The African Export-Import Bank has challenged a recent decision by Fitch Ratings to downgrade its credit rating and place it on a negative outlook, labeling the move as a misinterpretation of its founding treaty.
Last week, Fitch lowered Afreximbank’s rating to BBB-, just one step above junk status, from BBB, pointing to elevated credit risks and perceived weaknesses in the bank’s risk management policies, according to Reuters.
The agency also placed the Cairo-based institution on negative watch, signaling the possibility of further downgrades.
In a statement released Tuesday, Afreximbank contested Fitch’s assessment, arguing that the downgrade stemmed from a flawed understanding of the bank’s founding treaty, which was signed by its member states.
“Afreximbank would like to reaffirm that it is not participating in debt restructuring negotiations related to any of its member countries. To do so would be inconsistent with the Bank establishment treaty,” the lender said in a statement.
“Fitch’s ‘negative outlook’ decision… is hinged on the erroneous view, in some quarters, that the treaty establishing Afreximbank, executed by its 53 participating African states, can be violated by the Bank without consequences.”
Afreximbank, owned by African governments and private investors, is a key continental financial institution, delivering critical trade finance and other funding, especially during the COVID-19 pandemic.
The African Union has criticized Fitch’s downgrade of Afreximbank’s rating and demanded a review. Fitch defended its decision, stating its ratings criteria apply uniformly to all supranational institutions.
The dispute over the rating, a critical factor in determining a financial institution’s credit costs, arises as Afreximbank aims to shield its loans from restructuring in Ghana, Zambia, and Malawi, asserting its preferred creditor status as a multilateral lender.
“The treatment of its loans and other activities is governed by the treaty and not by classifications created outside its framework,” the lender said in Tuesday’s statement.
Fitch determined that Afreximbank’s non-performing loans ratio surpassed the 6% ‘high risk’ threshold specified in its criteria.
