Afreximbank has faulted the global ratings organisation, Fitch, after it downgraded its multilateral credit rating, citing concerns about the agency’s views on its operations.

Fitch announced on June 4 that it was downgrading Afreximbank to BBB+, the lowest investment grade rating, after reassessing its credit risk as “high” and its risk management policies as “weak”.

The agency cited concerns that non-performing sovereign loans in Ghana and Zambia might be included in restructuring efforts alongside commercial creditors. The multilateral development bank (MDB) is owed around $750m by Ghana and $45m by Zambia and also has exposure to Malawi and South Sudan. Fitch said the restructuring would put pressure on the assessment of the bank’s policy importance and heighten the risk associated with the strategy. It believes Afreximbank’s non-performing loan ratio should be recorded at 7.1% rather than the 2.3% reported.

Responding to Fitch in a statement on Tuesday, Afreximbank said it operates under very high standards of financial transparency, saying that its financial reporting strictly adheres to International Financial Reporting Standards (IFRS), including IFRS 9.

“This standard governs the classification and staging of loan performance, including the treatment of non-performing loans, amongst other matters. The Bank’s application of IFRS 9 is comprehensively detailed in its 2024 Financial Statements and further clarified in the external auditors’ report,” the statement said in part.

The bank said the Fitch’s ‘negative outlook’ decision, which it says reflects “the risk that the debt owed to Afreximbank by some of its sovereign borrowers may be restructured”, is hinged on the erroneous view, in some quarters, that the treaty establishing Afreximbank, executed by its 53 participating African states, can be violated by the bank without consequences.

“For clarity, the bank establishment agreement is a treaty entered into by, and among, all participating states and between the participating states and the Bank.”

“Accordingly, Afreximbank would like to reaffirm that it is not participating in debt restructuring negotiations related to any of its member countries. To do so would be inconsistent with the Bank establishment treaty. The treatment of its loans and other activities is governed by the treaty and not by classifications created outside its framework. “Afreximbank’s financial resilience, robust governance and unwavering commitment to excellence, and to Africa, are critical to the delivery of its mandate. The Bank remains committed to supporting its member countries in navigating their economic challenges while promoting trade-led growth, economic development and general macroeconomic stability.” As cited in the ratings report, Afreximbank said Fitch’s definition of NPLs differs from the Bank’s approach, which makes use of forward-looking information. The bank stated that Fitch acknowledges Afreximbank’s financial resilience, highlighting that “the bank operates with a high level of collateral and credit risk mitigants and has already taken relatively large provisions on some sovereign exposures, which would reduce any potential further negative financial impact for the bank”.

Fitch had also acknowledged the bank’s strong capitalisation, including its “strong equity-to-assets and guarantees ratio” and “excellent internal capital generation”. Its concentration risk is also reported as “low”, and its liquidity assessment of “a” reflects the Bank’s “strong quality of treasury assets”. However, the bank said it believed that these factors reinforce the overall soundness of its risk management framework.

Afreximbank says Fitch’s decision “is hinged on the erroneous view” that its establishing treaty “can be violated by the bank without consequences”. That treaty, which was executed by 53 African states, requires that the MDB not participate in debt restructuring negotiations, it says.

The downgrade has also attracted criticism from the African Peer Review Mechanism (APRM), an arrangement established in 2003 by African Union states to monitor governance performance. The APRM said in a June 9 statement that treating sovereign exposures as equivalent to commercial loans is “flawed”. “Doing so reflects a misunderstanding of the governance architecture of African financial institutions and the nature of intra-African development finance,” it said. “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.”