Ratings agency Moody's has slashed its rating on Afreximbank, the embattled African lender's second downgrade in four weeks, citing weaker-than-expected asset performance and warning that its access to funding sources was shrinking.

Moody's lowered the rating from Baa1 to Baa2 - two notches above a sub-investment grade or "junk" rating - and changed its outlook from negative to stable, according to a statement published late on Tuesday.

"The bank's recent shift to unsecured lending to sovereigns under stress has introduced significant risks, diverging from its typical focus on trade finance, and heightened its sensitivity to its difficult operating environment," Moody's said.

A lower credit rating can raise borrowing costs and in turn impact lending rates.

Moody's one-notch downgrade comes as the African lender battles to protect its loans from restructuring in Ghana, Zambia and Malawi, claiming that as a multilateral lender it has preferred creditor status.

"Sovereign lending to Ghana and Zambia poses capital risks, as the Common Framework mandates restructuring comparable to private-sector creditor losses," Moody's said.

The downgrade also reflected a less extensive range of funding sources, which was "a trend unlikely to fully reverse", Moody's said.

Afrexim historically benefitted from diversified, low-cost funding through bilateral and syndicated loans rather than market-based sources, it said.

A $520-million Samurai bond sold in late 2024 and a $303-million Panda bond in early 2025 were "modest" relative to total funding needs. Moody's noted that amid the recent worsening in market conditions, Afrexim more than doubled its liquidity from end-2024 to $9.5-billion recently.

"Maintaining such high levels of cash is costly and therefore unlikely," Moody's said.

Moody's pointed to some mitigating factors such as strong profitability, and added that at the end of 2024, 41% of the Zambian and Ghanaian sovereign exposures had already been provisioned.

"In addition to consistently strong organic earnings and capital generation, the bank has received consistent support from member shareholders, with both capital raising exercises and retained profit contributing significantly to grow equity."

Fitch downgraded Afreximbank's credit rating to one notch above junk on June 4, with a negative outlook - effectively another downgrade warning.

While the Fitch downgrade sent Afrexim's bonds on a slide that saw them hit around a year low in mid-June, they have since recovered. On Wednesday, the 2029 maturity was bid at 91.4 cents on the dollar, while the 2031 bond stood at 86.14 cents, according to Tradeweb data - both broadly unchanged on the day.