Announcing the change today July 22, 2015 in a press release copied to ghanabusinessnews.com, Moody’s says it changed the outlook on the Baa2 long-term issuer rating of Afreximbank to stable from negative, and concurrently, affirmed the bank’s Baa2/P-2 long and short-term ratings.
According to Moody’s the drivers for the decision are the general capital increase launched in September 2014 which is contributing to a replenishment of the bank’s capital buffer, following an erosion of its capital adequacy ratio (CAR) from 31% in 2009 to 20% in 2013; and evidence of strong shareholder support emphasized by received payments and written commitments of existing and new shareholders in the share offering.
Moody’s further explains that the first driver for the outlook stabilization is the implementation of the general capital increase of $500 million via a share offering launched in September 2014 and aimed at replenishing the capital base in order to fund the further expansion of operations without compromising the credit profile.
“As of end-2014, it generated a total of $105.5 million. An additional amount of $137.9 million has been received by June 30, 2015. Based on written commitments received from shareholders, the capital adequacy ratio (CAR) is on track to increase further to about 24% in 2015 after expanding to 22% at end-2014 from 20% in 2013,” the agency says.
It also notes credit enhancements via the external risk participation agreement with the African Development Bank (Aaa stable) for $100 million of the loan book and the purchase of trade credit insurance from commercial insurers for an additional $492 million of the loan book as because they support Afreximbank’s average borrower quality and reduce concentration risks.
The second driver for the assignment of a stable outlook, Moddy’s explains, is Afreximbank’s demonstrated ability to raise equity capital from new and existing shareholders as a testament to strong shareholder support despite the banks’ low average shareholder rating.
“The size of the approved capital increase was equivalent to about 70% of Afreximbank’s existing shareholder equity in September 2014 and written commitments received until June 2015 indicate a high willingness to support the institution,” it adds.
The rationale for the Baa2 rating Moody’s says is supported by the bank’s relatively healthy, albeit deteriorating asset quality as compared to regional peers, as well as the bank’s sound profitability and market access at favorable rates.
Moreover, it argues among other factors that, Afreximbank focuses on collateralized trade finance activities where the typical loans extended by the Bank are short term and self-liquidating with a short average maturity of 19 months as of end-2014, from 20 months in 2013.
By Emmanuel K. Dogbevi