Moody’s Investors Service has downgraded the African Export-Import Bank’s credit rating from Baa1 to Baa2, reflecting growing concerns over its exposure to sovereign debt restructurings in Ghana and Zambia. This move marks the second downgrade in just a few weeks, following Fitch Ratings' similar action in early June, underscoring the mounting risks facing the pan-African lender.

The rating agency pointed to Afreximbank’s increasing shift from traditional trade finance lending to unsecured loans to sovereign borrowers undergoing debt workouts as a key factor behind the downgrade. This change in lending strategy has heightened the bank’s vulnerability amid challenging economic conditions in these countries. Despite raising liquidity to about $9.5 billion to cushion these risks, Moody’s considers maintaining such high cash levels unsustainable over the medium term. The bank’s recent efforts to diversify funding through market-based instruments like Samurai and Panda bonds have been modest relative to its overall capital needs.

Nevertheless, Moody’s acknowledged Afreximbank’s solid profitability, consistent capital generation, and strong backing from its member shareholders, which offer some mitigation against the credit risks. By the end of 2024, the bank had provisioned 41% of its exposure to Ghana and Zambia, indicating recognition of the credit challenges ahead.

Following the downgrade, Afreximbank’s bonds have maintained relative stability in the market, though the increased borrowing costs may complicate its ability to support African countries with favorable financing.