OREANDA-NEWS. Fitch Ratings has placed African Export-Import Bank's (Afreximbank) Long-Term Issuer Default Rating (IDR) of 'BBB-', Short-Term IDR of 'F3' and senior unsecured Long-Term rating of 'BBB-' on Rating Watch Negative (RWN).

KEY RATING DRIVERS

The RWN on Afreximbank's ratings reflect the following key rating drivers:

Afreximbank has traditionally concentrated on relatively low-risk trade finance loans. Its core focus has evolved substantially since 4Q15, with an increased share of exposure to facilities to African countries' Central Banks (its "COTRALF" lending programme). This revised focus has entailed rapid growth in the bank's balance sheet since end-2015, which will negatively affect Afreximbank's solvency metrics, as calculated in line with Fitch's Supranationals Rating Criteria.

Most of Afreximbank's exposures to sovereigns are provided under a risk protection scheme, which includes USD cash-deposits, local currency guarantees, foreign exchange contracts entered into with the relevant central banks or credit insurance. However, under Fitch's Supranationals Rating Criteria, the magnitude of the loans to some African sovereign borrowers has resulted in a deterioration in risk concentration metrics, which in Fitch's view weakens the bank's intrinsic credit quality.

Based on Fitch's estimates, the rapid lending growth in 1H16 has resulted in Afreximbank's equity/adjusted assets ratio declining to 13.2% at June 2016 from 17.8% at FY December 2015. This was despite the successful USD500m capital replenishment achieved in 2016, highlighting the weakened capitalisation metrics of the bank.

Fitch assesses Afreximbank's coverage of short-term liabilities by liquid assets as excellent. Nevertheless, the bank's increased deposit base (40% of its non-equity funding sources at June 2016) is highly concentrated, with a single institution accounting for 91.5% of total deposits.

RATING SENSITIVITIES

Fitch will consider additional information to be provided by the issuer during its review to resolve the RWN. We expect to complete our review and resolve the RWN by 14 October 2016.