export-Import Bank’s (Afreximbank) Long-Term Issuer Default Rating (IDR) at ‘BBB-‘ with Stable Outlook. Fitch has also affirmed the bank’s Short-Term IDR at ‘F3’ and senior unsecured debt at ‘BBB-‘.

KEY RATING DRIVERS

Afreximbank’s ‘BBB-‘ rating is driven by the bank’s intrinsic features, including solvency and liquidity, both assessed at ‘a-‘. Despite the pressure on asset quality resulting from the COVID-19 crisis, the ongoing and expected capital increases support the resilience of the bank’s solvency. The ‘high risk’ business environment in which the bank operates translates into a three-notch negative adjustment to our assessment of the bank’s solvency and liquidity, resulting in an intrinsic assessment of ‘bbb-‘.

Afreximbank’s solvency assessment of ‘a-‘ reflects its ‘strong’ capitalisation and ‘moderate’ risk profile.

The ‘strong’ capitalisation is underpinned by the equity to assets and guarantees ratio, at 18.1% in 2019, close to 2018 level (18.5%) as the bank’s expansion has been broadly matched by paid-in capital payments from the ongoing USD1 billion capital increase (targeted to be completed by end-2021, 91% had been raised by end-1H20) and internal capital generation. Fitch’s usable capital to risk-weighted assets (FRA) was 21% in 2019 (from 20% in 2018), consistent with a ‘moderate’ assessment (15%-25%).

Fitch expects the equity-to-assets and FRA ratios to decline in the coming years as the impact of the COVID-19 crisis on asset quality affects internal capital generation and the bank accelerates loan disbursement in the short-term in response to the crisis. Fitch expects the growth in loans to average close to 20% in 2020-2022. However, the bank’s capitalisation metrics should remain consistent with a ‘strong’ assessment by the end of 2022. This assumes continuing payments under the USD1 billion capital increase and the start of payments under a new USD500 million capital increase, approved in June this year.

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