An African Union credit review body has questioned Fitch ratings agency’s downgrade of Africa Export-Import Bank last week, saying it was based on a “flawed” categorisation of loans and calling for the decision to be reconsidered.
Last Wednesday, Fitch downgraded Cairo-based Afreximbank’s credit rating to BBB-, one notch above junk ratings, from BBB, citing high credit risks and weak risk management policies.
Fitch calculated that the ratio of Afrexim’s non-performing loans (NPLs) exceeded the 6% ‘high risk’ threshold outlined in the ratings agency’s criteria. Afreximbank said in its first quarter operating results that the NPLs ratio stood at 2.44% at the end of March.
The African Peer Review Mechanism (APRM), a body established by the African Union to do the groundwork for the launch of an African credit ratings agency later this year, contested Fitch’s calculations and called for talks between Fitch, Afreximbank and other African institutions.
“The APRM notes with concern Fitch Ratings’ misclassification of Afreximbank’s sovereign exposures to the Governments of Ghana, South Sudan and Zambia as NPLs,” APRM said in a statement published late on Friday.
“This classification raises critical legal, institutional and analytical issues which the APRM strongly contests.”
Fitch defended its rating decision, saying it operates on the basis of independent and timely analysis.
“All Fitch’s supranational rating decisions are taken solely in accordance with one globally consistent and publicly available rating criteria, with rating drivers and sensitivities clearly identified in our ongoing public rating commentary,” the ratings agency told Reuters.
The row over the rating, which determines the cost of credit for a financial institution, comes as Afreximbank seeks to protect its loans from restructuring in Ghana, Zambia and Malawi, saying that as a multilateral lender it has preferred creditor status.
“The assumption that Ghana, South Sudan and Zambia would default on their loans to Afreximbank is inconsistent with the 1993 Treaty establishing the Bank to which Ghana and Zambia are both founding members, shareholders and signatories,” APRM said.
The founding treaty of the lender, whose mandate is to promote intra-Africa and extra-Africa trade, is legally binding on all members, APRM said, placing legal obligations on the bank’s financial operations.
Afreximbank has not commented on the downgrade by Fitch, but it has previously said it is not in debt restructuring talks with any of its member states.
Afreximbank’s loans to its member states are governed by “a framework of intergovernmental cooperation and mutual commitment, rather than typical commercial risk principles”, shielding its loans from sliding into non-performance realm, APRM said.
“Fitch’s unilateral treatment of these sovereign exposures -as comparable to market-based commercial loans – despite their backing by treaty obligations and shareholder equity stakes, is flawed,” APRM said.
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