Afreximbank cuts ties with Fitch after ratings dispute. Here’s what happened

The African Export-Import Bank (Afreximbank) said on Friday it has ended its relationship with U.S.-based credit ratings agency Fitch, saying the firm no longer understands the bank’s mission or how it operates.

In a statement, Afreximbank said it has a “firm belief” that Fitch’s rating approach no longer reflects the bank’s mandate as a development-focused lender to African countries.

Afreximbank is widely seen as a key source of funding for African countries, especially at a time when global bond markets are harder to access and wealthier nations are cutting back on aid and concessional lending.

Why Afreximbank and Fitch clashed

The split follows a long-running dispute over whether Afreximbank should take losses on loans it made to countries that have defaulted on their debt, including Ghana and Zambia.

At the heart of the disagreement is whether Afreximbank has what is known as “preferred creditor status.”

This informal status, usually enjoyed by institutions like the International Monetary Fund (IMF) and the World Bank, typically protects lenders from losses when countries restructure their debts.

Fitch downgraded Afreximbank’s credit rating last year to just one level above “junk” status. It cited high credit risks and weak risk-management policies, and placed the bank on a “negative outlook,” a warning that another downgrade could follow.

Fitch has also said that any weakening of preferred creditor status for lenders like Afreximbank “could lead to negative rating action.”

What is “preferred creditor status”?

Preferred creditor status is not written into law and is based largely on convention. It generally depends on:

– Whether loans are made on concessional (below-market) terms, and

– Whether the lender is backed mainly by governments or private investors.

Afreximbank argues that its founding charter – signed by 53 African countries – gives it this protection. Its shareholders include both African governments and private investors.

However, sources told Reuters last year that the Paris Club, a group of major government creditors, considers Afreximbank’s loans to Ghana and Zambia to be commercial loans, meaning they could be included in debt restructuring talks.

Both Ghana and Zambia have since said they intend to restructure their loans to Afreximbank.

In October, Zambia said a third party had shown interest in taking over its Afreximbank debt – a move that could allow restructuring without directly challenging the bank’s creditor status.

Market reaction and other ratings

Afreximbank said in December that it had resolved issues related to a $750 million loan to Ghana, though it did not give details. The bank added that it “remains robust, underpinned by strong shareholder relationships and the legal protections.”

The announcement had no immediate impact on Afreximbank’s bonds.

Earlier this month, JPMorgan downgraded its view on Afreximbank bonds, warning that Fitch could cut the rating to junk after reports the bank might take losses on Ghanaian loans.

Afreximbank continues to be rated by other agencies. Moody’s downgraded the bank to Baa2 in July – two notches above junk – but has never given it a rating boost for preferred creditor status. The bank is also rated by GCR, China Chengxin International Credit Rating, and the Japan Credit Rating Agency.