AU slams Fitch over Afreximbank downgrade, calls rating flawed and legally inaccurate

The African Union has criticised Fitch Ratings for downgrading Afreximbank, arguing that the reasoning behind the move, particularly concerning credit risk, is flawed and legally unsound.

Through its governance programme, the African Peer Review Mechanism (APRM), the Union on Friday described the downgrade as analytically flawed and inconsistent with the legal frameworks that govern the bank’s operations.

Announced on June 4, the downgrade lowered Afreximbank’s long-term foreign currency issuer default rating from ‘BBB’ to ‘BBB-’ with a negative outlook.

Fitch justified the rating action by pointing to what it described as rising credit risk and weak risk management within the regional lender.

Central to this rationale is Fitch’s classification of certain sovereign exposures, specifically to Ghana, South Sudan and Zambia as non-performing loans (NPLs), resulting in an estimated NPL ratio of 7.1 per cent.

The statement by the Union, however, questions this ratio, saying the lender’s own disclosures report a substantially lower NPL of 2.44 per cent.

“This classification raises critical legal, institutional and analytical issues which the APRM strongly contests,” the statement reads.

“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.”

Notably, 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.

Under 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,” the statement reads.

The Union further argues 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, it adds.

Nevertheless, it points out that 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.

APRM is thus calling 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.

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