Moody's assigns Baa2/P-2/C- to African Export-Import Bank
Limassol, May 28, 2010 -- Moody's Investors Service has today assigned Baa2/Prime-2 foreign currency deposit ratings, a Baa2 foreign currency issuer rating and a C- bank financial strength rating (BFSR) to African Export-Import Bank (Afreximbank). All ratings carry a stable outlook.
"The BFSR of C- assigned to Afreximbank, which maps to a baseline credit assessment (BCA) of Baa2, takes into account the bank's strong positioning in trade finance on the African continent, its preferred creditor status and other privileges that it enjoys in its member countries, as well as its sound financial fundamentals," says Nondas Nicolaides, a Vice-President and Moody's lead analyst for Afreximbank.
The ratings also reflect the difficult and risky operating environment that the bank operates in, although this is largely mitigated by the structured nature of its credit facilities.
The Baa2 foreign currency deposit rating as well as issuer rating assigned to the bank are in line with its BCA. In assigning Afreximbank's BCA, Moody's has also considered the bank's callable capital of around USD250 million that its shareholders are committed to injecting in case of need.
Moody's believes that although it is difficult to estimate Afreximbank's market share of trade finance in the African countries in which it operates, the bank has a strong and reputable franchise in its niche business line. "The bank has a sustainable business model that will cater to the trade financing needs of African nations for years to come, while also having a strong track record of sustainable profitability, enjoying good margins and a relatively high level of fee income with a low cost base," adds Mr. Nicolaides.
Afreximbank's lending is mainly short term in nature and structured in such a way that is self-liquidating from receivables, largely from buyers in OECD countries. In this way, the bank is able to transfer most of its credit risk away from its generally risky African-based clients to an OECD entity. Despite certain credit concentrations in the bank's loan book, it has a track-record of good asset quality with minimal losses recorded over the years. The impaired loans of the bank at the end of
2009 amounted to a low 0.93% of total gross loans with an overall provisioning coverage of 92%.
Moody's ratings also take into consideration the bank's wholesale funding profile, mainly through syndications, but also the highly liquid form of its loan book, which has an average maturity of three months. The bank's access to committed credit lines and the good reputation that it enjoys in international capital markets provide additional comfort, although the bank has limited liquid funds available on its balance sheet, with no securities portfolio nor a discount window at its disposal given its unregulated status.
Afreximbank has strong capital levels, with a Tier 1 ratio of 30.9% at the end of 2009, which provides an extra cushion for any possible loan losses. Going forward, the bank intends to maintain a capital adequacy ratio (CAR) of more than 30%, with relatively conservative asset growth.
Headquartered in Cairo, Egypt, African Export-Import Bank had total assets of USD1.45 billion as of the end of December 2009. The bank is currently looking into ways of raising fresh equity in addition to the callable capital that it has available.
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The principal methodologies used in rating Afreximbank are Moody's "Bank Financial Strength Ratings: Global Methodology", published in February 2007, and "Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology", published in March 2007, which are available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
"The BFSR of C- assigned to Afreximbank, which maps to a baseline credit assessment (BCA) of Baa2, takes into account the bank's strong positioning in trade finance on the African continent, its preferred creditor status and other privileges that it enjoys in its member countries, as well as its sound financial fundamentals," says Nondas Nicolaides, a Vice-President and Moody's lead analyst for Afreximbank.
The ratings also reflect the difficult and risky operating environment that the bank operates in, although this is largely mitigated by the structured nature of its credit facilities.
The Baa2 foreign currency deposit rating as well as issuer rating assigned to the bank are in line with its BCA. In assigning Afreximbank's BCA, Moody's has also considered the bank's callable capital of around USD250 million that its shareholders are committed to injecting in case of need.
Moody's believes that although it is difficult to estimate Afreximbank's market share of trade finance in the African countries in which it operates, the bank has a strong and reputable franchise in its niche business line. "The bank has a sustainable business model that will cater to the trade financing needs of African nations for years to come, while also having a strong track record of sustainable profitability, enjoying good margins and a relatively high level of fee income with a low cost base," adds Mr. Nicolaides.
Afreximbank's lending is mainly short term in nature and structured in such a way that is self-liquidating from receivables, largely from buyers in OECD countries. In this way, the bank is able to transfer most of its credit risk away from its generally risky African-based clients to an OECD entity. Despite certain credit concentrations in the bank's loan book, it has a track-record of good asset quality with minimal losses recorded over the years. The impaired loans of the bank at the end of
2009 amounted to a low 0.93% of total gross loans with an overall provisioning coverage of 92%.
Moody's ratings also take into consideration the bank's wholesale funding profile, mainly through syndications, but also the highly liquid form of its loan book, which has an average maturity of three months. The bank's access to committed credit lines and the good reputation that it enjoys in international capital markets provide additional comfort, although the bank has limited liquid funds available on its balance sheet, with no securities portfolio nor a discount window at its disposal given its unregulated status.
Afreximbank has strong capital levels, with a Tier 1 ratio of 30.9% at the end of 2009, which provides an extra cushion for any possible loan losses. Going forward, the bank intends to maintain a capital adequacy ratio (CAR) of more than 30%, with relatively conservative asset growth.
Headquartered in Cairo, Egypt, African Export-Import Bank had total assets of USD1.45 billion as of the end of December 2009. The bank is currently looking into ways of raising fresh equity in addition to the callable capital that it has available.
------
The principal methodologies used in rating Afreximbank are Moody's "Bank Financial Strength Ratings: Global Methodology", published in February 2007, and "Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology", published in March 2007, which are available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.