Fitch Downgrade Highlights Risks of Afreximbank’s Rapid Growth from Lending to Distressed Governments Without Reform Conditions

A significant jolt has hit Africa’s financial landscape as Fitch Ratings downgraded Afreximbank’s credit rating to BBB- on June 4, 2025.

This decision, which brings the bank precariously close to a “junk” status, has deepened concerns about the future of intra-African trade and regional economic integration. With a history of facilitating trade finance and driving key projects like the African Continental Free Trade Area (AfCFTA), the downgrade has far-reaching implications for Africa’s economic ambitions.

The Crisis of Confidence: High Risk and Weak Management

Fitch attributed the downgrade to Afreximbank’s “high credit risks and weak risk-management policies.” The timing of this move is particularly damaging, coming as the bank faces mounting pressure over its exposure in countries like Ghana, Zambia, and Malawi. The financial institution is struggling to shield its loans from potential restructuring, which raises the stakes for Africa’s largest multilateral development bank (MDB).

One of the more alarming aspects of the downgrade is the discrepancy between Afreximbank’s reported Non-Performing Loan (NPL) ratio and Fitch’s independent assessment. While Afreximbank reported a 2.44% NPL ratio for the first half of the year, Fitch’s figures point to a far higher rate of over 6%. This discrepancy casts a shadow over the bank’s transparency and calls into question the real health of its loan portfolio.

Implications for AfCFTA and Regional Trade

The downgrade poses serious threats to the African Continental Free Trade Area (AfCFTA) initiative, one of the continent’s most ambitious projects. Afreximbank plays a critical role in facilitating trade through the Pan-African Payment and Settlement System (PAPSS) and the AfCFTA Adjustment Fund. With the bank’s borrowing costs set to rise, the operational costs of these systems will likely increase, undermining their efficacy and threatening the financial sustainability of the AfCFTA framework.

In addition, Afreximbank’s pivotal involvement in the African Collaborative Transit Guarantee Scheme (AACTGS), designed to reduce the high costs of cross-border goods transit, is at risk. With its credit rating downgraded, the bank may face increased costs in providing guarantees, potentially inflating the overall costs of the scheme and stalling progress on reducing trade barriers.

A Leadership Transition: The Battle for Afreximbank’s Reputation

Bright Simons, the renowned Ghanaian development expert, points out that the upcoming leadership transition at Afreximbank adds another layer of complexity to the situation. As the current president, Professor Oramah, prepares for retirement in September 2025, the institution’s future strategy will be influenced by the legacy he leaves behind. Simons highlights a key issue—the bank’s failure to secure “special status” as a preferred creditor among global development institutions like the African Development Bank (AfDB).

While Afreximbank’s transactional, high-risk approach has made it a popular choice among African governments, it is precisely this lack of coordination with other MDBs and its commercial shareholder model that have raised concerns. The bank’s willingness to lend to distressed governments without the same reform requirements as other MDBs has led to its rapid growth, but it now faces a tough decision: continue with high-risk lending for fast profits or pivot towards a more stable, long-term approach to secure its reputation and the future of the AfCFTA.

What Lies Ahead for Afreximbank?

The future of Afreximbank hinges on navigating these turbulent waters. With higher borrowing costs and an uncertain reputation, the bank must address its internal weaknesses and redefine its role within Africa’s economic integration efforts. The coming months will be pivotal in determining whether Afreximbank can regain investor confidence and continue to serve as the backbone of the AfCFTA and broader regional trade.

The downgrade is a stark reminder of the vulnerability of Africa’s financial institutions and the urgent need for structural reforms. As Afreximbank grapples with these challenges, the broader African economic agenda—especially the AfCFTA—faces uncertain prospects. The outcome of Afreximbank’s leadership transition, and how it confronts these issues, will be a defining moment for Africa’s economic future.

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