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Afreximbank’s rating supported by strong equity base, shareholder support – Moody’s

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Afreximbank2Credit ratings agency, Moody’s says the stable outlook and Baa2 rating of the African Export-Import Bank (Afreximbank) is supported by its strengthening equity base and evidence of shareholder support.

This is despite the low median credit quality of Afreximbank’s shareholder base, Moody’s said in its annual update to Afreximbank’s credit analysis, “Credit Analysis: African Export-Import Bank”.

The Egypt-based Afreximbank is a multilateral development bank whose primary objective is to promote the expansion and development of African trade.

Moody’s says the bank is part-way through a capital raising plan launched in September 2014, to raise $500 million through a share offering. The $500 million approved capital increase was equivalent to about 70 per cent of the Bank’s existing shareholder equity as at September 2014.

“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”, Elisa Parisi-Capone, Assistant Vice President at Moody’s, co-author of the report said.

Moody’s said the bank’s expanding membership also attests to its strength of member support.

Afreximbank recently announced that Chad was joining as 38th member country. Mozambique, Togo and South Africa also have shareholdings in the Bank but have not completed all the formalities to become full participating states.

“The bank’s sound profitability reflects its lean cost and risk management structures, and 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”, the ratings agency said.

While Afreximbank’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 underscores the increasingly difficult operating environment and Africa’s exposed to several shocks such as the slowdown in China, lower commodity prices, and the prospect of tighter U.S. monetary policy.

“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 per cent at end-2015. For 2016, the bank targets a similar 24 per cent ratio under its updated strategic plan 2012-2016”, Moody’s said, adding that the stronger equity base supports its assigned “medium” capital adequacy factor assessment.

The bank’s liquidity position, also adjudged “medium”, is supported by its relatively short average loan 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 favourable terms.

Moody’s says upward pressure on Afreximbank’s rating in future, could stem from a further strengthening in the bank’s capital and liquidity buffers while negative pressure on the rating could come from 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.

By Emmanuel Odonkor

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