Smaller African Development Banks Risk Losing Preferred Creditor Status, Warns JPMorgan


LONDON, June 17 (Reuters) – Some of Africa’s smaller multilateral development banks, including the Africa Export-Import Bank (Afrexim) and the Trade and Development Bank (TDB), face the potential loss of their Preferred Creditor Status (PCS), JPMorgan analysts have cautioned.

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PCS is a crucial principle that grants multilateral development banks (MDBs) priority for debt repayment when a borrowing country or company faces financial difficulties. This status enables these banks to provide lower-cost financing to developing nations. However, larger MDBs have raised concerns that smaller regional banks, particularly in Africa, may not extend sufficient concessional loans to merit this privilege.

The issue has become a point of contention in debt restructurings in Zambia, Ghana, and Malawi, where the fate of loans provided by Afrexim, TDB, and similar institutions remains uncertain.

In a research note on Monday, JPMorgan analysts suggested that PCS is increasingly likely to be challenged in upcoming sovereign restructurings involving smaller MDBs. “This could result in their claims being treated as part of overall restructured debt,” they noted, indicating that such an outcome would increase the riskiness of their bonds.

JPMorgan’s analysts estimated that TDB’s exposure to the governments of Malawi and Zambia would likely be part of these countries’ debt restructurings. Afrexim’s exposure to Ghana and Malawi’s governments is also at risk, though less certain. Ghana’s significant official sector creditors reportedly want Afrexim to absorb losses, but the government is seeking IMF support for the bank.

“Considering this risk and the banks’ loan concentrations and bond valuations, we recommend underweight positions on Afrexim and TDB,” the analysts stated, with “underweight” effectively being a recommendation to sell or avoid these bonds.

Afrexim primarily provides direct loans to central banks, commercial banks, and central governments. Major shareholders include Nigeria’s government and Egypt’s central bank, each holding a 15% stake, alongside some private shareholders. TDB focuses on trade and project financing in Eastern and Southern Africa. The African Development Bank holds a 9% share, with Egypt, Ethiopia, Kenya, and Tanzania each holding 5-7%, and it too has some private ownership.

By Naija247news
By Naija247news
Naija247news is an investigative news platform that tracks news on Nigerian Economy, Business, Politics, Financial and Africa and Global Economy.

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