Johannesburg, 29 November 2018 – 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 FC rating of BBB+ accorded to African-Export Import Bank’s future and outstanding issues of senior unsecured 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 May 2019.
|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 assumptions:
Afreximbank’s credit profile is supported by its countercyclical role and mandate, strong shareholder support, strong capitalisation, strong risk position, funding flexibility, and very strong liquidity.
Shareholder support remains strong. This is because of Afreximbank’s countercyclical role, which enables it to fulfil its trade mandate independent of the economic cycle. The broad equity participation by member states through general capital increase, deposit mobilisation programmes, and support to African institutions whose economies are affected by market stresses underpins shareholder support and the bank’s relevance. In addition, because Afreximbank’s mandate to promote and expand trade across the African region is considered strong relative to peers within the region, the willingness of member states to support the bank when needed remains high in GCR’s view.
Capitalisation is strong. This is in part supported by robust membership mobilisation. An overlay of new member states and issuance of Class D shares enabled the bank to raise c. USD577m by 1H18 vs a 2021 target of USD1bn. As is typical of multilateral development banks (“MDBs”), callable capital committed by member states is a buffer on the capital base. While note is taken that only 10% of callable capital is committed by investment grade shareholders, 56% is credit insured by highly rated international insurers. This credit enhancement supports callable capital which otherwise is constrained by the low average shareholder rating. On the other hand, capitalisation is maintained at sustainable levels supported by healthy internal capital generation. This is reflected in 1H18 performance which continues to trend within positive ranges, with growth coming from increase in loan book and well contained operating expenses. IFRS 9 has not yet been implemented but we expect minimal adjustments to retained earnings given the current sufficient levels of reserving. Furthermore, the bank’s conservative dividend policy supports an adequate retention of earnings. Overall, we expect Basel III capital adequacy ratio to trend within the bank’s target range of 20-30%.
Risk position is strong. This is because of the low risk structured trade finance model that shifts repayment risk to counterparties outside Africa. 52% of the loan book at 1H18 consists of off-take agreements with companies from countries in the Organisation for Economic and Development Cooperation (“OECD”). Repayment risk is low given the strong credit profiles of obligors and cash collateral held with highly rated OECD banks. As a result, asset quality remains good and broadly in line with best performing peers, with the gross non-performing loan (“NPL”) ratio stable at 2.4%. The repayment risk profile is expected to change however, as the bank envisages growth in intra- African trade from the current 15% to c. 32% by 2021. Although the quality of the book may lower a little as a result, the balance of intra- and extra- African trade is viewed positively with regards to the bank fulfilling its mandate, which in GCR’s view underpins the preferred creditor status. Strong evidence of this preferred treatment will continue to support good recovery prospects. In addition, the geographical diversification of the loan book is improving with increasing focus on Eastern, Central and Southern Africa regions.
Funding flexibility is supported by strong access to international capital markets and shareholder support. In addition to debt market funds, the bank also mobilises foreign reserves of central banks of member states. Liquidity is supported by a low risk source of cash flows which are ring fenced with maturities of assets staggered to match liabilities, resulting in positive liquidity gaps across all maturity buckets.
The upside ratings movement is sensitive to a sustained good intrinsic credit profile, enforcement of the expected capital protection facility, reduction in concentration of exposures with adverse macro conditions pre-risk mitigation, and improvement of the economic environment within the region. While downside pressure may stem from weakening shareholder support, deviation from mandate, elevated leverage, and or weakening risk position.
|INTERNATIONAL SCALE FC RATINGS HISTORY|
|Initial rating: February 2017|
|Long term: BBB+; Short term: A2|
|USD5bn EMTN Programme|
|Initial rating: June 2017|
|Last rating: November 2017|
|Long term: BBB+; Short term: A2|
|USD5bn EMTN Programme|
NATIONAL SCALE RATINGS HISTORY
|Country/Market||Initial rating||Long term
|Outlook||Last rating||Long term
|Egypt||February 2017||AAA(EG)||A1+(EG)||Stable||November 2017||AAA(EG)||A1+(EG)||Stable|
|Cote D’ Ivoire||February 2017||AAA(CI)||A1+(CI)||Stable||November 2017||AAA(CI)||A1+(CI)||Stable|
|Ghana||February 2017||AAA(GH)||A1+(GH)||Stable||November 2017||AAA(GH)||A1+(GH)||Stable|
|Kenya||February 2017||AAA(KE)||A1+(KE)||Stable||November 2017||AAA(KE)||A1+(KE)||Stable|
|Namibia||February 2017||AAA(NA)||A1+(NA)||Stable||November 2017||AAA(NA)||A1+(NA)||Stable|
|Nigeria||February 2017||AAA(NG)||A1+(NG)||Stable||November 2017||AAA(NG)||A1+(NG)||Stable|
|Tanzania||February 2017||AAA(TZ)||A1+(TZ)||Stable||November 2017||AAA(TZ)||A1+(TZ)||Stable|
|Uganda||February 2017||AAA(UG)||A1+(UG)||Stable||November 2017||AAA(UG)||A1+(UG)||Stable|
|Mauritius||February 2017||AA+(MU)||A1+(MU)||Stable||November 2017||AA+(MU)||A1+(MU)||Stable|
|Botswana||February 2017||AA(BW)||A1+(BW)||Stable||November 2017||AA(BW)||A1+(BW)||Stable|
|Primary Analyst||Committee Chairperson|
|Simbarake Chimutanda||Matthew Pirnie|
|Credit Analyst||Sector Head: Financial Institution Ratings|
|(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, 2016-2017.
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 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.
- Audited financial results of the bank as at 31 December 2017 (plus four years of comparative figures);
- Unaudited interim results of the bank as at 30 June 2018;
- Budgeted financial statements for 2018;
- Latest internal and/or external audit report to management;
- A breakdown of facilities available and related counterparties; and
- Corporate governance and enterprise risk 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 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.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Facility||The grant of availability of money at some future date in return for a fee.|
|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.|
|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 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.|
|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).|
|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.|
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