The rating agency, Moody’s, has released its latest credit analysis of the African Export-Import Bank (Afreximbank), saying that the Bank’s Baa2 rating and stable outlook was supported by its strengthening equity base and evidence of shareholder support, despite the low median credit quality of its shareholder base.
In Moody’s annual update, “Credit Analysis: African Export-Import Bank”, released on 3 December, Elisa Parisi-Capone, Assistant Vice President — Analyst and co-author of the report, said that “Afreximbank’s demonstrated ability to raise equity capital from new and existing shareholders attests to strong shareholder support, despite the bank’s low average shareholder rating”.
“The $500 million approved capital increase was equivalent to about 70 per cent of Afreximbank’s existing shareholder equity as of September 2014,” she said, referring to the Bank’s capital raising plan, launched in September 2014 with the aim of raising $500 million through a share offering, which is already part-way through.
According to the report, the Bank’s expanding membership also attests to the Bank’s strength of member support. The Bank recently announced that Chad was joining as the 38th member country whereas Mozambique, Togo and South Africa have shareholdings but have not completed all the formalities to become full participating states.
It said that the Bank’s sound profitability reflected its lean cost and risk management structures, and that the institution made progress in decreasing loan concentrations in single countries. For example, its exposures in Nigeria fell to 38 per cent in June 2015 from 48 per cent in 2010.
While the Bank’s non-performing loan ratio fell to 1.3 per cent of total loans in the first half of 2015, the large increase in write-offs in 2014 underscored the increasingly difficult operating environment. Africa as a region is exposed to several concomitant shocks, including lower commodity prices, the slowdown in China and the prospect of tighter U.S. monetary policy, the report said.
The Bank’s Basel II capital adequacy ratio increased to 25.6 per cent as of June 2015 from 21.6 per cent at end-2014, and is targeted to converge toward 24.0 per cent at end-2015. For 2016, the Bank targets a similar 24 per cent ratio under its updated strategic plan 2012-2016. The stronger equity base supports Moody’s “medium” capital adequacy factor assessment.
The Bank’s liquidity position is similarly assessed as “medium”, supported by its relatively short average loan portfolio maturity of 22 months and the self-liquidating nature of the majority of trade finance facilities, in addition to ample access to market funding and credit lines at favorable terms.
Moody’s said that upward pressure on the rating could stem from a further strengthening in the Bank’s capital and liquidity buffers. Conversely, negative pressure could follow a sharp deterioration in asset quality or provisioning trends, or from an unexpected worsening of its capital adequacy towards or below the Bank’s 20 per cent minimum threshold.