….Links Lender’s Sovereign Debt Risks To Latest Rating
A leading global credit rating agency, Moody’s, has downgraded African Export-Import Bank’s (Afreximbank’s) long-term issuer and senior unsecured ratings from Baa1 to Baa2 even as it revised the lender’s outlook from negative to stable.
The latest downgrade of the merchandize lending bank by Moody’s in its 2025 Credit Review report reflects growing concerns over the bank’s asset quality, capital exposure to distressed sovereigns, and a shrinking range of funding sources.
In addition, Moody’s also lowered Afreximbank’s senior unsecured Medium-Term Note (MTN) program rating to (P)Baa2 from (P)Baa1, its long-term bank deposit rating to Baa2 from Baa1, and the bank’s short-term deposit rating was affirmed at P-2.
The rating agency stated: “The rating downgrade to Baa2 is driven by weaker asset performance than previously expected, which negatively impacts capital despite some mitigating factors.”
In the credit review report, Moody’s linked Afreximbank’s recent strategic lending culture from traditional trade finance to unsecured sovereign lending, particularly to distressed economies such as Ghana and Zambia, as a key factor responsible for the lender’s downgrade.
It clarified: “The bank’s shift to unsecured lending to sovereigns under stress has introduced significant risks, diverging from its typical focus on trade finance.”
While noting that the bank’s exposure to Ghana and Zambia, both undergoing debt restructuring under the G20 Common Framework, poses capital risks, Moody’s estimated that these exposures represented 3% and 0.2% of Afreximbank’s total assets, and 8% and 0.4% of its equity (net of provisions), respectively.
The Common Framework mandates multilateral and private creditors, including Afreximbank, to absorb comparable losses, thereby creating legal and operational challenges, particularly given the bank’s treaty-based structure, which traditionally shields it from sovereign debt restructuring.
Even then, Moody’s recognized Afreximbank’s efforts to bolster liquidity, noting that the bank increased its cash reserves from $4.6 billion at the end of 2024 to $9.5 billion in early 2025, enough to cover debt obligations and net loan disbursements for six quarters.
However, the rating agency cautioned Afreximbank’s board and management that maintaining such high liquidity levels would be costly and unsustainable in the long term, noting that historically strong in diversified, low-cost funding, the bank has relied more on bilateral and syndicated loans than market-based sources.”
Although Afreximbank did not issue any bond in 2022 or 2023 due to inclement market conditions but returned to the market with a $520 million Samurai bond in late 2024 and a $303 million Panda bond in early 2025, Moody’s described these as modest relative to Afreximbank’s overall funding needs.
However, despite the downgrade, Moody’s assigned a stable outlook to Afreximbank’s ratings, citing balanced risks and resilience in its capital adequacy under various stress scenarios.
It stated: “This resilience is supported by strong profitability, shareholder capital injections, and existing provisions, which collectively enable the bank to manage and absorb potential losses.”
The rating agency also noted that 41% of the bank’s sovereign exposure to Ghana and Zambia had already been provisioned by the end of 2024, it stated that bank’s consistent earnings and capital generation, along with support from member states, had helped maintain its financial buffer.
However, Moody’s cautioned the bank’s board and management that continued exposure to challenging markets such as Egypt and Nigeria, despite some recent improvements, still weighed on the bank’s risk profile.
