Afreximbank’s credit rating nears ‘junk’ territory over Ghana’s, others’ defaults

The non-performance of loans owed by the governments of Ghana, Zambia, and South Sudan has triggered a downgrade in Afreximbank’s credit rating.

On June 4, Fitch Ratings lowered Afreximbank’s credit rating to ‘BBB-’ with a negative outlook, just one step above junk status. According to Fitch, the bank lags behind its multilateral peers in terms of transparency regarding loan performance. While Afreximbank reported a decline in non-performing loans (NPLs) to 2.33 percent, Fitch estimated the true figure at 7.1 percent, far exceeding the 6 percent threshold it considers elevated.

Ghana, South Sudan, and Zambia account for 2.4 percent, 2.1 percent, and 0.2 percent, respectively, of Afreximbank’s total exposures. Combined with the bank’s reported NPL figure, these sovereign exposures help explain the 7.1 percent level cited by Fitch. The agency also cited elevated credit risks and weak risk management practices as factors behind the downgrade, which included a cut to the bank’s solvency assessment, from ‘a-’ to ‘bbb+’.

The timing of the rating action, just three weeks ahead of Afreximbank’s Annual Meetings scheduled to take place in Abuja, has cast a cloud over the upcoming event.

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Afreximbank’s struggle to retain its preferred creditor status  

Among the critical challenges confronting Afreximbank is the growing threat to its preferred creditor status.

This designation gives multilateral lenders priority repayment in cases where a borrower defaults or restructures its debt. But Afreximbank’s troubles began about a year ago when JPMorgan raised red flags, warning that the bank, alongside the Trade and Development Bank, risked losing this key status. JPMorgan’s concern stemmed from how Afreximbank’s claims were being treated in debt restructuring cases, particularly in Ghana. Analysts suggested that some multilateral claims “could be treated as part of overall restructured debt.”

In response to JPMorgan’s concerns, the Alliance of African Union (AU) Ministers of Finance and Central Bank Governors convened their 7th Ordinary Session in Tunisia last July. The gathering produced a formal appeal urging AU member states to respect the preferred creditor status of African multilateral institutions. Yet, recent friction between Ghana and Afreximbank suggests limited progress.

In its ongoing debt restructuring efforts, Ghana is pressuring Afreximbank to accept a haircut on the $768 million it owes the bank. While Afreximbank insists on its immunity as a preferred creditor, the Ghanaian government remains defiant.

Ghana’s Finance Minister, Cassiel Ato Forson, stated in an interview: “Ghana’s government doesn’t see Afreximbank as having preferred creditor status. We do not believe their debt is senior to any other restructurable debt. The Afreximbank debt is part of our restructurable envelope.”

Conversely, Afreximbank is adamant that its claims on Ghana are non-negotiable. “We are not part of the restructuring program,” said Chandi Mwenebungu, the bank’s Managing Director, during an investor call.

The bank has also signaled its willingness to pursue legal redress against sovereign defaults. On May 8, Afreximbank secured a court ruling against South Sudan, requiring the government to repay $657 million in defaulted loans, with a post-judgment interest rate of 13.5 percent until full repayment is made.

Some African governments’ dismissive posture toward Afreximbank’s preferred creditor claims appears linked to the relatively high cost of its loans. Typically, multilateral lenders offering such protections provide concessional financing. Afreximbank’s terms, however, are often more expensive. For example, the bank’s $3.3 billion crude-backed loan to NNPC carries an 11.85 percent interest rate, well above the 9.625 percent yield on Nigeria’s $2.2 billion Eurobond issued last December.

Nevertheless, Afreximbank argues that its preferred creditor status is not arbitrary but is enshrined in its founding statutes.

Fitch’s assessment goes beyond loan performance

Fitch’s rationale for the downgrade extends beyond NPL transparency. The agency also flags the inherent risk of operating within the African business landscape as a major weakness in Afreximbank’s credit profile. Specifically, it cites the bank’s “high-risk” operating environment, “weak credit quality,” low per capita income in the region, and “high political risk” as systemic concerns.

Currently, non-sovereign entities, essentially corporate and institutional borrowers, constitute 92 percent of Afreximbank’s total loan portfolio. The bank’s largest exposures are concentrated in Nigeria and Egypt, which together account for more than half of its total lending. While Fitch acknowledges that Afreximbank maintains robust collateralization, covering approximately 84 percent of its loan book, it remains concerned about the bank’s credit quality, which continues to weigh on its rating.

Despite these challenges, Fitch recognizes Afreximbank’s strong liquidity position. The bank’s liquidity assessment stands between ‘AA-’ and ‘AAA’. According to its 2024 financial statements, Afreximbank held liquid assets equivalent to 13 percent of its total balance sheet, with net cash reserves amounting to approximately $4.6 billion by year-end 2024.