The African Peer Review Mechanism, an instrument of the African Union Member States, has faulted the decision of the international credit rating agency, Fitch Ratings, to downgrade the African Export-Import Bank from ‘BBB’ to ‘BBB-’ with a negative outlook.

According to a statement on Sunday, the APRM, which is an instrument for AU member states to voluntarily self-monitor their governance performance and provide support to African countries in the field of credit ratings, said the downgrade was based on flawed loan classification.

The APRM routinely undertakes independent analyses of rating actions and commentaries issued by international credit rating agencies on African sovereigns and multilateral financial institutions.

Fitch justified its decision by citing an increase in credit risk and weak risk management policies, based on its estimate that the bank’s non-performing loans stood at 7.1 per cent higher than the six per cent ‘high risk’ threshold outlined in Fitch’s criteria at end-2024.

This estimate stems from Fitch’s classification of exposures to the sovereign governments of Ghana (2.4 per cent), South Sudan (2.1 per cent) and Zambia (0.2 per cent) as NPLs. Notably, this 7.1 per cent figure is significantly higher than the 2.44 per cent ratio reported by Afreximbank in its disclosures.

APRM, in the statement, expressed concern about what it called Fitch Ratings’ misclassification of Afreximbank’s sovereign exposures to the governments of Ghana, South Sudan and Zambia as NPLs.

The statement read, “This classification raises critical legal, institutional and analytical issues which the APRM strongly contests. The assumption that Ghana, South Sudan and Zambia would default on their loans to Afreximbank is inconsistent with the 1993 Treaty establishing the bank, to which Ghana and Zambia are both founding members, shareholders and signatories. The multilateral treaty signed in 1993 is legally binding on all member countries, imposing specific legal obligations related to the bank’s protection, immunities and financial operations.

“By virtue of this treaty, loans extended by Afreximbank to its member countries are governed by a framework of intergovernmental cooperation and mutual commitment, rather than typical commercial risk principles. It is, therefore, legally incongruent to classify a loan to member countries as non-performing, especially when the borrower states are shareholders in the lender institution, no formal default has occurred and none of the sovereigns have repudiated the obligation.”

It claimed that Fitch’s unilateral treatment of these sovereign exposures as comparable to market-based commercial loans despite their backing by treaty obligations and shareholder equity stakes is flawed.

“Doing so reflects a misunderstanding of the governance architecture of African financial institutions and the nature of intra-African development finance. Fitch has misinterpreted the invitation extended by Ghana, South Sudan and Zambia to Afreximbank to discuss the loan repayments as signalling an intention to default and/or to lift the Preferred Creditor Status.

“The APRM calls upon Fitch Ratings to re-examine its criteria and assumptions in this case and to engage in technical consultations with Afreximbank and other relevant African stakeholders. Objective, transparent and context-intelligent credit assessments are critical to ensuring fair treatment of African institutions in the global financial system. The APRM reaffirms its commitment to promoting accuracy in the credit ratings,” the statement concluded.

One of the positive highlights in the rating commentary was Fitch maintaining its ‘medium’ assessment of the business profile risk for the continental bank, taking into consideration its exposure to a ‘high-risk’ operating environment with weak credit quality, low income per capita and high political risk in the countries of operation.

Still positive, Fitch said that the bank had strong capitalisation, as its assessment took into account the ‘moderate’ usable capital to risk-weighted assets (FRA; 21 per cent) ratio, the ‘strong’ equity to assets and guarantees ratio (E/A; 19 per cent at end-2024) and the ‘excellent’ internal capital generation (ICG).

“Fitch expects the FRA and E/A ratios to be broadly unchanged over the forecast period to end 2027. Our projections assume 10 per cent yoy growth in banking operations and capital injections under the general capital increase approved by Afreximbank’s board of directors in June 2021 (totalling $2.6bn in paid-in capital, of which $2.1bn has been already paid),” the statement read.

Meanwhile, earlier this year, China Chengxin International Credit Rating Co., Ltd assigned an ‘AAA/Stable’ rating to Afreximbank, recognising the bank as a leading multilateral financial institution on the continent.

Afreximbank is the first African multilateral financial institution to receive a AAA rating from CCXI. It has expressed interest in exploring opportunities to tap into the Chinese Panda bond market in 2025 to support and facilitate accelerated trade and investment between China and Africa and to expand its existing funding partnerships.