The African Export-Import Bank (Afreximbank) has been downgraded by Fitch Ratings to BBB-, which is a scant rung above junk status.

This development has sparked apprehension within the African financial sector.

The downgrade is indicative of concerns regarding the escalating credit risk, insufficient governance standards, and increased exposure to debt-stressed nations, including Ghana, Zambia, and Malawi.

Afreximbank’s non-performing loans (NPLs) are a substantial concern. The bank reported a non-performing loan (NPL) ratio of 2.44%, which is relatively low in comparison to the flexible IFRS 9 standards.

However, Fitch’s adjusted analysis estimates it differently. Inconsistent risk disclosures and straining sovereign exposures are referenced at 7.1%.

This discrepancy has led to inquiries regarding the methodologies of internal risk assessment and openness.

Fitch emphasized the strategic risks associated with the bank’s involvement in sovereign debt restructuring, warning that these associations could potentially affect the institution’s capacity to serve as a multilateral development lender.

The downgrade could potentially increase the bank’s financing costs and limit its ability to effectively mobilize resources across the continent.

In a succinct statement, Afreximbank emphasized its ongoing efforts to improve risk management and its substantial capital reserves.

The challenges that African lenders and governments are already grappling with, such as escalating debt burdens and restricted access to international capital markets, are further exacerbated by the downgrade.