Moody's Investors Service announced today that it has changed the outlook on the Baa2 long-term issuer rating of the African Export-Import Bank (Afreximbank) from negative to stable. Concurrently, the rating agency also affirmed Afreximbank's Baa2/P-2 long and short-term ratings.
In a statement issued in New York, Moody’s said that the key drivers for the change of the outlook to stable were the general capital increase launched by Afreximbank in September 2014 which was contributing to a replenishment of the Bank's capital buffer, and the evidence of strong shareholder support as emphasized by received payments and written commitments of existing and new shareholders in the share offering.
According to Moody’s, the implementation of the general capital increase of $500 million via a share offering launched in September 2014 generated a total of $105.5 million at the end of 2014 and an additional $137.9 million by 30 June 2015. “Based on written commitments received from shareholders, the capital adequacy ratio (CAR) is on track to increase further to about 24 per cent in 2015 after expanding to 22 per cent at end-2014 from 20 per cent in 2013,” it said.
Credit enhancements via the external risk participation agreement with the African Development Bank (Aaa stable) for $100 million of the loan book and the purchase of trade credit insurance from commercial insurers for an additional $492 million of the loan book were also contributing factors to the change in outlook to the extent that they supported Afreximbank's average borrower quality and reduced concentration risks, added Moody’s.
It said that the second driver for the assignment of a stable outlook was Afreximbank's demonstrated ability to raise equity capital from new and existing shareholders as a testament to strong shareholder support despite the Banks' low average shareholder rating. The size of the approved capital increase was equivalent to about 70 per cent of Afreximbank's existing shareholder equity in September 2014 and written commitments received until June 2015 indicated a high willingness to support the institution, noted the rating agency.
On the reaffirmation of Afreximbank’s Baa2 rating, Moody’s said that it was supported by the Bank's relatively healthy, albeit deteriorating asset quality as compared to regional peers, as well as Afreximbank's sound profitability and market access at favourable rates. “Moreover, Afreximbank focuses on collateralized trade finance activities where the typical loans extended by the Bank are short term and self-liquidating with a short average maturity of 19 months as of end-2014, from 20 months in 2013. This business model underpins Afreximbank's relatively lean liquidity position when compared with other MDBs' treasury asset holdings, but which is in compliance with Basel and the Bank's own policy requirements.”
Moody’s stated that while the average asset quality over the past seven years still compared favourably with regional MDB peers, the steady increase of the non-performing loan ratio to 3.8 per cent as of end-2014 from below 1 per cent in 2009-2011 pointed to steadily deteriorating asset quality in an increasingly challenging operating environment.
“Lastly, Afreximbank's low average shareholder rating constrains the credit support the institution derives from its stock of callable capital despite shareholders' demonstrated willingness to provide support above and beyond their contractual obligation,” it added.
Afreximbank External Communications