Johannesburg, 30 November 2017 – Global Credit Ratings has affirmed the international scale foreign currency (“FC”) ratings assigned to African Export-Import Bank of BBB+ and A2 in the long and short term respectively; with the outlook accorded as Stable. Global Credit Ratings has also affirmed the long term international scale foreign currency (“FC”) rating of BBB+ accorded to African-Export Import Bank’s future and outstanding issues of senior unsecured unsubordinated debt securities, under its USD5bn Euro Medium Term Note Programme; with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the national scale ratings assigned to African Export-Import Bank in selected countries, as shown in the table below. The ratings are valid until November 2018.
|Country/Market||Long term rating||Short term rating||Outlook|
|Cote D’ Ivoire||AAA(CI)||A1+(CI)||Stable|
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to African Export-Import Bank (“Afreximbank”, “the bank”) based on the following key criteria:
Afreximbank’s ratings reflect its favourable strategic position on the African continent, derived from its development mandate and broad equity participation (comprising 145 shareholders, 38 of which are African governments and their central banks). The bank’s distinctive trade and development expertise and commitment to promote intra- and extra-African trade (including trade facilitation programmes with commercial banks to support small and medium sized trade enterprises, underpin its significance and leverage with governments in the region, given a deepening trade finance gap in Africa. The bank’s strong intrinsic credit profile supported by its risk appropriate capitalisation, sound asset quality metrics, strong liquidity, enhanced risk management framework and profitable bottom-line, further underpinned the ratings.
Shareholders have demonstrated strong commitment and support with continuous capital contributions to sustain expansion, despite the low average shareholder rating. Total capital and reserves grew by 28.4% to USD1.6bn at FY16 (FY15: 37.8%), supported by capital injections (USD275.2m) from shareholders and earnings retention. A General Capital Increase of USD500m approved by shareholders in September 2014 (target December 2016), was successfully completed by July 2016. Furthermore, in line with growth opportunities in Africa, the bank has implemented an equity mobilisation drive targeting both existing and new shareholders to raise an additional USD1bn by end-2021.
The bank reported a risk-adjusted capital adequacy ratio of 23.8% at 1H FY17 (FY16: 22.8%). The leverage ratio (debt/equity) increased to 412.3% 1H FY17 (FY16: 377.6%). Financial flexibility is further boosted by the bank’s access to callable capital (USD569m at 1H FY17), which acts as a guarantee for the bank’s borrowings. The callable capital provides an additional buffer and demonstrates shareholder commitment in the event of financial stress. To strengthen the quality of callable capital, the bank credit enhanced callable capital (up to USD409m) via a medium-term credit risk mitigation instrument to avert possible delays in collecting capital from specified member states with low credit ratings.
Gross non-performing loans (“NPLs”) decreased to 2.3% of gross loans at 1H FY17 (FY16: 2.4%), supported by loan growth and recoveries. The loan portfolio displays significant concentration to member states in the North and West African regions with recent growth supported by lending under counter-cyclical trade liquidity facility. Notwithstanding this, Afreximbank’s relatively low risk short-term trade finance facilities, collateralised lending (with 45.2% in the form of cash cover at 1H FY17) and experienced management team significantly mitigates this risk. Furthermore, the bank has demonstrated preferred creditor status in its member states, supporting a high recovery rate. Provisions and collateral covered 130% of NPLs at1H FY17 (FY16:133%).
Profit for the year grew by 31.7% to USD165.3m in FY16 (FY15: 19.4%). Overall, the ROaE remained flat at 11.4%, while the ROaA decreased to 1.8% in FY16 (FY17: 2.1%), although in line with budget and management preference for creating low risk/return assets under the difficult environment that prevailed.
Liquidity risk is well managed with cumulative liquidity buffers maintained across all maturity buckets. The bank has access to funding from international banks and development finance institutions and has issued senior unsecured unsubordinated debt securities under its USD5bn Euro Medium Term Note Programme (“EMTNP”).
Given the shareholder diversity, the level of sovereign interference risk is considered to be relatively low. The majority of liquid assets are USD denominated and placed with investment grade rated counterparties. Due to the diversity of the funding base, the international rating has not been constrained by the country ceilings of member states.
Maintaining profitability, strong asset quality, liquidity and capital metrics and a diversified loan portfolio would sustain the bank’s financial profile. Furthermore, sovereign rating upgrades would be a positive for the support and shareholder profile. However, a sharp deterioration in asset quality, earnings, liquidity and capital adequacy metrics, could see the ratings come under pressure.
|INTERNATIONAL SCALE FC RATINGS HISTORY|
|Initial/last rating: February 2017|
|Long term: BBB+; Short term: A2|
|USD5bn EMTN Programme|
|Initial rating: June 2017|
NATIONAL SCALE RATINGS HISTORY
|Country/Market||Initial/last rating||Long term rating||Short term rating||Outlook|
|Cote D’ Ivoire||February 2017||AAA(CI)||A1+(CI)||Stable|
|Primary Analyst||Committee Chairperson|
|Jennifer Mwerenga||Kurt Boere|
|Senior Analyst||Senior Analyst|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Global Criteria for Rating Multilateral Development Banks, updated September 2017
Afreximbank rating report, 2016
EMTNP report, 2017
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
African Export Import Bank participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to African Export Import Bank with no contestation of the rating.
- Audited financial results of the bank as at 31 December 2016 (plus four years of comparative figures)
- Unaudited interim results of the bank as at 30 June 2017
- Budgeted financial statements for 2016 and 2017
- Latest internal and/or external audit report to management
- Reserving methodologies
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
- Industry comparative and regulatory framework
The ratings above were solicited by, or on behalf of, African Export Import Bank, and therefore, GCR has been compensated for the provision of the ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Asset Quality||Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Basel I||Basel Committee regulations, which set out the minimum capital requirements of financial institutions with the goal of minimising credit risk.|
|Callable||A provision that allows an Issuer to repurchase a security before its maturity.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|Collateral||Asset provided to a creditor as security for a loan.|
|Corporate Governance||Refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Equity||Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Facility||The grant of availability of money at some future date in return for a fee.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|Financial Statements||Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.|
|Guarantee||An undertaking in writing by one person (the guarantor) given to another, usually a bank (the creditor) to be answerable for the debt of a third person (the debtor) to the creditor, upon default of the debtor.|
|Interest||Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.|
|International Scale Rating FC||International foreign currency (International FC) ratings measure the ability of an organisation to service foreign currency obligations, taking into account transfer and convertibility risk.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Liquid Assets||Assets, generally of a short term, that can be converted into cash.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long-Term||Not current; ordinarily more than one year.|
|Long-Term Rating||Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Performing Loan||A loan is said to be performing if the borrower is paying the interest on it on a timely basis.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Rating Outlook||Indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Short-Term||Current; ordinarily less than one year.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
For a detailed glossary please click here
GCR affirms African Export-Import Bank’s rating of BBB+; Outlook Stable.