Misheck Mutize: Afreximbank’s Rating Downgrade By Fitch Was Speculative, Not Correct

Lead Expert for Country Support on Rating Agencies at the African Union, Dr Misheck Mutize, has strongly criticised recent downgrades of the African Export-Import Bank (Afreximbank) by Fitch and Moody’s, insisting the assessments were “incorrect” and not supported by fundamentals.

In an interview with ARISE News on Tuesday, Dr Mutize said: ‘This is a very important conversation, especially to put these perspectives and benchmarks on the radar of international investors who make decisions to bring money to Africa. To put it in context, you know that we had a very strong statement against the rating downgrade of African Bank by Fitch, which also Moody’s followed suit a few weeks after. But the main point of contention was that we thought that rating downgrade by Fitch was not warranted and we still think that that position was not correct.’

He said the reaffirmations by other leading rating agencies demonstrated that Fitch’s analysis was flawed. “Those A class or A grade ratings by those three institutions affirm the position that we are advancing—that the rating downgrades on the basis of fundamentals that Fitch was flagging, especially because Fitch is the one that moved to right on the fence with a triple B minus, with also a negative outlook on African Bank, which we thought was really an incorrect position of analysis of risk and also very speculative in nature.”

Dr Mutize stressed that Afreximbank plays a critical role in financing intra-African trade and infrastructure. “Very important, because, you know, for intra-African trade to happen, one of the bloodlines of that is capital. You need capital to flow in Africa. And one of the major needs that is an agent to support intra-African trade is the infrastructure to facilitate such trade, to open the route and develop the necessary infrastructure for trade to flow. So, if that capital is not available, it means that we can’t talk about intra-African trade growth.”

He argued that downgrading the bank undermines its vital role. “Institutions like African Bank have been one of the key institutions to facilitate such trade. That’s why you hear a lot of reference of African Bank in the African Union platform, because it is one of the institutions that has heeded the call to support financing for development in Africa. And this specific factor, instead of being viewed in positive light by the international financing architecture, it is rather seen from a negative perspective, which we consistently challenge now, because African Bank has made an impact which is undeniable. And to downgrade African Bank, we actually see it in the broader perspective of wanting to curtail the facilitation and the strategic role that this institution is taking in financing Africa’s infrastructure.”

On Afreximbank’s financing diversification, Dr Mutize noted: “African Bank is one of the institutions that has opened the door for accessing into the Japanese market and also the Chinese market to diversify its funding portfolio. And we have seen also a follow through from a number of countries. I’m sure you would have followed that Kenya recently announced that it will be working to swap its current euro bonds that are denominated in dollars into the Chinese Yuan. And that is expected that it will halve its interest burden.”

He added that the bank’s strategy was about building credibility, not desperation for funds. “Moving into this space, we know that it was not because of the financing need for the bank, but it was rather to display capacity and possibility that it has the skill, it has also the capacity into moving into alternative markets to raise capital. However, you would have noted also that the recent rating reports actually acknowledge that is a key strength because they are valuable lines of credit over two billion that the bank has not utilised, which speaks to a huge capacity that displays that the bank has got a few options other than the traditional channels of financing.”

The AU expert further argued that international agencies fail to recognise the bank’s shareholder support. “It is very difficult because of what we are discussing here, that you find Fitch doesn’t see the support that a bank like Afrixing Bank is getting from the member states, even the preferred creditor treatment that the member states are affording to the entity, as well as the commitment in terms of callable capital to such a huge amount as 4.6 billion, which is quite a lot of commitment from the shareholders. They don’t see those values as important. And what they do emphasise is what they flag as a weak risk management, which is, I think, a very speculative and superlative approach to analyse risk and also the issue of liquidity.”

Highlighting alternatives, he said: “When we are talking about South-South, which the alternative markets like the Samurai bond and the Chinese market, the Panda bond, have provided a very lucrative alternative. If you may, you would have noted that Egypt actually issued a very reasonably priced loan of both denominations at an interest rate of between 1% and 3%. So, if you compare that to the traditional Euro bonds, where now you find a country issuing a bond at 12%, that speaks to the possibilities and the need to refocus and shift into this space for sustainable financing.”

Dr Mutize also emphasised Afreximbank’s strategic importance to the African Continental Free Trade Area (AfCFTA). “We see the importance of Afrixim Bank as a market leader in restoring the confidence of investors in African infrastructure development and also African trade. So, as part of our strategy also in the African Union, we are supporting the development of domestic markets and developing institutions also that will reinforce the domestic financing ecosystem. So, we see Afrixim Bank and other African multilateral financial institutions as very important to support this idea of developing an African financing architecture.”

Explaining why Fitch and Moody’s took a different stance, he said: “The first one was the treatment of what they called non-performing loans in Afrixim Bank, and they did flex loans to Ghana and to Zambia as well as Sudan, which if they are included in their definition of non-performing loans, it pre-pitched the non-performing loans into a higher threshold. But what we’re contesting is that in accounting those loans, the bank had disclosed that it had applied the international financing reporting standards, which Fitch rejected and said it doesn’t recognise that approach, but rather it applies its own. So, our contestation was that its own methodology or approach cannot supersede what international financing reporting standards have laid out, which Afrixim Bank had followed.”

He added: “And then it went on to also create an impression that the bank had weak disclosure mechanism and weak risk management policies, which was very speculative and had no basis at all because these loans had been disclosed and the status of it, including the preferred creditor treatment from the countries that were being questioned, it was all laid to the rating agency, which they completely rejected. So, that’s what we’re contesting.

“And this impression that the bank operates in a highly risky environment, that notion is completely speculative because there is a very low non-performing loans or defaults that has happened in the past,” he said.

Boluwatife Enome 

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