National Housing Finance Corporation Limited’s rating reaffirmed
GCR has reaffirmed the National Housing Finance Corporation’s (“NHFC”) national scale rating at AA-(ZA) (double A minus) and A1+(ZA) (single A one plus). The rating outlook remains “Stable”. The rating is supported by a high probability of government support, given that the NHFC is wholly owned by the South African government, and plays a pivotal role in government’s human settlement plans and provision of low cost housing.
Despite a marginal growth in the capital base, NHFC is considered to be well capitalised. In line with the agreement with Government, the NHFC has a non-distribution of dividends policy to enhance its capital base, but is nevertheless a tax paying entity. Although declining following strong asset growth, capitilisation levels remain high, with capital to assets at 66%.
Credit quality deteriorated during F12, mainly as a result of a single client that experienced working capital challenges. Resultantly, Impaired loans increased 21.8% to R284.5m, representing
total credit impairment charge as a percentage of average gross loans) increased to 1.5% (FYE11: 0.3%), although remaining within the approved although remaining within the approved risk appetite limit of 2%. Arrears coverage increased marginally to 59%. risk appetite limit of 2%. Arrears coverage increased marginally to 59%. Relative to capital, net NPLs remain insignificant at 5.1% (FYE11: 4.3%).
A pre-tax profit of R31.8m was recorded for F12, down 51.4% from the previous period, primarily due to increased impairments and rising costs of borrowing, as a result of a strategic decision to restructure the balance sheet, through increased debt funding.
NHFC’s liquidity position remains adequate as reflected by the positive cumulative liquidity buffers reported across all maturity buckets as at FYE12. Liquid assets to total assets ratio of 41% was displayed as at FYE11, up from 39% in the previous year.
Deteriorating economic conditions and the spillover effects of a weak global market could undermine the ability of borrowers to service debt, given the Corporations highly vulnerable target market encompassing low-to-medium income individuals. Asset quality is expected to remain under pressure, with further deterioration potentially supporting a downgrade. However, improved asset quality indicators, improved earnings performance and a further strengthening of the funding base will be considered positively.
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