Johannesburg, 30 Sep 2015 – Global Credit Ratings has affirmed the national scale ratings assigned to The Company for Habitat and Housing in Africa of AA(KE) and A1+(KE) in the long term and short term respectively; with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale rating assigned to The Company for Habitat and Housing in Africa of BB; with the outlook accorded as Stable. The rating(s) are valid until September 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to The Company for Habitat and Housing in Africa (“Shelter Afrique” or “the company”) based on the following key criteria:
The ratings of Shelter Afrique reflect its favourable strategic position in sub-Saharan Africa (given its mandate to support the development and efficient delivery of affordable housing and commercial real estate) and strong equity participation, comprising two institutional members and 44 member countries. The 17.4% equity stake of the African Development Bank (“AfDB”), a highly rated multilateral development bank, is an important support mechanism to the company’s ratings. AfDB has supported Shelter Afrique through long-term credit lines and technical assistance, including capacity building and risk management.
Shelter Afrique is adequately capitalised for current risk levels, reporting a risk weighted capital adequacy ratio of 27.1% at FYE14 (FYE13: 29%), calculated in line with Basel II standards (internal minimum 25%). Financial flexibility is further boosted by the company’s access to callable capital (USD500m), which acts as a guarantee of Shelter Afrique’s borrowings, albeit, cognisance is taken of the delays in collecting capital from member countries.
Asset quality remains a challenge, with the company reporting a gross non-performing loan (“NPL”) ratio of 11.9% at FYE14 (FYE13: 10.4%), partly due to legacy loans and difficult economic conditions experienced in some member countries where it has extended credit. While all exposures are secured, cumbersome judicial processes in member countries has meant that realising security on NPLs can take several years. Specific provisions covered 33.2% of impaired loans at FYE14, up from 21.1% at FYE13. Unreserved impaired loans (net NPLs) amounted to 16.9% (FYE13: 15.5%) of capital at FYE14. Management has stepped up efforts to improve asset quality, including the establishment of a loan work-out unit focusing on recoveries in F14. Governance and risk management structures have been strengthened, which should facilitate the underwriting of better quality assets going forward.
Net income declined by 89.7% to USD0.5m in F14, mainly due to the 111.5% rise in loan impairment charges, significantly lower non-interest income, and growth in operating costs. Accordingly, profitability indicators declined with the company posting ROaE and ROaA of 0.4% (F13: 4.3%) and 0.2% (F13: 1.9%) respectively in F14. Shelter Afrique’s sizeable liquid asset portfolio, in addition to a long dated funding profile, serves to mitigate liquidity risk, as evident from the cumulative liquidity buffers across all maturity buckets.
Shelter Afrique’s charter and well-diversified shareholding ameliorates sovereign interference risk. For all major international currencies, asset/liability mismatches are small and appear well managed. The majority of cash and liquid assets are US Dollar denominated and placed with strongly rated counterparties. Due to the diversity of the funding base, the international rating has not been constrained by the country ceilings of member countries.
A positive earnings trend, strong asset quality metrics, diversification of the loan portfolio, and a further strengthening of the equity base and shareholding profile, could lead to upward ratings migration. Conversely, pressure on the ratings could arise from further asset quality deterioration (exacerbated by deteriorating economic environments across member countries) or unexpected deterioration in capitalisation, liquidity and leverage metrics.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATING HISTORY|
|Initial rating (July 2005)||Initial rating (July 2005)|
|Long term: AA(KE); Short term: A1+(KE)||Long term: BBB-|
|Outlook: Stable||Outlook: Stable|
|Last rating (September 2014)||Last rating (September 2014)|
|Long term: AA(KE); Short term: A1+(KE)||Long term: BB|
|Outlook: Stable||Outlook: Stable|
|Primary Analyst||Committee Chairperson|
|Jennifer Mwerenga||Omega Collocott|
|Credit Analyst||Sector Head: Financial Institution Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2015
Global Criteria for Rating Multilateral Development Banks (September 2015)
Kenya Bank Statistical Bulletin (June 2015)
Shelter Afrique rating reports (2005-14)
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The Company for Habitat and Housing in Africa participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to The Company for Habitat and Housing in Africa with no contestation of the rating.
- Audited financial results of the company as at 31 December 2014 (plus four years of comparative figures)
- Unaudited interim results of the company as at 30 June 2015
- Budgeted financial statements for 2015
- Latest internal and/or external audit report to management
- Reserving methodologies
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
- Industry comparative and regulatory framework
The ratings above were solicited by, or on behalf of, The Company for Habitat and Housing in Africa, and therefore, GCR has been compensated for the provision of the ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Arrears||An overdue debt, liability or obligation. An account is said to be ‘in arrears’ if one or more payments have been missed in transactions where regular payments are contractually required.|
|Asset Quality||Asset quality refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (i.e. being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Basel II||Basel Committee regulations, which attempt to integrate Basel capital standards with national regulations, by setting the minimum capital requirements of financial institutions with the goal of ensuring institutional liquidity.|
|CAGR||The compound annual growth rate is the year-on-year percentage growth rate of an investment over a given period of time.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due.|
|Creditworthiness||An assessment of a debtor’s ability to meet debt obligations.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Default||Failure to meet the payment obligation of either interest or principal on a debt or bond. Technically, a borrower does not default, the initiative comes from the lender who declares that the borrower is in default.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Equity||Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Institutional Investors||Financial institutions such as pension funds, asset managers and insurance companies, which invest large amounts in financial markets on behalf of their clients.|
|International Scale Rating||ISRs relate to either foreign currency or local currency commitments, assessing the capacity of an issuer to meet these commitments using a globally applicable (and therefore internationally comparable) scale.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Liquid Assets||Assets, generally of a short term, that can be converted into cash.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long term||Not current; ordinarily more than one year.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Non-Performing Loan||When a borrower is overdue, typically 90+ days in arrears or as defined by the lender, or in the transaction documents.|
|Performing Loan||A loan is said to be performing if the borrower is paying the interest on it on a timely basis.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Short Term||Current; ordinarily less than one year.|
|Write-off||The total reduction in the value of an asset.|
For a detailed glossary of terms utilised in this announcement please click here