Afreximbank’s first quarter results impress amid push into the Caribbean

The African Export-Import Bank, or Afreximbank, serves as the primary export-import bank for Africa and plays a pivotal role in advancing the continent’s economic development and regional integration. Afreximbank’s financial performance has been on a strong and steady uptrend in recent years, reflecting Africa’s resilient trade activity in the face of multiple global shocks.

Export-Import banks play a crucial role in facilitating international trade by providing financial support to exporters and importers, often through a blend of loans, guarantees and other innovative financial instruments that mitigate the risks associated with selling products in overseas markets.

The Cairo-based multilateral lender’s latest financial results, for the quarter ending 31 March, show that net interest income in the period came in at $393.4m, a 32% jump from $298.6m in the prior year’s corresponding quarter. This was driven by the growth in the lender’s portfolio of loans and advances, as well as higher benchmark interest rates fuelled by global interest rate hikes.

In addition to higher lending rates, Afreximbank’s access to low-cost funds helped expand its net interest margins in Q1, signalling higher profitability levels for the Group’s core lending business. “Net Interest Margin improved to 4.82% compared to 4.40% in the corresponding period due to a combination of higher benchmark rates and effective management of borrowing costs,” the lender stated.

Improved efficiency boosts earnings

One of Afreximbank’s key strengths as a lender remains its ability to grow its loan book while improving efficiencies, a strategy that is essential for any financial institution keen on growing earnings and enhancing shareholder value. The Group’s cost-to-income ratio fell to 14.5% in the first quarter of the year from 16.82% in a similar period last year. A lower figure is generally desirable because it indicates that a lender is using its resources efficiently to generate income.

Denys Denya, Afreximbank’s senior executive vice president, says efficiency is one of the areas the group will maintain a focus on, along with ensuring the lender is well capitalised. “Looking ahead, we will continue to prioritise revenue and quality assets growth [and] operational efficiency, while ensuring capital adequacy and adequate liquidity levels are maintained,” he commented.

Moody’s recent report on Afreximbank cites one of the institution’s credit strengths as “sound profitability and access to relatively low-cost funding”. The Group’s consistently strong credit ratings, combined with that access to low-cost funding, have helped it shore up its balance sheet, which is currently in formidable shape.

“Total assets closed Q1 2024 at $32.8bn compared to $33.5bn as at 31 December 2023 (FY 2023). Cash and cash equivalents closed the period at $4.9bn (FY 2023: $5.6bn) with the liquidity ratio remaining strong at 14.9%,” the group stated. Notably, Afreximbank’s total assets have more than doubled in the past five years from $14.43bn in 2019.

Investing in growth and
courting the diaspora

Even though Afreximbank was able to improve overall levels of efficiency in the first quarter, it nonetheless recorded a 10.63% year-on-year increase in operating expenses, which reached $61.4m, compared to $55.5m in Q1 2023.

This uptick in expenses, the Group says, was by design, and driven by the need to expand business teams and invest in growth, in line with the lender’s evolving business strategy. Staff costs at Afreximbank rose 28.55% year-on-year in Q1 due to an expanded staff headcount, with payroll and related expenses constituting slightly over half of overall expenses in the period. Afreximbank is investing in the human talent it needs to drive its scaled-up ambitions, which has since grown to include projects and initiatives in the African diaspora, particularly Caribbean states. “We have expanded our subsidiary companies’ operations and our activities in the Caribbean,” Denya reported in the earnings release this May.

As part of its strategy, Afreximbank recently established the Afreximbank Africa Diaspora Center in partnership with the Africa Center in New York. Caribbean Community Member States have joined Afreximbank as participating member states, and the bank has opened a regional office in Barbados for the Caribbean region.

“With the launch of the Caribbean Office, we can look forward to a smooth implementation of trade and access to finance initiatives, broader business origination across the CARICOM member states and more impactful results from our partnership,” said Afreximbank president and chairman Professor Benedict Oramah during the launch of the group’s office in Barbados in August last year.

The Caribbean Community and Common Market (CARICOM) is a regional organisation comprising 20 nations in the Caribbean. “Over time, CARICOM and African financial systems will become better integrated for the benefit of our people,” Oramah said.

AfCFTA to drive future growth

Following the stellar set of Q1 earnings, Denya emphasised that, looking ahead, the African Continental Free Trade Area (AfCFTA), backed by a robust intra-African payments and settlement system such as the Pan-African Payment and Settlement System (PAPSS), will enhance Africa’s economic resilience.

PAPSS is an initiative spearheaded by Afreximbank and the AfCFTA Secretariat and is designed to transform and facilitate payment, clearing and settlement for cross-border trade across Africa. By simplifying cross-border transactions and reducing reliance on hard currencies, PAPSS is set to boost intra-African trade significantly, Afreximbank argues. Its full implementation is expected to save the continent more than $5bn in payment transaction costs each year.

In terms of guidance, Denya said that Africa is resilient and the Group is confident about its prospects for the remainder of the year. “Africa is projected to sustain its resilience in 2024 and attain a growth rate of approximately 4%. We look forward to the rest of the year with confidence,” he said

Innovative partnerships to unlock equity financing

Afreximbank has in recent years expanded its focus beyond traditional trade finance in a move that could enhance earnings further while accelerating economic growth and transformation in Africa. Funds set up by the Group have more than $450m to invest in financial services, creative industries, oil refineries and healthcare, officials said in March. These investments are not limited to debt, but will also include equity investments. Equity is often more affordable and better suited to the long-term financing requirements of development projects in Africa.

The Fund for Export Development in Africa (FEDA), unveiled by Afreximbank in 2016, has raised $770m for four funds in recent years and is still continuing with fundraising. It has set a target to raise up to $1.3bn in total. Afreximbank officials in March said that FEDA has already invested about $300m, noting that it makes equity, debt and credit investments, as well as “greenfield” investments in new businesses. The fund is one of the backers of ARISE Integrated Industrial Platforms, an initiative aimed at accelerating local transformation of raw materials in Africa by establishing world class industrial parks.