Fitch Ratings-London/Paris-28 October 2011: Fitch Ratings has affirmed the African Export-ImportBank’s (Afreximbank) Long-term Issuer Default Rating (IDR) at ‘BBB-‘ with a Stable Outlook andShort-term IDR at ‘F3’.
Afreximbank’s ratings primarily reflect the bank’s sound structural asset quality despite its riskybusiness environment. Afreximbank’s operations are overwhelmingly made of short-term andself-liquidating trade finance loans extended to African banks and corporates. Through theextensive recourse to trade receivable collateralisation, transaction structures often shift asubstantial part of the bank’s credit risk to entities located in OECD countries and mitigate theconcentration risk on some countries (Nigeria and Zimbabwe), sectors and specific obligors. AtJune-2011, 67.6% of net loans were collateralised with trade receivables, guarantees or cashdeposits. The bank also benefits from a form of preferred creditor status in its countries ofoperations.
Afreximbank’s asset quality is therefore better than usually observed for financial institutionsoperating in Africa. Impaired loans, which have been regularly decreasing since 2007, accountedfor 0.5% of gross loans at June-2011, and were adequately covered by loan loss reserves.
The bank has sharply increased operations since 2009 to sustain trade development in Africa whileprivate financing flows to the continent were drying up. This has affected capitalisation, the Basel IIratio of equity to assets fell to 20.7% at June-2011 from 31.4% at end-2009. The bank intends tomaintain it above 20% in the coming years, through recourse to fresh additional capital by newshareholders. The affirmation of the ratings takes into account the forthcoming capital increase inthe coming months.
In line with dynamic lending growth, leverage rose significantly to 368.4% at June-2011, from230.4% at end-2009. Liquidity is moderate in absolute terms compared to most multilateraldevelopment banks, with bank deposits covering 21.7% of short-term liabilities at end-2010.However, liquidity is enhanced by the short tenor of loans (with an average maturity of 11 monthsat end-2010) and available committed credit lines of USD619m at June-2011, covering anadditional 76.9% of short-term debt.
Support is provided by the bank’s 122 public and private shareholders, which have paid in 40% oftheir capital commitment. The remaining share, accounting for USD249.6m at June-2011, can becalled by the bank if needed. Some shareholders, such as the African Development Bank(‘AAA’/Stable) benefit from high ratings, and the bank’s statutes strongly entice shareholders tohonour their commitment (through significant penalties) but the overall quality of callable capitalremains weak, with an estimated average rating of ‘B+’ at June-2011.
Contrary to most multilateral development banks, Afreximbank is a profit-oriented institution thatdistributes around a fifth of its net income in dividends. It has constantly been profitable sinceinception in 1993. Even though profitability has recently eroded due to rising operational andborrowing costs, it still remains comfortable, with return on assets and return on equity at 2.7% and10.1% respectively at end-2010.
Afreximbank is a specialised supranational development finance institution, established in 1993 tofinance and promote trade between African countries and between Africa and the rest of the world.It operates as a profit-oriented institution with a focus on the private sector.
Contact:
Primary Analyst Amelie Roux Director +33 1 44 29 92 82Fitch France S.A.S.60 Rue Monceau75008 Paris Secondary Analyst Eric Paget-Blanc Senior Director +33 1 44 29 91 33 Committee Chairperson Mark Young Managing Director +65 6796 7229 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:peter.fitzpatrick@fitchratings.com.Additional information is available at www.fitchratings.com.The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has beencompensated for the provision of the ratings.Applicable criteria, ‘Rating Multilateral Development Banks and Other Supranationals’, dated 18August 2011, are available at www.fitchratings.com.Applicable Criteria and Related Research:Rating Multilateral Development Banks and Other Supranationalshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647870
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