Moody’s rating agency has upgraded the rating of the African Export-Import Bank (Afreximbank) from Baa2 to Baa1, with the outlook was stable.
According to the agency, that the main driver of the upgrade was the credit enhancement provided by the five-year insurance policy for callable capital instituted on behalf of the Bank’s Class A and B shareholders, which it purchased from a syndicate of highly rated private international credit insurers.
“Review of the policy terms against Moody’s credit substitution methodology confirms that the policy serves as valid base for a credit uplift to Afreximbank’s covered shareholder base to investment grade in case of a valid call on callable capital, although not to the extent of full credit substitution,” reported Moody’s. “The Baa1 rating also reflects Moody’s assessment of the bank’s capital adequacy and liquidity position at medium”.
“Afreximbank is very pleased with this development which rewards our hard work, patience and innovation in capital management,” said Benedict Oramah, President of the Bank. “The Bank’s credit standing has been greatly strengthened by the higher quality callable capital”.
“We are particularly happy at the opportunity to have set the pace in developing and implementing innovative approaches to capital management which other multilaterals with large pools of sub-investment grade shareholders could use to enhance their capabilities for mandate delivery,” he added.
Moody’s also upgraded Afreximbank’s deposit rating to Baa1; the outstanding senior unsecured Euro Medium Term Note (EMTN) rating from Baa2 to Baa1; and the EMTN programme rating from (P)Baa2 to (P)Baa1; while it affirmed the short-term bank deposit rating at P-2.
The new rating also captures medium strength of the bank’s capital and liquidity position, with Moody’s reporting that the “medium” score assigned to the Bank’s capital adequacy was supported by the recently completed general capital increase of $500 million in less than two years and ahead of the end-year 2016 deadline.
Afreximbank’s asset quality performance remained strong in regional comparison, it added, noting that the ratio of non-performing loans (NPL) declined to 2.01 per cent in June 2016 from 2.8 per cent at the end of 2015.
Moody’s “medium” capital adequacy assessment also incorporates the Bank’s growth strategy, as outlined in the recently announced 2017-2021 strategy, “IMPACT 2021: Africa Transformed”, which targets cumulative revolving disbursements of up to $90 billion over the next five years. That target is part of the Bank’s plan to grow its loan book to more than $17 billion by 2021, from $9.4 billion in June 2016, for an annual compound growth rate (CAGR) of 12 per cent over the 2017-2021 period (as compared to a CAGR of 35 per cent over the previous five-year period starting from a lower base).
The assessment also incorporates the obtained shareholder approval to raise an additional $1 billion in equity over the medium term. The Bank is well on its way to raising the additional equity, with some $170 million already raised since July 2016.
In addition to implementing the callable capital insurance, 2016 also saw Afreximbank welcome three new countries, Sao Tome and Principe, Togo and Djibouti, as Participating States, while Uganda and Djibouti ratified the Agreement on the Establishment of the Bank. The Chadian authorities also finalized the process for the formal ratification of the Agreement by the Government.
The Bank is the foremost Pan-African multilateral financial institution devoted to financing and promoting intra- and extra-African trade. It was established in October 1993 by African governments, African private and institutional investors, and non-African investors.
Its two basic constitutive documents are the Establishment Agreement, which gives it the status of an international organization, and the Charter, which governs its corporate structure and operations. Since 1994, it has approved more than $41 billion in credit facilities for African businesses, including about $6.2 billion in 2015. Afreximbank had total assets of $9.4 billion as at 30 April 2016 and is rated BBB- (Fitch) and Baa2 (Moody’s). It is headquartered in Cairo.