Fitch Ratings has affirmed African Export-Import Bank’s (Afreximbank) Long-term Issuer Default Rating (IDR) at ‘BBB-’ and Short-term IDR at ‘F3′. The Outlook has been revised to Negative from Stable.
KEY RATING DRIVERS
The affirmation of Afreximbank’s ‘BBB-’ IDR balances the bank’s good loan quality – related to its focus on short-term, secured trade finance facilities, improved geographic concentration risk, adequate liquidity and steady profitability against its moderate capitalisation and limited shareholder support. The revision of the Outlook to Negative reflects the recent decline in the bank’s capitalisation, following delays in the expected capital increase.
Capitalisation is moderate and declining due to aggressive loan growth in recent years (+32.2% in 2012). At 19.1% at June 2013 (2008: 35.2%), the Basel II capital adequacy ratio has worsened significantly and leverage has deteriorated.
The bank’s management intends to stabilise capitalisation by year-end through raising equity from its existing public shareholders or a reduction in lending activity.
The bank’s loan portfolio shows good quality despite the difficult operating environment, with lending activity mostly focused in sub-Saharan Africa. Loans extended by the bank are typically short-term, self-liquidating trade finance facilities extended to African banks and corporates. At June 2013, 96% of net loans were secured, through trade receivables ( …