Moody's: African Export-Import Bank's credit profile supported by innovative business model
African Export-Import Bank's (Afreximbank, Baa1 stable outlook) credit profile is supported by the general capital increase of $500 million completed in 2016 and by the mid-term, credit-risk-mitigating instrument introduced in December 2016 in support of its callable capital base which is otherwise constrained by the very low average shareholder rating, Moody's Investors Service said in an annual report today.
The issuance of Class D shares for an amount of $160 million in October 2017 is a credit-positive innovation among African multilateral development banks (MDBs). Similarly, the introduction of new central bank lending and deposit facilities (COTRALF = Counter-Cyclical Trade Liquidity Facility, and CENDEP = Central Bank Deposit/Investment Programme) to support trade finance in countries with scarce foreign exchange reserves further attests to the bank's adaptation capacity without undermining its asset quality track record.
"Afreximbank has a comparatively tight liquidity profile compared with regional and rating peers, mitigated by the short average loan portfolio maturity and the self-liquidating nature of lending from receivables," said Elisa Parisi-Capone, Vice President -- Senior Analyst and co-author of the report.
"While operating on a broadly collateralized basis, the bank remains exposed
to a challenging operating environment."
Afreximbank's asset quality performance remains adequate, with the ratio of non-performing loans (NPLs) to gross loans declining to 2.26 per cent on June 2017 from 2.38 per cent at end-2016. This is broadly in line with peer multilateral development banks (MDBs) with exposures in the collateralized trade finance business and compares to a median NPL ratio of below 1.0 per cent within the universe of Moody's rated MDBs.
In line with its focus on trade finance with comparatively short maturities, Afreximbank holds a relatively lean liquidity position when compared with other MDBs' treasury asset holdings.
The bank's tight liquidity position is partially mitigated by the comparatively short average loan portfolio maturity of 16 months as of June 2017, up from 15 months in June 2016, and 22 months in June 2015, on the back of the mostly short-term nature of the COTRALF facility introduced in December 2015.
Upward rating pressure could arise from higher capital and liquidity buffers which remain among the lowest among rating peers, in addition to the consistent maintenance of asset quality standards.
Negative rating pressure could arise from an unexpected deterioration of the capital adequacy ratio toward or below Afreximbank's 20 per cent minimum threshold. A sustained weakening of asset quality indicators, in addition to increased liquidity pressures, would also be negative.