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NHFC Annual Performance Plan 2019/20 2021/22 Page 1 of 140 NATIONAL HOUSING FINANCE CORPORATION SOC LIMITED ANNUAL PERFORMANCE PLAN FY 2019/20 to FY 2021/22 Date: 14 January 2019

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 1 of 140

NATIONAL HOUSING FINANCE

CORPORATION SOC LIMITED

ANNUAL PERFORMANCE PLAN

FY 2019/20 to FY 2021/22

Date: 14 January 2019

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ANNUAL PERFORMANCE PLAN 2019/20 – 2021/22

(3 years beginning 1 April 2019)

PREPARED FOR SUBMISSION TO THE DEPARTMENT OF HUMAN

SETTLEMENTS

FOREWORD

The Annual Performance Plan (APP) for the year ending 31 March 2020 has been

prepared by the management of the NHFC and reviewed and recommended to the

shareholder by the Board. The current Five-Year Strategic Plan ends on 31 March

2019 and as per the latest communication from the Department, the next five-year

Strategic Plan will commence on 1 April 2020 to 31 March 2025 in order to be

consistent with the voting cycle. This means the year commencing 1 April 2019 to 31

March 2020 will fall outside both five year Strategic Plans. The five-year Strategic

Plan considers government priorities that are detailed in the Medium Term Strategic

Framework, such as the National Development Plan, creation of sustainable human

settlements and the National Growth Path. Prevailing and projected market conditions

and organisational environment were also taken into account.

The target market of the NHFC is the low-to-middle income housing market which

includes households who earn up to R22 000 per month. The NHFC mandate

requires the company to make housing and housing finance accessible and

affordable to facilitate this objective.

This is done through:

providing wholesale and direct funding to housing development projects for

ownership, social and private rental, and for incremental housing purposes;

Upgrading of households in well-located informal settlements with access to

basic services and secure tenure:

Improving access to basic services;

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partnering with Banks and other non-banking retail financial intermediaries to

increase their sustained lending and innovativeness in the target market we

serve; and

leveraging private sector funding for the sustainable development of human

settlements.

More specifically, NHFC’s strategic priorities are to:

Expand housing finance activities, through the effective provision of housing

finance solutions to enable the households to have a choice in meeting their

housing needs;

Facilitate the increased and sustained lending by financial institutions to the

lower end of the housing market;

Conduct the business activities of the NHFC to ensure the continued financial

sustainability and greater developmental impact;

Facilitate Transformative change of the affordable housing sector;

Drive the process of changing the strategy of the NHFC to that of an entity ready

to assume the role of the HSDB;

Continuously stimulate and enable the low-to-middle income housing sector by

providing robust, relevant and timely research and market analysis.

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OFFICIAL SIGN-OFF

Priorities that guided the development of the Annual Performance Plan

The key steps for the NHFC to ensure realisation of the Annual Performance Plan (APP)

are:

Growing the loan book (through delivering on approvals and disbursements) and

mix of business at a satisfactory rate whilst mindful of the challenging trading

environment;

Ensuring that the loan book quality remains within acceptable risk

parameters though ensuring a rigorous process throughout the entire value chain

(at appraisal and post investment monitoring phase. This will require consistently

enhancing the loan monitoring processes and systems to ensure a satisfactory

management of investment and credit risk associated with our client base;

Further enhancing the pricing model of the company (which is risk based), to

ensure it better reflects the true cost of doing business and the risk associated with

writing new business. Where there is cross-subsidisation between clients or

products in order to achieve the developmental mandate, this will be more explicit

or clearer;

Ensuring that an optimal organisational structure is maintained during and after

the DFI consolidation process which also delivers with respect to operational

efficiency;

Endeavoring to ensure that the financial performance measures meets the

criteria to qualify for medium to longer term debt funding from the domestic or

international banking sector and/or the capital markets or DFI’s whilst continuing

with efforts for appropriate recapitalization from the Shareholder and National

Treasury; and

Ensuring that the capital structure of the NHFC is enhanced through the raising

of equity funding from the shareholder in the short and medium term.

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It is hereby confirmed that this Annual Performance Plan:

was developed by the management of the National Housing Finance Corporation

SOC Limited under the guidance of the CEO, Mr. Samson Moraba;

was reviewed and recommended by the Board to the shareholder;

reflects management and Boards assessment of the projected business

environment; and

accurately reflects the strategic outcome oriented goals and objectives which the

National Housing Finance Corporation SOC Limited will endeavor to achieve over

the period 1 April 2019 to 31 March 2020 and the following two years.

The Annual Performance Plan is based on a consolidated NHFC, which is a merger/

integration of the three Human Settlements DFIs into the NHFC- the National Housing

Finance Corporation (NHFC); the National Urban Reconstruction and Housing Agency

(NURCHA); and the Rural Housing Loan Fund (RHLF). The three have consolidated into

the NHFC as a first step towards the establishment of a Human Settlements

Development Bank (HSDB) in support of the entire human settlements delivery value-

chain.

The NHFC will serve as a consolidated platform for the establishment of the HSDB. In

order to implement the Consolidation, NURCHA and RHLF have transferred their

respective assets and liabilities to the NHFC at no charge through donation agreements;

and thereafter NURCHA and RHLF will be dissolved by way of a winding-up or a

deregistration process. It is envisaged that the NHFC will continue in its existing legal

format but will change its constitution documents to conform to the HSDB requirements

once the enabling legislation has been passed.

As the merger of RHLF and NURCHA were approved during September 2018, this APP

includes assets, liabilities and the operational performance of RHLF and NURCHA

effective from 1 October 2018 which was the Effective Date for the transaction.

Key to the Human Settlements Development Bank is an enabling legislation and the

delivery of a business and funding model indicating the optimum capital structure for

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TABLE OF CONTENTS PAGE

1 STRATEGIC AND OPERATIONAL OVERVIEW ................................................................................................ 9

2 The Vision, Mission and Corporate Strategic Objectives: ........................................................................... 11

3 Strategic Planning Process Followed In Developing this APP .................................................................... 12

4 Legislative and Other Mandates ..................................................................................................................... 14

5 SITUATION ANALYSIS .................................................................................................................................... 18

6 BUSINESS PERFORMANCE (THE PROVISION OF INSTRUMENTS) ........................................................... 27

7 Organisational Overview: NHFC .................................................................................................................... 29

8 REVIEW OF THE ANNUAL PERFORMANCE PLANS .................................................................................... 31

9 ANNUAL PERFORMANCE PLAN FOR 2019/20 TO 2021/22 ......................................................................... 34

10 STRATEGIC OUTCOME ORIENTED GOALS OF THE NHFC ........................................................................ 36

12 SUMMARY OF PROGRAMMES, KEY PERFORMANCE INDICATORS AND ASSUMPTIONS ..................... 58

13 LINKS TO OTHER PLANS ............................................................................................................................... 74

14 OVERVIEW OF BUSINESS SUPPORT UNITS ................................................................................................ 75

15 MATERIALITY FRAMEWORK ......................................................................................................................... 76

16 NHFC STRATEGIC RISK REGISTER .............................................................................................................. 80

17 NHFC STRATEGIC RISK REGISTER 2019/2020 ............................................................................................ 81

18 CORPORATE GOVERNANCE ......................................................................................................................... 90

19 STRATEGIC OBJECTIVES AND PERFORMANCE MANAGEMENT ........................................................... 107

ANNEXURE ABUDGET FOR THE PERIOD 2019/20 – 2021/22 ............................................................................ 109

ANNEXURE B:TECHNICAL INDICATOR DESCRIPTION ..................................................................................... 138

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ACRONYMS

AFD : Agence Française de Développement

BNG : Breaking New Ground

CTCHC : Cape Town Community Housing Company (Pty) Limited

DFI : Development Finance Institutions

EIB : European Investment Bank

FLISP : Finance Linked Individual Subsidy Programme

HAD : Housing Development Agency

HFF : Home Front Finance, a retail loan division of the NHFC

HIP : Housing Investment Partners (Pty) Limited

HSDB : Human Settlements Development Bank

HIS : International Housing Solutions (Pty) Ltd

LTV : Loan to Value

NCA : National Credit Act 34 of 2005

NDoHS : National Department of Human Settlements

NHFC : National Housing Finance Corporation SOC Limited

NT : National Treasury

NURCHA : National Urban and Reconstruction Housing Agency NPC

PE : Public Entities

PFMA : Public Finance Management Act 1 of 1999

RCG : Restructuring Capital Grant

RE-ORG : Re-organisation

RHLF : Rural Housing Loan Fund SOC NPC

SA : South African

SAWHF : SA Workforce Housing Fund

SHI : Social Housing Institutions

SHRA : Social Housing Regulatory Authority

TUHF : Trust for Urban Housing Finance Holdings (Pty) Ltd

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1 STRATEGIC AND OPERATIONAL OVERVIEW

Purpose of the NHFC

The National Housing Finance Corporation SOC Limited (NHFC’s) principal

mandate is to broaden and deepen access to the financing and development of

sustainable Human Settlements in the low to middle income South African

households. The deepening of access will span across the rural areas as well,

which are broadly defined to include communal land and small towns in South

Africa.

The key role for the NHFC remains the need to address market failure – ‘crowd

in’ the private sector and not necessarily displace or compete with the existing

banks and non – banking retail intermediaries.

Given the size of the target market, the supply and demand needs are enormous

compared to the NHFC’s capitalisation. As a consequence, the NHFC has

adopted a strategy to leverage its resources through partnerships in order to

achieve innovation and significant developmental impact.

Introduction

The APP has been developed based on the understanding of the prevailing

adverse economic dynamics within the country, the impact it has on our business

operations, customers and product offerings. Core to our strategy implementation

will be our ability to unlock our full potential as a consolidated entity and reinforce

the holistic transformation of the business to meet our mandated objectives

sustainably.

The NHFC acknowledges the gravity of the prevailing market conditions as

reflected in a weak economy, and the fact that consumers are highly indebted and

business confidence being at its lowest, while the leading indicators point to a

slight improvement in economic activity.

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The Monetary Policy Committee hiked the repo rate as recent as November

2018 by 25bps despite downside risks to growth and the market is pricing in a

33% chance of another 25 bps rate hike in January 2019. The Q3 GDP is

forecast to be positive on the back of positive retail sales and manufacturing

sectors which would result in the country exiting the recession experienced in

the 1st half of the year.

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2 THE VISION, MISSION AND CORPORATE STRATEGIC OBJECTIVES:

Vision

To be the leader in the development of the low-to-middle income

housing market

Mission

To provide innovative and affordable housing finance solutions to

the low-to-middle income housing market

Our guiding values: OPTICA

Ownership

Passion & Purpose

Teamwork

Integrity

Creativity

Achievement

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Corporate Strategic Objectives

Expand housing finance activities, through the effective provision of housing

finance solutions to enable the households to have a choice in meeting their

housing needs;

Facilitate the increased and sustained lending by financial institutions to the

lower end of the housing market;

Conduct the business activities of the NHFC to ensure the continued financial

sustainability and greater developmental impact;

Facilitate Transformative change of the affordable housing sector;

Drive the process of changing the strategy of the NHFC to that of an entity ready

to assume the role of the HSDB;

Continuously stimulate and enable the low-to-middle income housing sector by

providing robust, relevant and timely research and market analysis.

3 STRATEGIC PLANNING PROCESS FOLLOWED IN DEVELOPING THIS APP

The strategic planning process has been undertaken and developed with the view

of preparing the NHFC to be ready to assume the role of the HSDB. The alignment

of the key strategic imperatives and complexity brought about by the recent

consolidation of the three entities whilst awaiting establishment has implications in

terms of resources available to continue in the interim phase.

Management has had robust internal engagements to review the strategic objectives

and align each goal to specific outcomes/targets, resource consideration and risk

management.

Key considerations and process undertaken in drafting the plan:

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Phase Activities Date/Period

Review – NT, NDoHS NDP

Align to regulatory framework &

National Government priorities

April 2018

Evaluation of strategy

Strategic Planning Session by

Board & Management (NHFC, NURCHA & RHLF)

May 2018

Development of Strat Input Review the environment for any changes - economic, technological, legislative etc.

Engagement at divisional level

Development of financial and non-financial outcomes

June 2018 – October

2018

Review & development of consolidated NHFC strategy & objectives

Executive Committee of the NHFC: SWOT analysis of the consolidated

entities:- Funding requirements – in the

interim until HSDB is established Sub programmes – analysis: - of efficiency in terms of impact - cost - - revenue generation - product risk – credit loss implication of role duplication on

opex

FLISP policy changes opportunities created

Challenges to delivery – market or regulatory and overall impact on end user

September 2018 –

November 2018

Developmental & Social Impact Strategy Committee

Review of interim plan November 2018

Business division workshop Operations review of portfolio mix November 2018

Management Committee (EXCOM)

Continuous timeous engagement at Executive Committee level to review plan before final submission

Ongoing to final

submission

Special Board Audit & Risk Committee

Discussion of the final draft of APP for approval

December 2018

Follow up meeting January 2019

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4 LEGISLATIVE AND OTHER MANDATES

The key legislation that is relevant to the Human Settlements Sector in South

Africa includes the following:

The Constitution of South Africa, 1996 (Act No. 108 of 1996) (the Constitution);

The Housing Act (Act no 107 of 1997), and its amendments;

Companies Act 2008;

Public Finance Management Act, Act 1 of 1999 and Treasury Regulations;

Social Housing Act, Act 16 of 2008 and SHRA Regulations;

Labour legislation in general; and

Tax legislation in general.

NDP

NHFC’s Mandate

The NHFC was established in 1996 by the National Department of Human

Settlements (NDoHS) as a Development Finance Institution (DFI), with the principal

mandate of broadening and deepening access to affordable housing finance for the

low-to-middle income South African households.

Constitutional Mandates

Constitution of RSA Act No 108 of 1996 - Section 26 of the Constitution guarantees

the right to have access to housing. The State is mandated to take steps to achieve

the progressive realisation of this right.

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Legislative Mandates

LEGISLATION PURPOSE

Housing Act, 1997 (Act No.

107 of 1997)

The Act provides for the facilitation of a sustainable

housing development process. For this purpose, it

lays down general principles applicable to housing

development in all spheres of government

REGULATION PURPOSE

Companies Act, 71 of 2008

and the Companies

Regulations, 2011

To ensure the Regulatory Framework for enterprises

of all types and sizes promotes growth, employment,

innovation, stability, good governance, confidence

and international competitiveness

Housing Consumers

Protection Measures Act,

1998 (Act. No. 95 of 1998)

as amended by Act No. 27

of 1999)

The Act makes provision for the protection of

housing consumers, and to provide for the

establishment and functions of the National Home

Builders Registration Council

Consumer Protection Act

(68 of 2008)

To promote a fair, accessible and sustainable market

place for consumer products and services.

Public Finance

Management Act,1 of

1999, as amended (PFMA)

and Treasury Regulations

To promote good financial management within the

public service in order to maximise service delivery

through the effective and efficient use of limited

resources

Financial Intelligence

Centre Amendment Act No

1 of 2017

Amends Financial Intelligence Centre Act of 2001,

and among others: provides for strengthening of

customer due diligence measures including with

respect to beneficial ownership and persons of

person in prominent positions; provides for Risk

Management and Compliance Programmes

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National Credit Act, Act 34

of 2005

To promote and advance the social and economic

welfare of South Africans, promote a fair,

transparent, competitive, sustainable, responsible,

efficient, effective and accessible credit market and

industry, to protect consumers

REGULATION PURPOSE

Financial Sector

Regulation Act No. 9 of

2017

Introduces the Twin Peaks model of financial sector

regulation in South Africa and establishes Prudential

Authority under the SARB and Financial Sector

Conduct Authority (replacing FSB). The purpose of

the Act is to achieve a stable financial system that

works in the interest of financial customers and

supports balanced and sustainable economic

growth.

Rental Housing Act, 1999

(Act. No 50 of 1999)

This Act defines the responsibility of government in

respect of rental housing property to create

mechanisms to promote the provision of rental

housing property.

Home Loan and Mortgage

Disclosure Act of 2000

The Act promotes fair lending practices by

encouraging financial institutions to disclose

information and identifies discriminatory lending

patterns

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Policy Mandates (Current and Planned Policy Initiatives)

As a development financial institution which was established by the National

Department of Housing in 1996, NHFC’s operations are influenced by a broad

range of policies:

White Paper: A New Housing Policy and Strategy for South Africa, 1994 -

which is a broader policy document on the challenges that the country

faced around housing and the substantive responses and strategy to the

challenge (which include the planned establishment of the National

Housing Finance Corporation);

Government Notice, no.1378 of 17 October 1997, Designation of an

institution of which the activities do not fall within the meaning of “The

business of a bank” (“The National Housing Finance Corporation Limited”);

National Housing Act, 1997 (Act No.107 of 1997) providing for the

facilitation of a sustainable housing development process;

The National Housing Code, 2000 amended in 2009, which sets the

underlying policy principles, guidelines, norms and standards which apply

to Governments various housing assistance programmes introduced since

1994;

Breaking New Ground (BNG), 2004, A Comprehensive Plan for the new

Sustainable Human Settlements. There was a shift in focus from social to

financial/wealth creation and from quantitative to qualitative standards; and

The National Development Plan which is a broader plan on how the human

settlements landscape can be reconfigured from 2010 to 2030 to better

meet the needs to South Africans.

NHFC typically plays a critical role in informing and influencing policy through

commenting on various policy documents that have an impact on the operations of

the business.

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5 SITUATION ANALYSIS

DFI Consolidation

In 2015 the Department of Human Settlements, in terms of Section 3(h) of the

Housing Act of 1997 proposed the establishment a single Human Settlement

Development Finance Institution (HSDB) which consolidates the mandate of the

existing finance institutions namely RHLF, NURCHA, and NHFC into a single

development finance institution. In support of the DFI establishment process a

Policy Framework Establishing Human Settlements Development Finance

Institution has been approved by the Minister (MINMEC)

The two entities have now merged under the NHFC banner whilst a business case

and an enabling legislation to establish HSDB are being developed. The two will

operate as divisions of the NHFC until HSDB is established. RHLF continues to

deliver on incremental housing finance and NURCHA providing bridging finance

to emerging and established contractors and developers.

The DFI consolidation, which includes the amalgamation of RHLF and NURCHAs

assets, liabilities and staff into the NHFC, has resulted in a significantly larger

organisation, and a new corporate form of the HSDB has been proposed. . The

HSDB will provide greater leveraging of the balance sheet and improved

economies of scale. It also represents an opportunity to diversify revenues,

intensify and maximize opportunity to create sustainable market impact, plus

leverage skills and resource in order to increase efficiency and optimise the

unified business model.

The following milestones have been achieved that were critical for the

consolidation process:

o The Taxation Laws Amendment Act No 15 of 2016, published in the

Government Gazette on 19 January 2017 under notice 40562. An

amendment has been made (with effect from 1 April 2016), to render

NHFC exempt from normal tax;

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o Restructuring of the NHFC Board by the Minister to oversee the

operational integration and legislative establishment of the HSDB;

o The Companies Tribunal at its sitting of 28 April 2017, granted an

Administrative Order exempting the Consolidation from the NPC

Restrictions as contained in the Companies Act and the NURCHA and

RHLF MOIs, such that the Consolidation may be concluded and

implemented on the basis that NHFC remains a profit company;

o All current funders of the three entities have consented to the transaction;

o The Minister of Finance has given his approval for the application to

consolidate the three entities in terms of sections 54(2), and

acknowledges that sections 38(1) and 51(1)(g) will be dealt with at the

time of establishing HSDB; and

o Approval of section 66 as per PFMA requirement by the National Treasury

which allowed the NHFC to assume the liabilities and commitments of

NURCHA and RHLF.

The next process towards HSDB is to get the business case and enabling

legislation approved through the Joint Evaluation Panel (JEP), before Cabinet

approval process for the legislation.

The NDP 2030 envisages the Human Settlements department to have the

following impact in the country: -

“Most South Africans will have access to services and quality

environments. New developments will break away from old patterns and

significant progress will be made in retrofitting existing settlements. The

country will have:-

Well managed villages, towns and cities;

There will be tolerance, democracy and respect for the natural

environment;

Citizen centered services;

Diverse and cleaner energy supplies;

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Mix of housing types and tenures to meet different needs;

Energy efficient homes;

Resilient planning systems that can manage risk and uncertainty;

New technologies used in buildings for Infrastructure; and

Recycled waste generating renewable energy.

Environmental Assessment: Economic, Property Sector & Legislative

Economic Outlook

National Treasury’s forecast for real GDP growth has been revised down by an

average of 0.3 percentage points over the 2018-20 period after the Medium

Term Budget Speech in October 2018. Treasury expects growth to measure

0.7% in 2018 (down from the 1.5% expected in February 2018), before picking

up to 1.7% in 2019 and gradually improving thereafter to reach 2.3% in 2021.

Treasury’s forecast for nominal GDP growth, which is more important from a

government revenue perspective, was revised down by an average of 0.2%

points over the 2018-20 period. The downward revision mainly reflects lower real

growth – Treasury’s forecast for the GDP price index (deflator) has remained

unchanged at 5.6% over the 2018-20 period.

Macroeconomic performance and projections

2015 2016 2017 2018 2019 2020 2021

Percentage change Actual Estimate Forecast

Final household consumption 1.8 0.7 2.2 1.6 1.9 2.3 2.6

Final government consumption -0.3 1.9 0.6 0.8 0.2 1.2 0.9

Gross fixed-capital formation 3.4 -4.1 0.4 0.9 1.5 2.1 2.9

Gross domestic expenditure 2.1 -0.9 1.8 1.1 1.8 2.3 2.4

Exports 2.8 1.0 -0.1 1.0 2.7 2.9 3.3

Imports 5.4 -3.8 1.6 2.2 2.9 3.3 3.4

Real GDP growth 1.3 0.6 0.3 0.7 1.7 2.1 2.3

GDP inflation 5.1 6.8 5.5 5.6 5.6 5.4 5.3

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Similarly, Treasury’s outlook for consumer price inflation (CPI) remained largely

unchanged relative to the February projection. Treasury expects headline

inflation to average 4.9% in 2018, rising to 5.4% in 2021 as food price inflation

returns to its historic average and administered prices, including electricity tariffs,

record above inflation increases. Finally, Treasury expects a significant

deterioration in the balance of payments over the forecast horizon, with the

current account deficit expected to average 3.4% of GDP over the 2018-2020

period (2.7% in February 2018) before deteriorating further to 3.9% of GDP in

2021. This is mainly a function of weaker terms of trade, with a higher oil price

assumption interacting with the subdued outlook for SA’s export commodity

prices.

National Treasury’s economic projections present a stark departure from the

optimism reflected in February 2018 budget. The downward revision reflects a

combination of both increased global headwinds and weak domestic activity.

Increasing the economy’s ability to grow sustainably at higher levels will require

a series of reforms aimed at raising productivity, increasing competition and

reducing the cost of doing business. Necessary structural reforms include:

modernising the energy, water, transport and telecommunications sectors;

lowering barriers to entry; enabling growth in labour-intensive sectors; promoting

export competitiveness; and reducing the cost of doing business (including

reducing transport costs). Treasury estimates that such reforms could raise GDP

growth by as much as three percentage points over the next decade. Over the

short term, government has committed to establishing policy certainty, restoring

investor confidence, and strengthening public institutions in order to boost the

near-term growth outlook. However, recent developments on the policy front

suggests that this is easier said than done and it remains to be seen whether

President Ramaphosa’s administration can follow through on the various

GDP at current prices (R’bn) 4 051.4 4 350.3 4 651.8 4 949.1 4 317.2 5 724.1 6

167.2

CPI inflation 4.6 6.3 5.3 4.9 5.6 5.4 5.4

Current account balance (% of

GDP)

-4.6 -2.8 -2.4 -3.2 -3.2 -3.7 -3.9

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proposals. The NHFC target market is highly susceptible to adverse market and

economic conditions.

Credit growth

Total loans and advances extended by monetary institutions to the domestic

private sector grew at a lacklustre pace in the first half of 2018. Year-on-year

growth in credit extension averaged 4.3% in the first six months of 2018 compared

to 5.6% in the same period a year earlier. Credit extension to the corporate sector

decelerated notably in the first half of 2018, due in part to the impact of the

implementation of International Financial Reporting Standard 9 (IFRS) from

January 2018 and the protracted weakness in domestic economic activity. Growth

in loans and advances to companies nearly halved from 11.4% in January 2017

to 5.3% in June 2018. A pronounced and sustained recovery in consumer demand

and business confidence may be required to increase the corporate sector’s

demand for credit. By contrast, credit extension to households continued to inch

higher from 3.7% in January 2018 to 4.5% in June. In July 2018, growth in loans

and advances to companies moderated further to 5.1% while that to households

accelerated to 4.8%.

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Short to medium term implications of credit extension over the rest of FY

2018/19 and beyond.

While it is always a challenge to forecast longer term credit extension

figures, the general consensus is that the recent business and consumer

confidence indices and first quarter economic growth indicate that credit

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extension in the next 12 months will remain subdued probably close to

inflation.

Consumers remain highly indebted, thereby undermining their ability to

take up credit. This is despite the fact that debt to income ratio has fallen

from 86.4% in 2008 to 71.9% currently. Some intermediaries operating

mainly in the incremental product offering stable have recorded rejection

rates as high as 80%, which reflects that many borrowers remain over-

extended to debt. There is a high demand for incremental housing loans,

but affordability levels are very low—a situation that is exacerbated by

current tough market conditions.

Unsecured credit industry: 2014 saw the failure of African Bank Limited

(ABIL)—a market leader in the unsecured credit industry—after it

experienced a high level of bad debts, with massive write downs on its

book. The ABIL saga had an adverse effect on the economy as rating

agencies downgraded commercial banks and the SA economy. Other

lenders in the unsecured credit industry struggled to raise capital in the

markets, with one big lender applying for business rescue. These industry

dynamics in most cases have long term lag effect. It is somewhat pleasing

though that the situation is gradually improving.

Property Market

Segment (property

price)

Calendar

year 2017

(Y-o-Y)

Quarter 1

of 2018

(Y-o-Y)

July

2018

(Y-o-Y)

August

2018

(Y-o-Y)

September

2018

(Y-o-Y)r

>R1.5m 2.9% 2.4% 1.4% 1.1% 0.9%

R700k-R1.5m 4.3% 4.2% 3.9% 3.8% 3.7%

R250k-R700k 5.8% 6.0% 6.1% 6.1% 6.2%

<R250k 10.2% 8.0% 3.7% 2.6% 1.4%

*source – Lightstone Property: Residential Property Indices (October 2018)

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Housing prices for higher value segments continued to increase slowly whilst the

lower segments increased faster. This trend has been observed since 2017 where

higher income earners were downscaling and buying lower value houses thereby

increasing demand. Whilst the R250k-R700k segment has retained consistency,

increasing at 6%, a significant slowdown has been observed in the <R250k

segment from double digits (in 2016 and 2017) to the current 1.4%. This suggests

generally decreasing demand in the housing market.

According to the September 2018 FNB Property Barometer, house price inflation

was off to a slow start in the first eight months of 2018 with house price inflation

at 3.5% (average) against growth on 4.2% in the year 2017. The growth in July

and August 2018 (year on year) has reflected slowing growth at 3.9% and 3.5%

respectfully. In real terms (after inflation), the growth in property has been a

negative 1% in the first eight months of the year and suggests that 2018 will be

the third consecutive year of negative real growth in property.

Sentiment in the residential real estate market dropped in the third quarter of 2018

in comparison with the previous quarter, according to the Absa Homeowner

Sentiment Index (HSI). The ABSA Homeowner Sentiment Index (HSI) measures

the level of positive sentiment among South African consumers regarding the

buying, selling, investing in, renting, and renovating of residential property as well

as regarding market conditions in general. The HSI dropped marginally to 72% in

the third quarter of 2018 from 73% in the second quarter and a high of 82% in the

fourth quarter of 2017. The latest trend regarding the property market sentiment

came against the background of factors impacting consumers financially such as

a number of indirect tax hikes, economic recession, rising fuel costs as well as

the widely debated aspect of land expropriation without compensation.

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Legislative/Regulatory changes

During the previous financial year the National Credit Regulator changed the

maximum interest rates chargeable on unsecured loans. It is now substantially

cheaper to borrow for consumption than for developmental purposes. Though the

rationale behind this decision is difficult to understand, one can assume that the

motive could be to entice credit providers to focus more on developmental lending.

This has had the effect of a number of consumption lenders applying to be registered

as development lenders. Whether this will lead to more real development lending or

merely a façade of increased development lending is not yet clear. The NCR has also

made registration as a lender compulsory for all lenders, other than stokvels. This is

an administrative burden on small community lenders.

In addition, the changes to the procedures for issuing of emolument attachment

orders, resulting from court judgments, have led to a reduction in the usefulness of

these as a form of collection. In addition the proposed legislation limiting the

percentage of a borrower’s salary that may be attached in this way will lead to further

restrictions on this type of collection methodology.

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6 BUSINESS PERFORMANCE (THE PROVISION OF INSTRUMENTS)

Operational Overview

The adverse environment within which we operate and the tepid economic outlook

projections in the medium term suggest a high risk appetite. Delivering housing

opportunities and achieving mandate has been a challenge, even with subsidy

intervention instruments like the Finance Linked Individual Subsidy programme

(“FLISP”) which have been developed to encourage private sector investment in

the sector.

The overall non-satisfactory housing delivery performance can be attributed

to:

inadequate supply of suitable and well-located land;

regulatory pressure (Basel III) which has reduced the appetite of banks in

investing in the mortgage lending housing market;

general high levels of consumer indebtedness have also affected the finance

lending market;

slow regulatory approval processes coupled with bureaucracy with respect

to building plan approvals at Council level;

delays and costs in providing bulk infrastructure and new services;

a mismatch between available stock, what is provided by developers and

household affordability;

limited financing options for households to purchase these houses;

Funding remains a constraint in light of a huge market potential.

Government has delivered more than 4.5 million (RDP/BNG) subsidy

houses since 1994 and the beneficiary households are looking at extending

or improving the quality of their houses. The BNG houses constitutes a huge

market potential for incremental housing finance, especially in urban areas

where most BNG houses have been delivered.

A greater emphasis has been placed on government’s core delivery

programmes. The slow pace of projects coming to market in some provinces

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adversely affected NURCHA’s performance in the last three years. The local

environment has been severely affected by the following:

The poor payment record to contractors working on current projects.

Contractor unwilling to legally challenge their employers for outstanding

amounts lead them to defaults on loans.

Slow administrative approvals for housing development also impact

negatively on delivery of new stock in the affordable housing market.

The introduction of a Centralised Supplier Database (“CSD”) by National

Treasury has significantly changed the operating environment and the

NHFC is working with the National Department of Human Settlements

and National Treasury to adapt the risk mitigation model related to flow of

funds and banking accounts and adapting the model accordingly. This

applies mainly to bridging finance provided for subsidy housing projects.

Once the barriers to access have been removed, contractors across

provinces will have easier access to finance for delivery of projects.

Funding Requirements

The NHFC as a DFI does have an important role to play in promoting and

supporting the national economic development agenda. Ideally, this

developmental role should not be executed at the compromise of the DFI’s

financial sustainability; this though, remains an elusive challenge for DFIs. It

should remain sustainable whilst pursuing developmental objectives.

The NHFC modelling reflects funding needs of R100 million in 2020/21 and R150

million in 2021/22 due to the significant ramping up of disbursements over the

medium term expenditure framework (compared to the previous three years). The

consolidation pre-establishment of HSDB highlights an urgent attention to funding

the interim NHFC. The budget presented in the Annual Performance Plan will

highlight all the medium term funding implications. Key considerations are:

The adequacy of funding requirements brought about by expectation to

serve a much bigger urban incremental housing market with its challenges

and the current rural mandate is significantly underfunded;

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 29 of 140

Gauteng Provincial Government planning a rapid land release programme

for 100 000 serviced stands; and

Human resource capability to operate in specialized areas of the 9.9

million urban households who earn less than R15 000 per month, almost

four million have a visible need for improved housing.

7 ORGANISATIONAL OVERVIEW: NHFC

The delivery structure as reflected in the figure below, is an expression of how in the

interim NHFC (between consolidated leading towards establishment of the HSDB)

intends to deliver on its mandate while it gears up towards realising the HSDB in the

medium term.

As at the 1st October, when the consolidated NHFC was consummated (in

compliance with Sect 197 (3) (a), of the LRA), the staff of both RHLF and NURCHA

were transferred to NHFC. As a result, the consolidated NHFC staff headcount

complement is 119.

In the period leading to the HSDB, the delivery structure of the consolidated NHFC

is divisionalized; with the three DFI’s (NHFC, NURCHA and RHLF) as divisions

(wholesale funding, incremental funding and bridging infrastructure development

funding). The support functions are centralised, thus providing services to the

divisions. The key revenue generating divisions/units are as outlined below (and in

more detail on page 43):

Debt Lending and Subsidy programmes;

Equity Investments and subsidiaries;

Retail Division (a business unit which is been wound down);

Incremental Housing Finance Division; and

Bridging Finance for Developers and Contractor Finance.

The other divisions that provide a support role to the revenue generating divisions

are:

Human Resources - Human Capital;

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 30 of 140

Finance, Treasury and Supply Chain Management;

Credit Management;

Corporate Support (including Risk, Compliance, IT and Legal); and

Strategy and Marketing and Communications.

Historically, the mission of all three DFIs was to provide funding in the different

aspects of the Human Settlement space. Therefore, the role duplication across the

three DFIs would have been inevitable. Now that the DFIs have merged, we have

identified the following strategies (job alignment and evaluation, skill audit and staff

development) to address role duplication where it is identified. This is in the light of

the future resourcing needs which should provide for the Project Finance and

Subsidy Programme regional growth.

As a result, a moratorium in recruitment of external staff has been declared, in order

to address this eventuality of role replication in the consolidated NHFC.

Consequently, only when there is no internal candidate to fill the current vacancy, is

any consideration made to recruiting external candidates. Hence our plan to upskill

and redeploy skill set where it is necessary.

Therefore, with the staff compliment of 119, and 10 vacancies, external recruitment

will only take place where there is an absolute requirement to do so, because of the

absence of such skill set internally.

Other immediate cost savings that could be considered are to offer early retirement

and address the fixed term contractual arrangements. However, in deploying the

above strategies, the NHFC will be mindful of skill loss. However – the human

capacity must be balanced with the assets under management and investment book

with the requirements of asset quality and growth, risk and reward pricing, whilst

meeting the requirements of operational efficiencies to ensure the viability and

sustainability of the integrated NHFC.

The following is the medium term delivery structure, which will enable the NHFC to

deliver on its mandate:

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 31 of 140

8 REVIEW OF THE ANNUAL PERFORMANCE PLANS

Review of Annual Performance Plan for 2019/20

The Annual Performance Plan (APP) for 2019/20 has been presented three times

to the shareholder: in July 2018, October 2018 and this final draft due to the

shareholder in January 2019. The previous two drafts excluded RHLF and

NURCHA as the approval from National Treasury for the transaction had not been

obtained. Following the section 66 approval by National Treasury, RHLF and

NURCHA are now divisionalised within the NHFC and the plan has taken into

account the needs and new prospects that come with the new business units. In

allocating capital to all business units, consideration was given among others (1)

business units with high levels of commitments (approved deals not disbursed) to

ensure that these are adequately funded (2) business units operating at a low base

but with increased capitalization, able to contribute significantly to both revenue

CREDIT RISK

Debt Lending and

Subsidy

Programmes

Business

RE

VE

NU

E G

EN

ER

AT

ION

UN

ITS

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and impact in the MTEF period. The business units therefore that sees the highest

capital allocation are Project and Developer Finance previously Nurcha (R1.831

billion), followed by the Direct Lending division, previously NHFC comes in at

(R1.240 billion) and last but not least Incremental Housing previously RHLF coming

in at a notable R1.138 billion.

Demand/supply:

Against the backdrop of approximately 700 000 housing back-log in the

affordable housing market, supply of new housing stock has averaged 18 000

to 20 000 per annum in the last 3 years, significantly below demand.

Poor uptake of properties by end-users (constrained availability of mortgages)

has resulted in attrition of developers (especially private sector) in affordable

housing market.

Borrower:

Remains significantly over-indebted, especially in the affordable housing

market.

Unsecured lending credit bubble which peaked in 2013/14 has taken a long

time for its effects to work through the market. This has been exacerbated

by the poor economic growth in the last three to four years. However,

positive signs have begun to emerge as evidenced by the recent

(November 2018) financial results of the African Bank (“the good bank”).

As reported by the Bureau of Economic Research, the South Africa

consumer confidence index dropped sharply to 7 in the third quarter of

2018 from 22 in the previous period. It is the weakest reading in consumer

morale since the fourth quarter 2017 when the index was at -8, as

confidence deteriorated across all income groups driven by adverse

economic developments including a recession in the first half of the year,

increasing unemployment, a rise in personal income taxes and VAT,

currency depreciation and higher fuel prices.

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Lenders Perspective:

Appetite for mortgage lending remains constrained due to:

Regulatory pressure (Basel III);

Poor balance sheets and income statements of consumers (over

indebtedness); and;

Recent poor returns from mortgage lending.

Future prospects:

The short to medium term prospects of affordable housing market will

be constrained by poor fundamentals: poor business and consumer

confidence, subdued economic growth, high unemployment, etc.

Innovation, deal structuring and product pricing will be critical in

securing business in tight market conditions.

Liquidity challenge of the NHFC:

While the NHFC remains well capitalised and funded in the short to

medium term with over R1.2 billion million of cash and money market

instruments, this should be viewed in the light of over R800 million of

commitments (loans approved but not yet disbursed) and on-going

operational expenses.

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 34 of 140

9 ANNUAL PERFORMANCE PLAN FOR 2019/20 TO 2021/22

In the current MTEF, the NHFC has been allocated by NDOHS a total of R230 million

in the following form:

R100 million in FY 2017/18;

R80 million in FY 2018/19; and

R50 million in FY 2019/20.

Funding is a key consideration for the NHFC and whether it comes in the form or

debt or equity (grant capital). This is an important determinant on the loan book

growth and therefore profitability of the NHFC.

The scenario for the MTEF assumes that all budgeted disbursements will be funded

from future cash reserves with no additional funding expected through debt or equity.

The only remaining grant funding is R50 million for the 2019/20 financial year in line

with Shareholder commitments.

Disbursements

R million

FY 2017/18 993

FY 2018/19 1 084

FY 2019/20: MTEF 1 161

FY 2020/21: MTEF 1 450

FY 2021/22: MTEF 1 598

TOTAL (3 YEARS of the MTEF) 4 209

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 35 of 140

Existing debt facilities

Summary of the existing debt facilities 27 November 2018

The loans above are normal vanilla profile loans with repayment profiles that include

capital and interest, except for the PIC loan in which the capital repayments occur is

in the last two years of the loan term with capital repaid at R8.75 million per quarter.

This has been accordingly modelled in the financial projections on page 111 onwards.

Financier Original

Loan

Amount

R'm

Loan

Balance

R'm

Remaining

Term to

Maturity

Pricing

AFD 205 103 6 years

(2024)

Fixed at

6.078%

EIB

216 125 7 years

(2025)

Linked to 3M

JIBAR-

currently at

7.433%

Development

Bank of Southern

Africa

137 121 16 years

(2034)

Fixed at

7.56%

Public

Investment

Corporation

70 70 5 Years

(2023)

Prime-

Currently

10.25%

TOTAL 628 418

7.567%

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10 STRATEGIC OUTCOME ORIENTED GOALS OF THE NHFC

In terms of the six corporate strategic goals, these have been outlined below in the

format prescribed by the National Treasury’s Framework for Strategic Plans and

Annual Performance Plans which require that each of the strategic outcome oriented

goals should be presented with specific strategic priorities, resource considerations

and risk management issues outlined.

This has been done below for all six of the strategic outcome oriented goals:

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Strategic Outcomes Oriented Goal #1: Expand housing finance activities,

through the effective provision of housing finance solutions to enable the

households to have a choice in meeting their housing needs

Resource Considerations

NHFC will be required to raise more

capital to invest in housing projects with

private sector for rental stock

developments, home ownership and

incremental housing. Refer strategic

objective # 3.

Goal statement

Expand housing finance activities

through effective provision of housing

finance solutions, through

opportunities created by various

programmes to enable choice of

tenure options to meeting their

housing needs.

Sub Programmes:

Social Housing Finance Private Rental Housing Finance Incremental Housing Finance Affordable Housing Finance Bridging Finance

Str

ate

gic

Ou

tco

mes O

rie

nte

d G

oal # 1

:

Exp

an

d H

ou

sin

g F

inan

ce A

cti

vit

ies

Outputs

To facilitate the delivery of

205 194 housing opportunities over the next 3 years.

Targeted value of approvals

over next 3 years: R4.48 billion with actual disbursements targeted at R4.21 billion.

Sub-programmes

(disbursements):

Social Housing

Finance (R542 million)

Private Rental Housing

Finance (R616 million)

Affordable Housing

Finance (long term) (R82

million)

Bridging Finance:

Affordable Housing: R1.18

billion

Bridging Finance: Subsidy:

R652 million;

Incremental Housing:

R1.14 billion

Risk Management

Risk is managed by balancing the financial sustainability challenges of the NHFC with providing the

housing finance solutions to the low to middle income households. This balance is achieved through a

clearly defined Risk Appetite statement for the NHFC.

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Strategic Outcome Oriented Goal # 2: Facilitate the increased and

sustained lending by financial institutions to the lower end of the

housing market;

Goal statement

To facilitate increased and

sustained lending by financial

institutions to the middle to lower

income market (more specifically

the affordable housing market)

through:

Programme and Portfolio Fund Management

Co-financing with private sector;

investment activities FLISP programme. Diversify sources of funding

Str

ate

gic

Ou

tco

me O

rien

ted

Go

al # 2

:

Facilit

ate

an

d M

ob

ilis

e t

he In

cre

as

ed

an

d S

usta

ine

d in

vestm

en

t

Outputs

To contribute to the

delivery of deliver 7 927

housing opportunities

through funds leveraged

from the private sector

over next 3 years.

NHFC will leverage funds

from private sector

(through co-funding of

transactions) to the value

of R4.1 billion over next 3

years.

Sub-programmes:

Private Rental Housing

(R1.41 billion)

Affordable Housing

(R332 million)

Bridging Finance:

Affordable: R2.36 billion

Risk Management

Risk is managed through an integrated risk management framework that focuses on robust credit, financial, strategic, and operational as well as compliance risk review mechanisms in co-funding transactions with the private sector. There is continuous monitoring of the targeted debt to equity, return on equity (ROE) and return on assets (ROA) ratios, as set in accordance with the NHFC's risk appetite

Resource Considerations

This will typically require the

cultivation of relationships and

sourcing funding from various

institutions typically multi-lateral

agencies, development finance

institutions, other Government

agencies and funds from the capital

markets. For Programme and

Portfolio Fund Management, only

fee based developmental

programmes will be pursued

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 39 of 140

Strategic Outcome Oriented Goal #3: Conduct the business activities of

the NHFC that ensures continued financial sustainability while promoting

greater developmental impact

Resource Considerations

Resource allocation will be

undertaken to achieve optimal

efficiency levels while balancing

sustainability with developmental

perspective

Goal statement

Resources will be optimised to

achieve real capital preservation

Str

ate

gic

Ou

tco

me O

rien

ted

Go

al #

4:

En

su

re F

inan

cia

l S

usta

inab

ilit

y o

f th

e C

orp

ora

tio

n

Outputs

Maintain financial

sustainability: - ROE: minimum

target of 4.0%, within 3 years

- ROA (PBT) (target): minimum of 3% within 3 years

- Credit loss ratio: <3% - Advances Asset

growth (loans & advances): Average of 11% over 3 years

Improve operational

efficiency: total expenditure to total income ratio target of 45% within three years.

Secure funding of R50

million from shareholder (grant funding) in FY 2019/20, R100m in 2020/21 and R150m in FY2021/22

Risk Management

Performance management (financial) will be crucial and allow for remedial action when required.

Risk is managed through the adoption of the Equator principles for environmental sustainability

as a guideline for the NHFC when reviewing project appraisals targeted at energy efficient building

initiatives. This will be coupled by close monitoring of financial sustainability ratios set in our risk

appetite statement as well as a robust operational risk management plan designed to optimise

operational efficiencies.

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Strategic Outcome Oriented Goal #4: Facilitate Transformative change of

the affordable housing sector

Resource Considerations

This will require a ring fenced pool

of funds for the developmental

focus or cross subsidisation from

profitable portfolios also the cultivation of relationships, sourcing

and supporting BEE companies in

the affordable housing market

Also focus on enhancing the BEE

score of the NHFC via

Procurement, Enterprise

development, Corporate Social

Investment and HR strategy

Goal statement

Create opportunities for new

entrants in the affordable housing

industry in advancement of

transformation goals

Str

ate

gic

Ou

tco

me O

rien

ted

Go

al #

3:

Facilit

ate

tra

nsfo

rmati

on

al ch

an

ge in

th

e a

ffo

rdab

le h

ou

sin

g m

ark

et

Outputs

Enterprise development

No. of startup intermediaries

Total disbursements to

emerging BEE entities and Women owned property companies of R1.26 billion over the MTEF (2019/20 to 2021/22)

Ensure that the NHFC achieves a BEE score of at least Level 4 by the year 2021/22

Small contractor –

CFPD pilot project

(70% youth)

Client Graduation

Risk Management

Risk will be managed proactively through review of the disbursements against targets and reporting on a

quarterly basis. Management Information Systems will be critical in the process

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 41 of 140

Strategic Outcomes Oriented Goal #5: Drive the process of changing the

strategy of the NHFC to that of an entity ready to assume the role of the

HSDB

Goal statement

Transform the strategy

and operational processes of the

NHFC to that of an entity ready to

assume the role of the HSDB

Str

ate

gic

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Outputs

Take on NURCHA &

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on to the NHFC balance

sheet

Consolidate APPs

Integrate staff and

processes

Optimise Product offering

Formulate Partnership

Strategies

Submission to JEP

process:

Business Case approval

Bill Approval

Resource Considerations

Resource allocation will be

undertaken to achieve optimal

efficiency levels through:-

Elimination of duplications in

governance structures,

compliance requirements, IT,

HR, processes and procedures

Risk Management

Risk will be managed by undertaking business process mapping to ensure integration of systems,

processes and people while increasing customer value. External service providers will be

sourced to validate the integrity of the integration process.

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 42 of 140

Strategic Outcome Oriented Goal # 6: Continuously stimulate and enable

the low-to-middle income housing sector by providing robust, relevant

and timely research and market analysis

Goal statement

Stimulate the low to middle income

housing sector by providing robust,

relevant and timely research and

market analysis.

Outputs/targets

Establish NHFC as the market leader and partner in providing affordable housing and housing finance solutions.

Improve our market

analysis capability.

Implement research

Models / tools.

Develop an affordable

housing data warehouse.

Promote advocacy.

Risk Management

Risk will be managed through an integrated data warehouse utilisation and process improvement plan, designed to ensure optimal use of resources to achieve the programme purpose

Resource Considerations

This will require the enhancement of our research capabilities through either insource / outsource or partnership arrangements.

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 43 of 140

BUSINESS UNITS

NHFC Wholesale Business Model

[Illustrating a Consolidated Human Settlements DF Framework Model– NURCHA & RHLF]

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 44 of 140

11 OVERVIEW OF BUSINESS STRUCTURE AND STRATEGIC OBJECTIVES (AT

BUSINESS UNIT LEVEL) OF NHFC

The NHFC has five revenue generating divisions/units. The retail model of the business

is being discontinued for strategic reasons.

The revenue generating business units/divisions are:

Debt Lending and Subsidy programmes;

Equity Investments and subsidiaries; and

Retail Division (a business unit which is been down).

Incremental Housing Finance Division (focusing on both urban and rural unsecured

lending)

Bridging Developer and Contractor Finance (short term bridging finance of 36 months

and less)

Debt lending and subsidy programmes: overview of business

The NHFC make housing and housing finance accessible to the GAP and

Affordable Housing market.

The debt lending division make housing and housing finance available through the

facilitation and provision of wholesale financing for various housing tenure for

households, depending on their affordability, being:

Rental Housing; and

Home Ownership through mortgage loan finance.

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 45 of 140

Rental Housing

Rental housing entails the provision of loans to institutions that offer rental accommodation.

The types of rental accommodation offered are:

Social Rental

This is subsidised rental housing that is more affordable than private/commercial rentals

and is provided by Social Housing Institutions which are Section 10 Companies (not for

profit).

These institutions receive subsidies in the form of restructuring capital grants from the

Social Housing Regulatory Authority (SHRA), subject to accreditation rules set by the

SHRA, as well as top-up institutional subsidies from Provincial Government.

In addition to these grants and subsidies, the NHFC provides long term debt funding (up to

20 years) for the balance of funding for development of the housing project.

Private Rental

This type of rental accommodation is provided by private landlords, who do not receive any

subsidies or grants. It caters for the affordable rental market, including inner city rental

developments. NHFC provides long term funding for the development/refurbishment of

inner city buildings into rental accommodation.

Home Ownership

Home ownership is achieved through the indirect provision of mortgage bonds for buying

an existing home or building one, through partnerships with banks and non-banking retail

intermediaries.

Partnership with Banks

Through co-financing and risk-enhancement mechanisms, bank lending in this segment of

the market is increased and sustained through leveraged funding provided by the NHFC.

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Non-Banking Retail Intermediaries

NHFC provides wholesale funding to non-banking retail intermediaries, that on-lend to

households in the NHFC target market. Access to home loans is increased and delivered

through a nationwide branch network of intermediaries.

Incremental housing finance division

Incremental housing finance is different from mortgage finance in that, while mortgage

finance enables those who can afford to build a complete house at one go, low income

borrowers with low affordability levels take small loans that they can afford to repay and

build or improve their housing situation on a progressive basis and according to their needs.

Incremental housing finance is provided mainly via non-banking retail intermediaries who

collaborate with building merchants to sell building materials on credit to households. The

material is then used to incrementally improve housing.

Below are the products within the division:

Unsecured Incremental Housing Finance

This is the flagship product of this division. The focus is on facilitating access to

incremental housing loans for households through intermediary Microfinance

Institutions (MFIs) and community based organisations. Borrowers can use loans for

the mandated loan usage, namely:

o Building a new house—normally combined with borrower savings.

o Extension of an existing core house.

o Effecting various fixed improvements to a house

o Connecting to utilities—energy sources, water and sanitation (including water

harvesting and solar retrofitting).

o Fencing homes—ensuring household security.

o Productive housing—adding space for income generation for a household.

o Purchasing of land by individuals or groups for residential purposes.

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Individual Rural Housing Subsidy Voucher Programme

The Voucher Programme was developed to address the housing needs of rural

households who live on communal land and where there are no rural housing projects

or People’s Housing Projects (PHP) are not implemented. The Voucher Programme

will only be accessed by households who live on communal land, and earn no more

than R3, 500 per month. At the time of writing this final APP, the NDoHS is in the

process of revising the Voucher Programme before it obtains MINMEC approval for

the Programme and its implementation.

Bridging developer and contractor finance

Affordable Housing Programme

The Affordable Housing Programme has grown to be the most prominent pillar of

the Bridging Developer and Contractor Finance division. With approximately 76%

of the regular loan book exposure in this programme, the division believes this

programme will continue to be the main driver behind the bridging lending portfolio

expansion. This programme falls within government’s priorities and with

coordinated planning and implementation of human settlements, affordable

housing delivery will grow as a strong contributor of housing delivery in South

Africa.

In addition, the programme is making inroads in mining towns to finance the supply

of affordable housing stock. The division is aggressively marketing the Affordable

Housing products in the priority mining towns where government will be supporting

the growth of housing and infrastructure developments. Government has initiated

a ‘Special Presidential Project’ (SPP) to assist with growth in identified and

prioritized 14 mining towns in 6 district municipalities located across 5 provinces.

To support the affordable housing programme, the approach will be two-fold:

a) Continue to support established developers that have an existing pipeline of

projects with good prospects. Supplementary financing products are required in

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 48 of 140

instances where some banks release mortgage finance on the basis to turn-key

delivery of houses.

b) Consolidate the emerging developers programme on the basis of lessons learnt

in recent company failure.

Subsidy Housing Programme

Significant growth is expected in both the number of loans signed and contract values

than in previous financial year. The division will continue to support viable projects that

can be completed at reasonable profit margins. Constant monitoring of the contractor

performance and midterm reviews will be conducted to assess progress towards

meeting annual targets. Contractors under CFDP will also be funded. The majority of

these are small in size.

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 49 of 140

Infrastructure and Community Facilities Programme

The division will focus on preventing losses and managing risk by providing bridging

finance only on projects that can be successfully completed within realistic project

budgets. However the budget for the 2019/20 financial year is set at zero. This is

informed by the performance in 2017/18 and first five months of 2018/19 financial year

which was very poor. Historical performance of government departments issuing the

contracts in terms of contract administration systems and payment processing will be

key determinants.

Delivery Channels

Social Housing Institutions;

Private Landlords;

Developers, Contractors; and

Financial Institutions.

Scope of Funding

Project funding is considered in all instances where the proposal addresses the NHFC

core mandate, i.e. the provision of housing in the low-to-middle income market.

The funding of projects is preferred whereby it’s in partnership in the form of syndication

or co-financing with others, mainly to effectively leverage NHFC’s capital and scale up

housing opportunities.

All housing developments must begin with the identification and availability of land. This

land must have access to or have been designated to receive bulk services. The NHFC

will not fund the implementation of bulk services.

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Programme management, technical assistance and facilitation

Technical assistance to fast track implementation of housing projects may be provided.

This may entail providing technical assistance either through the staff of the NHFC or

through funding appropriate interventions. The assistance is aimed at public institutions

such as Provincial Housing Departments, Municipalities and Social Housing Institutions,

who lack capacity to bring projects to the point of implementation.

Collaboration/partnership with other housing institutions

Under the auspices of NDOHS, the DFI’s continue to collaborate in exploring a

new/appropriate funding and delivery model for Human Settlements.

Social Housing Regulatory Authority (“SHRA”)

The NHFC has committed significant funding towards social housing in the plan and in

that respect works extensively with SHRA to ensure sustained delivery of social housing.

Housing Development Agency (“HDA”)

Plans are underway to collaborate with HDA in funding and sourcing funding for catalytic

projects.

Gauteng Partnership Fund (“GPF”)

The Emerging Entrepreneur Empowerment Property Fund programme (EEEPFP) is a

co-funding arrangement between the NHFC and the Gauteng Partnership Fund (GPF)

aimed at 100% Historically Disadvantaged Individuals (HDI) owned companies. The

programme is designed to promote participation of HDI companies in the affordable

rental property market. While an amount of R240 million has initially been committed by

the NHFC to GPF clients, as a result of cancellation of certain facilities, the NHFC’s

adjusted commitment to GPF clients is now estimated at R84.5 million (drawn and still

to be drawn facilities) of which approximately R73 million was drawn at the end of March

2018.

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Other Programmes

Finance linked individual subsidy programme (“FLISP”)

The National Housing Finance Corporation (“NHFC”) was originally mandated by

MINMEC in 2012 to act as the implementing agent responsible for the administration and

implementation of the Finance Linked Individual Subsidy Programme ("FLISP"), a housing

subsidy ordinarily administered by the provincial departments of human settlements. In

terms of that mandate, the NHFC was to be responsible for liaising with the various

provincial human settlements departments and financial institutions to co-ordinate the roll

out of FLISP in the respective provinces.

The NHFC successfully concluded agreements with all four major banks in partnership to

facilitate FLISP access to targeted clients. In addition the NHFC concluded protocols with

seven of the nine provinces to act as their implementing agent. The performance of the

programme.

FLISP implementation faced several constraints and from inception the provinces were

not able to meet the targets. Matters constraining performance included the availability of

affordable stock; poor credit records of people earning less than R15 000 per month; the

Integrated Residential Development Programme (IRDP) not making provision for FLISP;

private sector projects in distress; the restriction on the voluntary sale of state-subsidised

housing provisions of Section 10A and 10B of the Housing Act 1997 as a condition of

every housing subsidy being also applicable to FLISP; the impact of poor economic

growth; and protracted approval processes. Major remedial action was required or the

targets would not be achieved at all.

According to delivery statistics recorded on the Housing Subsidy System (HSS), 9 888

were achieved over the period 2012/2013 to 2017/2018. The bulk of the delivery

contribution is by the Gauteng province at 44% followed by the Western Cape at 26% and

the balance of 30% from the other 7 provinces combined.

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In the end, there were several challenges with most provinces which rendered the protocols

un-implementable, The NHFC is currently servicing only the Gauteng province. Some of

the key issues that rendered the protocols un-implementable were:

Poor planning and budgeting processes as both these aspects were controlled by

provinces. This led to a situation where provinces used the NHFC for fiscal

dumping;

NHFC not being compensated by provinces for operational costs it incurred; and

Inability to honour agreed turnaround times.

The above list is not exhaustive but represents the key matters that were deal

breakers with the respective provinces.

The NDoHS had been kept abreast all along of the challenges that the NHFC was

experiencing and a detailed report in that regard containing recommendations to

fix the challenges submitted to the department. The department considered the

report and following extensive consultations expressed its support for the NHFC

and the future HSDB to have a role in the roll out of FLISP at a national level. The

role has been defined further in the HSDB business case currently under

discussion.

The NDoHS has taken a step in July 2018 to motivate for the entrenchment of the

NHFC role with regard to FLISP by proposing to MINMEC that it once again

becomes a national co-ordinator and implementer of FLISP in a somewhat more

empowered form, this time by the NDoHS against the previous arrangements

where it was acting on behalf of Provinces.

The NHFC role/mandate per the MINMEC approved in July 2018 will entail the

following:

The dual implementation strategy in terms of which a national implementing

agent (NHFC) will serve the private sector and GEHS market and the

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provinces will on the other hand implement the programme in their own and

municipal approved IRDP developments;

The top slicing of the annual HSDG allocation to be transferred to the

implementing agent (NHFC) to fund the subsidies and its operational

expenses.

Other policy changes approved at the July Minmec included:

The FLISP subsidy quantum range adjustment – R27 960 minimum to

R121 626 maximum subsidy with effect from 1 September 2018;

The FLISP income range be adjusted to include households earning up to

R22 000 pm – new combined household income range is R3 501 to R22 000

per month; and

The inclusion of pension backed as well as non-mortgage loans in addition to

mortgage backed loan as an option that triggers FLISP subsidy entitlement.

Proposed FLISP implementation model

The construct of the delivery model of FLISP and business-plan are work in progress and

will be approved by the Board. The grant has however been committed to the NHFC and the

current APP outlines the grant allocation and indicative delivery for the FLISP programme

for the MTEF.

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Budget and financial implications

The National Treasury has approved (Letter received in that regard) total funding of R950 million

for FLISP which includes R40.75 million over the MTEF as per the table below:

Description MTEF

Allocation

2019/20 2020/21 2021/22

FLISP – Subsidies (R million) 909 95 334 480

Opex Grants (R million) 41 5 16 20

Total (R million) 950 100 350 500

The mandate given to the NHFC is now a direct one from NDoHS fully funded via top slicing of

the HSDG grant made directly to the NHFC and provided in the MTEF budget approved by

National Treasury. This new arrangements will enable:

Proper planning for FLISP by NHFC and reporting thereon quarterly to the National

Department;

FLISP will be adequately resourced from a people, processes and technology point of view

utilising the operational grant availed by the Department.

Indicative FLISP Performance Targets

Assumptions:

An average subsidy of R75 000 is assumed informed by the mid-income household

income of R12 500 that were processed under the revised subsidy and income bands; and

Leverage is informed by loan funding from financial institutions at an average of R339 000

to be contributed as their contribution towards assisting beneficiaries. The expected private

sector leverage over the MTEF is R3.0 billion).

Description MTEF 2019/20 2020/21 2021/22

FLISP – Subsidies approved 12 116 1 266 4 452 6 398

FLISP – Subsidies disbursed 8 917 633 2 859 5 425

FLISP – Subsidies disbursed R million R669 R47 R214 R406

FLISP – Leverage R million (Loans disbursed by Financial Institutions)

R3 013 R215 R959 R1 839

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 55 of 140

Strategic Partnerships

The NHFC develops strategic alliances and partnerships, and through investment in

equities/non-listed equity partnership with selected partners, provides mezzanine and

junior debt into capital structures of companies/development partners that operate

within the affordable housing market

The rationale for such an intervention/risk capital provider is to leverage significant

private sector funding into the affordable housing market.

Subsidiary Company: Cape Town Community Housing Company (“CTCHC”)

CTCHC is a wholly owned subsidiary of the NHFC and its focus was mainly in the

development of residential houses either for rental, outright sale or sale via a long term

instalment sale agreement in the affordable housing market. It currently holds

residential housing stock mainly in and around Cape Town.

The NHFC investment over the years has had a significant impact in providing

affordable housing solutions in the Western Cape. However, from a financial

perspective, CTCHC has been incurring losses and the investment has therefore not

provided the desired returns for the NHFC.

The company per the NHFC Board decision is no longer carrying out any new

developments in order to curtail its negative financial contribution to the NHFC.

Furthermore, and to streamline costs in line with revenue generated and to achieve

efficiencies.

Associate Company: Housing Investment Partnership (“HIP”)

The NHFC at 33.33% and OMCH 66.67% entered into a joint venture to establish a

fund management company to design develop and implement an income-linked

mortgage product in the affordable housing market. The joint venture was successful

in disbursing R100 million by February 2014. The pilot was funded by the HIP Lending

Trust 1 (“HLT1”), with NHFC providing R20 million and the remaining R80 million

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 56 of 140

provided by Old Mutual Capital Holdings Ltd (“OMCH”). This disbursement was a very

important milestone for the NHFC and its relevant strategic partners; it provided the

proof of concept. The loan portfolio performance is meeting expectations.

The NHFC’s catalytic junior debt funding of R250 million into HIP Lending Trust 2 has

managed to leverage R1 billions of private sector funding in Lending Trust 2. In

addition, an amount of R506 million was raised in Trust 3 from mainly the Jobs Fund

and Futuregrowth (a specialist fund manager). ) OMCH and Cosmopolitan being the

development partners. Development challenges have been the site security, illegal

occupation and poor property sales which have jeopardized the viability model of Trust

3. In total, HIP is expected to fund a total of 2700 mortgage loans.

Trust 2 is considering a Senior Debt investment from the African Development Bank

for an amount of R150M.

Associate Company: Trust for Urban Housing Finance (“TUHF”)

TUHF provides loans to property investors and entrepreneurs wishing to build a

business based on the provision of rental housing in the affordable housing market.

Based on its specialised understanding of inner city residential market, TUHF is able

to provide expert advice and a wide range of competitive products tailored to the diverse

financial needs of its client base. It finances projects from R100 000 to R30 million

providing loans that are flexible and tailored to the requirements of applicants up to a

15 year term, with interest and raising fees at market related rates.

The NHFC played a pivotal role in establishing TUHF in 2003 through an interest free

R10 million loan facility. Since then, the NHFC has acquired an equity investment in

TUHF and currently owns 32.6% of the company. In addition, the NHFC had provided

debt funding primarily in the form of secured mortgage loans. TUHF has grown its loan

and advances book to a value of R2.6 billion from funding from NHFC and a range of

established institutional investors.

Like many mid-tier, high growth companies, the sourcing of funding is a priority focus

in this current dynamic trading environment. TUHF is currently in the process of raising

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 57 of 140

R1 billion in the debt markets after being given impetus through securing R200 million

from the Job Funds grant from the South African Government.

International Housing Solutions (“IHS”)

The NHFC is investing R300 million into the International Housing Solutions Fund II ("

the Fund”) as a junior debt funder. International Housing Solutions (IHS) is an

international investment management company which raises funds predominantly

from socially responsible overseas funders for investment in South Africa. IHS acts

as both fund manager and advisor to the Fund.

Investing in this Fund is an optimal way of leveraging the NHFC’s balance sheet, as a

DFI in the Human Settlements space, the NHFC remains a strategic conduit to bridge

the gaps in the supply of financial services, by channelling the resources and funds in

the financial system to development projects which have significant long-term benefits

to the overall economic development of the country.

The investment in Fund II is targeted to raise R2.1 billion in equity and quasi equity

funding and is being raised on the projected success of the SA Workforce Housing

Fund (‘SAWHF”), IHS first fund. The second Fund will be used to provide 10 000 to 12

000 housing units within the affordable housing market over the ten year investment

horizon. If opportunities in Social Housing are exploited, the housing units delivered

will increase to 15 000 to 17 000 housing units. This will be achieved by leveraging an

additional R3.5 to 4.0 billion of debt funding. Participation is aligned to the attainment

of the shareholders prescribed objectives that are stipulated in the shareholder

compact.

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12 SUMMARY OF PROGRAMMES, KEY PERFORMANCE INDICATORS AND

ASSUMPTIONS

Programme #1: Summary

Programme Expand housing finance activities, through the effective provision of housing finance solutions to enable the households to have a choice in meeting their housing needs

Outcomes Adequate housing and improved quality of living environments

Performance indicator HISTORICAL DATA

APP Target

Medium term targets

2015/16 2016/17 2017/18 2018/19

(Budget) 2019/20 2020/21 2021/22

Estimated number of housing opportunities facilitated through disbursements

1 423 2 725 3 051 34 401 205 194 68 526 67 912 68 755

Value of funds disbursed (R'm)

241 306 381 769 4 209 1 161 1 450 1 598

Value of approvals (R'm) 340 302 398 633 4 479 1 272 1 526 1 682

Note: RHLF & NURCHA performance targets included from 1 October 2018 onwards, the effective date of the transaction

Sub- Programmes Programme # 1

Performance indicator

HISTORICAL DATA

APP Target

Medium term targets

Number of housing opportunities facilitated through disbursements*

2015/16 2016/17 2017/18 2018/19

(budget) 2019/20 2020/21 2021/22

Social Housing Units**

500 1 861 2 242 1630 4 171 734 1 526 1 911

Private Rental Housing Units

78 738 579 826 1 993 403 724 867

Total Rental 578 2 599 2 821 2 456 6 165 1 137 2 250 2 778

Affordable Housing Mortgage Loans and or Units***

845 126 230 205 202 202 0 0

Bridging Finance: Affordable Housing Units

- - - 2 156 7 546 2 298 2 426 2 822

Bridging Finance: Subsidy Housing Units

- - - 8 652 32 600 10 350 10 850 11 400

Incremental housing loans

- - - 20 932 158 681 54 539 52 387 51 755

Total opportunities 1 423 2 725 3 051 34 401 205 194 68 526 67 912 68 755

*Housing opportunities include units, mortgage loans and Incremental housing loans

**Housing units include completed, transferred or rented units.

*** Affordable Housing – Number of mortgage loans and or units originated through Strategic Partnerships such

as HIP and IHS

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Note: RHLF & NURCHA performance targets included from 1 October 2018 onwards, the effective date of the

transaction

Performance indicator HISTORICAL DATA

APP Plan Target

Medium term targets R'million

Value of disbursements 2015/16 2016/17 2017/18 2018/19

2019/20 2020/21 2021/22

(budget)

R'm R'm R'm R'm R'm R'm R'm

Social Housing 23 197 110 127 542 78 206 258

Private Rental Housing 76 44 152 198 616 115 228 273

Total Rental Housing 99 241 262 325 1 158 193 434 531

Affordable Housing 142 66 119 102 82 41 41 0

Bridging Finance: Affordable - 199 1 179 359 379 441

Bridging Finance: Subsidy - 63 652 207 217 228

Incremental housing -

-

- 80 1 138

361

379 398

Total value of disbursements 241 307 381 769 4 209 1 161 1 450 1 598

Performance indicator Historical data (and FY 2018/19 budget)

R'million APP Target

Medium term targets R'million

Value of approvals* 2015/16 2016/17 2017/18 2018/19

2019/20 2020/21 2021/22 (budget)

Social Housing 142 143 82 90 1 062 207 399 456

Private Rental Housing 73 159 311 135 449 138 152 159

Total Rental Housing 215 302 393 225 1 510 345 551 615

Affordable Housing - - 5 - - - - -

Bridging Finance Affordable - - - 249 1 179 359 379 441

Bridging Finance Subsidy - - - 79 652 207 217 228

Incremental housing 125

- -

80 1 138 361 379 398

Total value of approvals 340 302 398 633 4 479 1 272 1 526 1 682

*facilities approved by relevant governance structure in line with the delegated authority

Note: RHLF & NURCHA performance targets included from 1 October 2018 onwards, the effective date of the transaction

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Programme #2: Facilitate the increased and sustained lending by financial institutions to

the lower end of the housing market

Programme Facilitate the increased and sustained lending by financial institutions to the lower end of the

housing market

Performance indicator

HISTORICAL DATA

APP Target

Medium term targets

2015/16

(audited) 2016/17

(audited)

2017/18 2018/19 2019/20 2020/21 2021/22

(audited) (budget)

Estimated number of housing opportunities facilitated through leveraged funds

28 963 33 428 25 766 3 973 7 927 2 609 2 754 2 563

Value of leveraged funds from the Private sector (R'm)

1 509 1 634 2 176 782 4 102 1 284 1 360 1 458

Note: RHLF & NURCHA performance targets included from 1 October 2018 onwards, the effective date of the transaction

Sub- Programmes

Performance indicator Historical data (and FY 2018/19 budget) APP Medium term targets

Number of housing opportunities facilitated through leveraged funds

2015/16 2016/17 2017/18

2018/19 Target

2019/20 2020/21 2021/22

(budget))

Number of Private Rental Housing Units*

3 977 4 302 2 629 3 154 7 263 2 281 2 418 2 563

1 763 1 381 669 819 664

Number of Affordable Housing -Mortgage Loans and units**

328 336 0

Incremental loans: NHFC

27 745 22 468 - - - - - 23 223

Total 28 963 33 428 25 766 3 973 7 927 2 609 2 754 2 563

Note: RHLF & NURCHA performance targets included from 1 October 2018 onwards, the effective date of the

transaction

* Private Rental - estimated number of units arising from signed loan agreements approved in any particular year through funds leveraged by TUHF. Evidence of units may not be actual delivery but expected delivery from loans signed. The TUHF estimated numbers are both greenfield, brownfield and refinanced units. ** Affordable Housing – estimated number of mortgage loans arising from signed loan agreements approved in any particular year by HIP and estimated housing units arising from deals signed by IHS. Evidence of units may

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 61 of 140

not be actual delivery in respect of HIP but expected delivery from loans signed - the average loan size being R500 000.

Sub-programme #2: Value of Funds Leveraged from Private Sector

Performance indicator Historical data (and FY 2018/19 budget) APP Medium term targets

Value of Funds Leveraged From Third Parties

2015/16 2016/17 2017/18 2018/19 (budget)

Target

2019/20 2020/21 2021/22

Private Rental Housing 367 339 514 372 1 412 402 434 576

Affordable Housing* 684 684 1 206 410 332 164 168 0

Incremental loans** 458 611 456 - 0 0 0 0

Bridging Finance: Affordable Housing*

- - - - 2 358 718 758 882

Total 1 509 1 634 2 176 782 4 102 1 284 1 360 1 458

*Leverage funds from third parties include; debt and equity raised by NHFC associate company TUHF, debt and

equity raised by Real People a company in which the NHFC holds shares in the form of PIK Notes and equity

contributions in deals funded by the NHFC.

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Programme #3: Conduct the business activities of the NHFC that ensures continued

financial sustainability while promoting greater developmental impact

Programme Conduct the business activities of the NHFC that ensures continued financial sustainability while promoting greater developmental impact

Outcomes To achieve financial sustainability of the NHFC

Performance indicator HISTORICAL DATA

APP Target

Medium term targets

Group performance 2015/16 2016/17 2017/18 2018/19

(forecast) 2019/20 2020/21 2021/22

Maintain financial sustainability: - ROE: minimum

target of 2.5%, within 3 years

- ROA (PBT) (target): minimum of 2% within 3 years

- Credit loss ratio: <3%

- Advances Asset

growth (loans & advances): Target average of 11% over 3 years (in MTEF)

- Improve

operational efficiency: total operational expenditure to total income ratio target of 45% within three years.

- Secure funding of

R50 million from shareholder (grant funding) in FY 2019/20 and an additional R100 m and R150 m in FY 2020/21 and FY 2021/22 (R million)

(0.8%)

(1.8%)

8.4%

(12.5%)

41%

100

1.6%

2.6%

3.0%

1%

43%

100

3.2%

2.9%

2.8%

15%

42%

100

1.0%

0.9%

1.9%

56%

61%

80

-

-

-

-

-

-

1.1%

1.0%

2.5%

11%

63%

50

3.3%

3.0%

2.5%

14%

50%

100

4.4%

4.0%

2.5%

8%

42%

150

The substantial growth in the loans & advances in FY 2018/19 is largely due to the merger with NURCHA and

RHLF effective from the 1 October 2018. On a “normalised” basis, the year on year growth in loans & advances

between FY 2017/18 and FY 2018/19 is approximately 7%.

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Programme 4: Facilitate Transformative change of the affordable housing sector space in

partnership with a broad range of institutions

Performance indicator HISTORICAL DATA APP Medium term targets

Total disbursements targeted towards emerging BEE entrepreneurs (R'm)

2015/16 2016/17 2017/18 2018/19

Target

2019/20 2020/21 2021/22

Total disbursements targeted towards emerging BEE entrepreneurs (R'm)

226 226 217 329 2 105 581 725 799

Value of disbursements targeted towards women and youth entrepreneurs (R'm) already included in total disbursements above

N N N N 1 263 348 435 479

N: the disbursements to Women and Youth were included in the Total Disbursements to BEE Entrepreneurs in

2016/17, 2017/18 and 2018/19

Programme #5: Drive the process of changing the strategy of the NHFC to that of an

entity ready to assume the role of the HSDB

Performance indicator

2018/19

2019/20

2020/21

2021/22

Outcomes

Consolidated NHFC

Take on

NURCHA &

RHLF’s assets &

liabilities on to

the NHFC

balance sheet

Consolidate

APPs

Consolidated reporting :

APP

AFS

Quarterly Reporting

Devise appropriate interim

funding framework

Consolidated reporting :

APP

AFS

Quarterly Reporting

Integrate staff and

processes operationally

Elimination of

duplications in

governance

structures,

compliance

requirements, IT, HR,

processes and

procedures

Achieve:

Cultural integration

Economies of scale

Organisational structure

Systems and processes

integration

Product integration

NB: Detail in the Business Case

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 64 of 140

Formulate Partnership

Strategies

Identify key partners

for innovation and

delivery impact – both

private & public sector

Formalise

partnerships through

MOUs

Review MOUs and enhance where

necessary

A regular and effective Client Forum

implemented with active

participation from senior

stakeholders

Optimise Product offering

Review current

product offering in

terms of margin, cost

& impact

Identify strategic

partners for

enhanced

identification of

preferred products

Development of new product

offering or enhancement

Approval of HSDB BC and Draft Bill

Consultation -Minister

of HS & Advisors for

approval

Private Sector

consultation

Social Cluster

workshop

Alignment of Bill to BC

Submission of BC &

draft Bill to JEP for

approval

National Assembly Process:

Cabinet Memorandum, Draft

Bill

Submission to State Law

Advisors for Certification.

Translation of the Bill

Submission of draft Bill

together with State Law

Advisor’s Certification to the

Speaker of the National

Assembly

Once passed by NA and

NCOP submitted to President

for assent and then published

in the Government Gazette.

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Programme #6: Continuously stimulate and enable the low-to-middle income housing

sector by providing robust, relevant and timely research and market analysis

Performance indicator

2019/20

2021/22

2020/21

Outcomes

Improve our market analysis capability

Develop and

Implement

research models /

tools

Established research

partnerships with

entities in the market

in order to leverage

research capacity

Regular reporting on

mortgage loan

performance data as

a result of a specific

research strategy

Establish multiple

research reporting

commitments to

various stakeholders

in the affordable

housing market

Develop an affordable housing data warehouse.

Development of a

credible information

database

Accessibility to

various data

sources that

would potentially

aid studies and

analysis into the

segment

Establish research

metrics to support

the NHFC’s core

business

Mechanisms in place

to measure and

quantify product

success at regular

intervals in terms of

impact, efficiency,

and financial return

Implement multiple

standardised metrics

established and

required to be

reported on in loan

applications, through

completion of a

standardised impact

template

Development of

explicit means to

measure the

aggregate impact of

the organisation’s

operations in the

target market at

regular intervals and

adjust strategy

accordingly

Promote advocacy

Constant industry feedback and engagement in order to keep research

timely and relevant

- NT/NDoHS

- Client Focus Groups

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2019/2020 Quarterly Breakdown

Programme: Expand housing activities through effective provision of housing finance opportunities

Programme Expand housing finance activities through effective provision of housing finance opportunities

Outcomes Adequate housing and improved quality of living environments

Performance indicator Annual Target Q1 Q2 Q3 Q4

2019/20 Budget Budget Budget Budget

Estimated number of housing opportunities facilitated through disbursements

68 526 17 014 19 857 15 164 16 490

Value of funds disbursed (R'm)

1 161 267 353 215 326

Value of approvals (R'm) 1 272 291 376 236 369

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Sub-Programmes: Quarterly Targets

Performance indicator Annual Target Q1 Q2 Q3 Q4

Number of housing opportunities facilitated through disbursements

2019/20 Budget Budget Budget Budget

Number of Social Affordable Housing Units

734 0 0 630 104

Number of Private Rental Housing Units

403 0 100 0 303

Total Rental 1 137 0 100 630 407

Number of Affordable Housing Unit

202 202

Bridging Finance: Affordable 2 298 460 689 345 804

Bridging Finance: Subsidy 10 350 2 588 3 105 1 553 3 105

Incremental Loans: No of Loans RHLF

54 539 13 967 15 963 12 637 11 972

Total 68 526 17 014 19 857 15 164 16 490

Performance indicator Annual Target Q1 Q2 Q3 Q4

Value of disbursements 2019/20 Budget Budget Budget Budget

R'm R'm R'm R'm R'm

Social Affordable Housing 78 22 22 28 6

Private Rental Housing 115 31 31 27 27

Total Rental Housing 192 53 53 54 32

Affordable Housing 41 10 10 10 11

Bridging Affordable 359 72 108 54 126

Bridging Subsidy 207 52 62 31 62

Incremental: RHLF 361 81 120 65 95

Total value of disbursements 1 161 267 353 215 326

Performance indicator Annual Target Q1 Q2 Q3 Q4

Value of approvals 2019/20 Budget Budget Budget Budget

Social Affordable Housing 207 52 52 52 52

Private Rental Housing 138 35 35 35 35

Bridging Affordable 359 72 108 54 126

Bridging Subsidy 207 52 62 31 62

Incremental: RHLF 361 81 120 65 95

Total value of approvals 1 272 291 376 236 369

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Programme: Facilitate the increased and sustained investment by financial institutions and other private sector investors

Quarterly Targets

Programme Facilitate the increased and sustained investment by financial institutions and other private sector investors

Outcomes Increased and sustained lending by private sector to human settlement developments

Performance indicator Annual Target Q1 Q2 Q3 Q4

2019/20 Budget Budget Budget Budget

Estimated number of housing opportunities facilitated through leveraged funds

2 609 648 651 636 673

Value of leveraged funds from the Private sector (R'm)

1 284 285 357 250 393

Sub-Programmes

Performance indicator Annual Target Q1 Q2 Q3 Q4

Number of housing opportunities facilitated through leveraged funds

2019/20 Budget Budget Budget Budget

Number of Private Rental Housing Units

2 281 570 570 570 570

Number of Affordable Housing Units

328 78 81 66 103

Bridging Affordable - - - - -

Bridging Subsidy - - - - -

Incremental RHLF -

Total 2 609 648 651 636 673

Performance indicator Annual Target Q1 Q2 Q3 Q4

Value of leveraged funds from the Private sector

2019/20 Budget Budget Budget Budget

R'm R'm R'm R'm R'm

Rental Housing 402 101 101 100 100

Affordable Housing 164 40 40 42 42

Bridging Affordable 718 144 215 108 251

Bridging Subsidy - - - - -

Incremental: RHLF - - - - -

Value of total funds leveraged 1 284 285 357 250 393

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Programme #3: Conduct the business activities of the NHFC that ensures continued

financial sustainability while promoting greater developmental impact

The financial sustainability targets shall be measured on an annual basis with no quarterly

targets.

Programme #4: Facilitate Transformative change of the affordable housing sector space

in partnership with a broad range of institutions

Performance indicator Annual Target

2019/20

Q1 Q2 Q3 Q4

Budget Budget Budget Budget

Social Housing 39 11 11 14 3

Private 58 15 15 14 14

Affordable 21 5 5 5 6

Bridging Affordable & Subsidy 283 62 85 42 94

Incremental: RHLF 181 41 60 33 48

Value of disbursements targeted towards emerging BEE entrepreneurs (R'm)

581 134 176 107 163

Value of disbursements targeted towards women & youth entrepreneurs, included in above total of R581 million (R'm)

348 80 106 64 98

Programme #5: Drive the process of changing the strategy of the NHFC to that of an

entity ready to assume the role of the HSDB

There are no quarterly targets set for this programme. Rather the focus has been on

yearly targets due to the medium term nature of the strategic outcomes of this

programme.

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Programme #6: Continuously stimulate and enable the low-to-middle income housing sector by providing robust, relevant and timely research and market analysis

Performance indicator Target 2019/20 Q1 Q2 Q3 Q4

Planned Planned Planned Planned

Undertake mortgage performance index analysis – NCR reporting analysis

Bi-annual x x

Established research partnerships with entities in the market in order to leverage research capacity

x

Development of a credible information database

x

Establish research metrics to support the NHFC’s core business

x

Develop advocacy through stakeholder engagement to enhance our ability to respond to key issues:

- Quarterly reviews with shareholder

Quarterly x x x x

- Round table seminar with NHFC clients

Bi-annual x x

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 71 of 140

Programme Management:

Contractor Finance and Development Program - CFDP

APP Target

APP

2019/20 2020/21 2021/22

Retrofit programme

Number of houses to be built or retrofitted 3 399 499 1 100 1 800

Number of programmes signed contracts (approvals) 5 1 2 2

Value of Contracts Signed

Program Management 466 68 151 247

Contractor Finance and Development Program - CFDP

Program Management (Number of SMME contractors for enterprise development)

30 10 10 10

Contractor Finance and Development Program - CFDP Value of Private Funds mobilised for enterprise development 30 10 10 10

FLISP

APP

2019/20 2020/21 2021/22

Number of Subsidy applications approved

12 116 1 266 4 452 6 398

Number of Subsidies disbursed

8 917 633 2 859 5 425

Subsidies disbursed R million

669 47 214 407

Leveraged from financial institutions (R million)

3 013 215 959 1 839

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Quarterly Breakdown Programme Management:

Contractor Finance and Development Program - CFDP

Annual Target

2019/2020

APP

Q1 Q2 Q3

Q4

Retrofit programme

Number of houses to be built or retrofitted 499 150 180 85

84

Number of programmes signed contracts (approvals) 1 1 0 0

0

Value of Contracts Signed 68 17 17 17

17

Program Management

Contractor Finance and Development Program - CFDP

Program Management (Number of SMME contractors for enterprise development)

10

4

6

0

0

Contractor Finance and Development Program - CFDP

Value of Private Funds mobilised for enterprise development 10 4 4 2 0

Annual Target

Q1 Q2 Q3 Q4

FLISP – Subsidies approved 1 266 317 317 317 317

FLISP – Subsidies disbursed 633 158 158 158 158

FLISP – Subsidies disbursed R million R47 R12 R12 R12 R12

FLISP – Leverage R million (Loans disbursed by Financial Institutions)

R215 R54 R54 R54 R54

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 73 of 140

Residential Property Sector Transformation

A sizeable amount of the NHFC capital will be utilised in investing in key activities to drive

transformation in the residential property markets by increasing the participation of previously

disadvantaged groups in the market and championing innovation through various mechanisms.

Transformation and the advancement of broad based empowerment are a national imperative

and this has likewise been legislated under among others Broad-Based Black Economic

Empowerment Act, no 53 of 2003 (BBBEE Act).

Further policy pronouncements by National Treasury and specifically, the Department of Human

Settlements advocates for dedicated support to women and youth and a 30% funding target is

therefore envisaged in the plan on a gradual basis to realise the policy requirement. The total

capital allocation in the MTSF plan towards empowerment and transformation funding is R2.3

billion, 30% (R694 million) of which will go towards advancing women and youth projects

(persons up to the age of 35).

Various financing instruments will be utilised to advance the funding of empowerment sponsored

deals which will include but not limited to equity, junior, mezzanine debt instruments as well as

interest only facilities.

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13 LINKS TO OTHER PLANS

Links to the long term infrastructure and other capital plans

NHFC typically prepares budgets for time periods up to five years, and as an entity in

financial services, its investment plans will typically focus on ensuring it has adequate

funding and liquidity to grow its loan book. The NHFC programmes are linked to the

Broader Human Settlements programmes and the delivery of housing includes

investments in infrastructure. NHFC funding into projects includes infrastructure funding

in respect of those specific projects.

For MTSF 2019/20 to 2023/24 (5 year period), the Department of Human

Settlements has not yet developed its plans, which will guide the Department,

Provincial Government and all the state owned entities in the Human Settlements

cluster.

Conditional grants

Not applicable to NHFC.

Public entities

Not applicable to NHFC

Public-private partnerships

In the delivery of affordable housing the NHFC collaborates with Private Sector and

Public Sector institutions on a project-by-project basis in line with its strategy to leverage

private sector funding.

A further initiative is the inner-city wholesale finance institution, TUHF, set up by the

NHFC and other non-profit organisations to provide finance for the acquisition and

improvement of inner-city residential rental accommodation. In addition private sector

financiers provide loan funding to this entity.

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14 OVERVIEW OF BUSINESS SUPPORT UNITS

EWR: enterprise wide risk

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15 MATERIALITY FRAMEWORK

FOR THE PURPOSE OF THE INTERPRETATION OF AND COMPLIANCE WITH THE

PUBLIC FINANCE MANAGEMENT ACT, ACT 1 OF 1999 (“PFMA”)

Disclosure of Material Losses – Section 55(2) (b) of the PFMA.

This section of the framework seeks to provide guidance on the quantum of losses that

should be disclosed in the Annual Financial Statements of the NHFC. Section 55(2) (b) of

the PFMA classifies these losses under three categories as follows:

Material Losses Proposed

Framework

Resulting

Figures for

2019/20*

Recommended

Disclosure

Practice

Preventative

Measures

Criminal

conduct losses

Irregular

expenditure

Fruitless and

wasteful

expenditure

Quantitative:

0.5% of

Revenue

R1.2 million

Each loss due to

criminal conduct,

irregular expenditure

or fruitless and

wasteful

expenditure, as

identified, will be

evaluated in context

of the expense

category to which it

relates to determine

whether it qualifies

for disclosure in the

Annual Financial

Statements.

NHFC’s systems

and processes

are designed and

are continually

reviewed to

ensure the

prevention and

detection of all

such expenditure,

irrespective of the

size thereof.

* Based on latest budgeted revenue for FY 2019/20

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Significance - Section 54(2) of the PFMA

Section 54(2) of the PFMA requires that before a public entity concludes any of the following

transactions, the accounting authority for the public entity must promptly and in writing,

inform the relevant treasury of the transaction and submit relevant particulars of the

transaction to its executive authority for approval of the transaction:

PFMA

TERMS AS SET OUT IN

THE SECTION

APPLICATION OF SECTION 54(2) OF

PFMA TO THE NHFC

Section 54(2)(a)

Establishment or participation

in the establishment of a

company

All transactions of this nature that require

the NHFC to take up equity or equity related

loans in a company to be established will

require an application.

Where the NHFC will not have an interest

(equity or loans) in the company to be

established, for example where it is only

facilitating the formation on behalf of or with

other parties in pursuance of a social

objective, an application need not be made.

Section 54(2)(b) Participant in a significant

partnership, trust, joint

venture or similar

arrangement.

The following will require that an

application be made in terms of this

Section:

Any participation that entails

incorporation under the Companies Act

(or similar foreign legislation).

Any transaction not entailing

incorporation of monetary value of more

than 1% of total assets, other than

project funding given in the normal

course of business.

A participation in any partnership, trust,

joint venture or similar arrangement that

is located outside the republic of South

Africa.

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 78 of 140

PFMA

TERMS AS SET OUT IN

THE SECTION

APPLICATION OF SECTION 54(2) OF

PFMA TO THE NHFC

Section 54(2)(c) Acquisition or disposal of a

significant shareholding in a

company

The following will require that an

application be made in terms of this

section:

Ownership control is affected.

The NHFC’s right to pass or block a

special resolution will be affected

There is a change of ownership of at

least 20%

For an acquisition, any transaction that

results in a shareholding of at least 20%

in a company.

Regardless of the percentage holding,

any direct equity investment exceeding

1% of total assets of the NHFC.

Section 54(2)(d) Acquisition or disposal of a

significant asset.

The following will require an application

in terms of this section:

Any asset with a value of more than 5%

of the total assets of the NHFC,

excluding financial instruments.

Disposal of the major part of the assets

of the NHFC.

Assets classified as current assets

according to generally accepted

accounting practice need not be

regarded as falling under this

subsection.

Section 54(2) (e) Commencement or cessation

of a significant business

activity.

Any business activity outside the NHFC’s

core business will require an application in

terms of this section.

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 79 of 140

PFMA

TERMS AS SET OUT IN

THE SECTION

APPLICATION OF SECTION 54(2) OF

PFMA TO THE NHFC

Section 54(2) (f) A significant change in the

nature or extent of its interest

in a significant partnership,

trust, unincorporated joint

venture or similar

arrangement.

The NHFC should make an application

in terms of this Section if:

Any change in interest in the rand value

of which exceeds 1% of the total

assets;

Where the nature of the NHFC’s

interest changes between any of the

vehicles (that is, between a partnership,

trust, unincorporated joint venture or

similar arrangement);

Any transaction that results in a

cumulative interest of at least 20% in

the vehicle (partnership, trust,

unincorporated joint venture or similar

arrangement); or

Any subsequent transaction that results

in an increase of the cumulative interest

by at least 10% in the vehicle

(partnership, trust, unincorporated joint

venture or similar arrangement).

The NHFC’s total assets as at 31 March 2018 (audited) – R3.34 billion

For the purposes of section 54(2) (b) (c) and (f) 1% of total assets = R33 million

For the purposes of section 54(2) (d) 5% of total assets = R166 million.

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16 NHFC STRATEGIC RISK REGISTER

Risk Classification Legend

NHFC’s risk tolerance or risk appetite is the amount of risk it is prepared to tolerate in a particular circumstance. Risks for

which there is a low risk appetite require a level of control that results in a low risk score once action has been taken to

manage the risk.

RISK RATINGS

Tolerate Risk Low Risk

Treat Risk (by reducing Likelihood of Consequence) Medium Risk

Treat Risk with caution High Risk

Treat with extreme caution Extreme Risk

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17 NHFC STRATEGIC RISK REGISTER 2019/2020

STRATEGIC

OBJECTIVE

RISK

ID

№.

RISK TYPE

RISK/THREAT

IN ACHIEVING

OBJECTIVE

RIS

K

RA

TIN

G

(IN

HE

RE

NT

)

MITIGATION PLANS

RE

SID

UA

L

RIS

K

RESSPONSIBLE

PERSON

TA

RG

ET

DA

TE

Expand

housing

finance

activities,

through the

effective

provision of

housing

finance

solutions,

enabling low-

to-middle

income

households to

have choice of

renting,

owning or

incrementally

building to

1

Mandate

Breach Risk

Operating

Outside of the

mandate

(Strategic

Operational)

Funding the

market that

is not aligned

to the

mandate.

Failure of the

NHFC to

deliver on

the

shareholder’

s (NDoHS)

mandate.

ME

DIU

M

Submission of the Annual Performance Plan (APP) to the shareholder for approval.

Implementation of Credit Policy to ensure that funding approval is aligned to mandate.

Enhance relationships with Provinces to provide reach in delivery mechanisms and impact.

Compliance to NHFC Corporate Governance requirements

LO

W

CF

O

Exe

c G

rou

p R

isk

31 M

arc

h 2

020

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 82 of 140

STRATEGIC

OBJECTIVE

RISK

ID

№.

RISK TYPE

RISK/THREAT

IN ACHIEVING

OBJECTIVE

RIS

K

RA

TIN

G

(IN

HE

RE

NT

)

MITIGATION PLANS

RE

SID

UA

L

RIS

K

RESSPONSIBLE

PERSON

TA

RG

ET

DA

TE

meet their

housing

needs

2 Credit Risk

(Strategic )

Not granting

quality loans

result in

unsuccessful

collections or

credit risk in

excess of risk

tolerance

HIG

H

Ensure compliance with the credit policy from the origination/initiation period of facilities.

Enhance post investment process.

Enhance collection process in line with the credit policy.

Introduced risk

based pricing.

Review credit policy

to align to changing

market/economic

conditions

HIG

H

Exe

c G

rou

p R

isk

31 M

arc

h 2

020

Facilitate

increased and

sustained

lending by

financial

institutions to

the lower end

of the housing

market.

3

Investment

Risk

(Strategic)

Inability to attract

suitable funding

partners (Attrition

of partners,

emerging

partners)

Not realising

expected returns

from strategic

investments

HIG

H

Develop appropriate value proposition which will incentivise new funders. (Attraction)

Develop and offer attractive Risk sharing strategies.

Ensure that Investments are aligned to NHFC Investment Policy and Risk appetite statement.

ME

DIU

M

CF

O

31 M

arc

h 2

020

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 83 of 140

STRATEGIC

OBJECTIVE

RISK

ID

№.

RISK TYPE

RISK/THREAT

IN ACHIEVING

OBJECTIVE

RIS

K

RA

TIN

G

(IN

HE

RE

NT

)

MITIGATION PLANS

RE

SID

UA

L

RIS

K

RESSPONSIBLE

PERSON

TA

RG

ET

DA

TE

Mobilise

funding into

the human

settlement

space on a

sustainable

basis, in

partnership

with a broad

range of

institutions

4

Financial

Sustainability

Risk

(Strategic)

Challenge in

balancing

developmental

mandate with

financial

sustainability

leading to APP

targets not being

met.

HIG

H

Continuous evaluation of strategy to ensure alignment to market conditions.

Continuous review of NHFC risk appetite to ensure alignment with changing economic/financial markets conditions.

Tracking of financial sustainability ratios o Return on equity o Return on assets o Gross profit margin o Bad Debts

Implement business performance objectives that are aligned to the corporate strategy.

ME

DIU

M

CF

O

31 M

arc

h 2

020

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 84 of 140

STRATEGIC

OBJECTIVE

RISK

ID

№.

RISK TYPE

RISK/THREAT

IN ACHIEVING

OBJECTIVE

RIS

K

RA

TIN

G

(IN

HE

RE

NT

)

MITIGATION PLANS

RE

SID

UA

L

RIS

K

RESSPONSIBLE

PERSON

TA

RG

ET

DA

TE

5 Funding Risk

Strategic

Inability to

mobilise

sustainable

funding, raise

debt at the

appropriate

price from

DFI’s, Debt

Market and

Shareholder

equity.

EX

TR

EM

E

Continuous review of NHFC risk appetite statement to ensure alignment with changing financial markets and sustainability.

Develop and Implement an optimal Funding Model.

Optimal Shareholder Funding in support of debt capacity to enable blended funding model. .

HIG

H

CF

O

31 M

arc

h 2

020

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 85 of 140

STRATEGIC

OBJECTIVE

RISK

ID

№.

RISK TYPE

RISK/THREAT

IN ACHIEVING

OBJECTIVE

RIS

K

RA

TIN

G

(IN

HE

RE

NT

)

MITIGATION PLANS

RE

SID

UA

L

RIS

K

RESSPONSIBLE

PERSON

TA

RG

ET

DA

TE

Conduct the

business

activities of

the NHFC in

an ethical

manner that

ensures the

continued

economic

sustainability

of the NHFC,

whilst

promoting

lasting social

and

environmenta

l development

6 HR Risk

(Strategic)

Challenge in

attracting,

engaging

rewarding and

retaining talent.

Skilled and

talented staff

may be

unsettled by the

pending DFI

Consolidation.

ME

DIU

M

Approved Retention Strategy being implemented and continuously monitored.

Implementation and monitoring of Board approved Succession Plan.

HR policies implemented and continuously monitored to ensure that skilled and talented employees are identified and provided with opportunities to grow.

LO

W

Exe

c:

HR

31 M

arc

h 2

020

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 86 of 140

STRATEGIC

OBJECTIVE

RISK

ID

№.

RISK TYPE

RISK/THREAT

IN ACHIEVING

OBJECTIVE

RIS

K

RA

TIN

G

(IN

HE

RE

NT

)

MITIGATION PLANS

RE

SID

UA

L

RIS

K

RESSPONSIBLE

PERSON

TA

RG

ET

DA

TE

7

Reputational

Risk

(Strategic)

Loss of

reputation

ME

DIU

M

Effectively implement a Code of Ethics.

Implement and monitor Stakeholder Engagement Strategy and Plan.

Adhere to good corporate governance practice.

Adoption of a customer centric approach.

LO

W

Exe

c:

CS

S

31 M

arc

h 2

020

8 Compliance

risk

Non-compliance

to legislation,

regulations and

policies

HIG

H

Implement and monitor adherence to Code of ethics and values

Adhere to good corporate governance practices.

ME

DIU

M

Exe

c:

Gro

up

Ris

k

31 M

arc

h 2

020

9 Governance

Risk

Dysfunctiona

l Board

Lack of

approved

policies and

procedures

Unethical

Leadership

ME

DIU

M

Annual Board performance evaluation

Governance structures and leadership

Governance policies

LO

W

Co

mp

an

y S

ec

reta

ry

31 M

arc

h 2

020

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 87 of 140

STRATEGIC

OBJECTIVE

RISK

ID

№.

RISK TYPE

RISK/THREAT

IN ACHIEVING

OBJECTIVE

RIS

K

RA

TIN

G

(IN

HE

RE

NT

)

MITIGATION PLANS

RE

SID

UA

L

RIS

K

RESSPONSIBLE

PERSON

TA

RG

ET

DA

TE

1

0

IT

Governance

Misalignment

of IT and

Business

Strategy

Inappropriate

or failed

internal

Processes

Inappropriate

IT platform

ME

DIU

M

IT Governance

structure and

policies in place.

Adequate

management and

compliance risk

policies in place that

are reviewed

annually.

Robust controls

reviewed by Internal

Auditors annually.

Tried and tested IT

platform and

business

applications

implemented.

IT strategy aligned

to business strategy

Regular ITMC meetings to ensure alignment with business needs.

LO

W

Gen

era

l M

an

ag

er

IT

31 M

arc

h 2

020

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 88 of 140

STRATEGIC

OBJECTIVE

RISK

ID

№.

RISK TYPE

RISK/THREAT

IN ACHIEVING

OBJECTIVE

RIS

K

RA

TIN

G

(IN

HE

RE

NT

)

MITIGATION PLANS

RE

SID

UA

L

RIS

K

RESSPONSIBLE

PERSON

TA

RG

ET

DA

TE

Continuously

stimulate and

enable low-

to-middle

income

housing

sector by

providing

robust,

relevant and

timely

research and

market

analysis.

1

1

Market

Relevance

(Strategic

Risk)

Limited ability to

provide thought

leadership low -

medium housing

market

(advocacy,

insights and

foresights,

innovation)

ME

DIU

M

Partner with reputable affordable housing and economic research company/institutions to provide market insights and foresights

Use market insights and foresight to develop innovative products for the target market.

Forge strategic relationship with relevant institutions to share information (SHRA, GPF,BASA )

LO

W

Exe

c:

Len

din

g a

nd

Str

ate

gy

31 M

arc

h 2

020

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 89 of 140

STRATEGIC

OBJECTIVE

RISK

ID

№.

RISK TYPE

RISK/THREAT

IN ACHIEVING

OBJECTIVE

RIS

K

RA

TIN

G

(IN

HE

RE

NT

)

MITIGATION PLANS

RE

SID

UA

L

RIS

K

RESSPONSIBLE

PERSON

TA

RG

ET

DA

TE

Drive the

process of

changing the

structure of

NHFC to that

of an entity

ready to

assume the

role of the

HSDB

1

2

DFI

Consolidatio

n

Phase 2 Risk

(Optimisation

and

Integration).

Governance

Risk

Operational

Risk: Impact

of integrating

(systems,

processes and

people) in

preparation

for

establishment

of HSDB

HIG

H

Put in place

governance

structure and

policies

Develop and

implement

operational

structures

Develop and implement integration plans (systems, processes, people)

ME

DIU

M

CE

O

31 M

arc

h 2

020

T

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NHFC Annual Performance Plan 2019/20 – 2021/22 90 of 140

18 CORPORATE GOVERNANCE

The Board

The NHFC is incorporated under the Companies Act, and is a state-owned company, wholly-

owned by the Department of Human Settlements. It is defined as a Schedule 3A state-owned

entity under the PFMA.

The Board, as the accounting authority, provides leadership, vision and strategic direction to

enhance shareholder value and ensure the NHFC’s long-term sustainability and growth. The

Board is responsible for developing and overseeing the execution of the strategy and

monitoring performance against the APP which is a rolling three year corporate plan which

is prepared by the NHFC for its shareholder and National Treasury on an annual basis.

The Board discharges this responsibility within the powers set out in its MOI (as registered

with CIPC) and through the Board committees. Although the Board delegates operational

responsibilities to its committees and executive management, it remains accountable to the

NDOHS.

Each Board committee has a clearly defined mandate in its terms of reference, which the

Board reviews and approves each year. The management of day-to-day operations is

delegated by the Board to the CEO, who is assisted by EXCOM and its subcommittees.

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NHFC’S Board Governance Structure

Board Structures and Framework

The Board, as the Accounting Authority, provides leadership, vision and strategic direction

to the NHFC, to ensure enhanced shareholder value, long term sustainability and growth

of the NHFC. The Board is responsible for developing and overseeing the execution of

strategy and monitoring the NHFC’s performance against the APP.

Board Composition

Board members are appointed by the Minister of Human Settlements. The MOI provides

for a maximum of 12 members and a minimum of 8 members. Currently the board has 10

members, with the recent resignation of the Chairperson on 31 July 2018. An Acting

Chairperson has been nominated from the remaining members.

With the exception of the CEO, the board members are all independent non-executive

directors. The Chairperson is confirmed by the Minister. The Board members’ extensive

qualifications, experience and specialist skills across the industry, and within their own

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NHFC Annual PerformancePlan 2019/20 – 2021/22 Page 92 of 140

spheres of competence, enable them to provide balanced, independent advice and

judgement in the decision-making process.

The positions of Chairperson and CEO are separate, with a clear division of roles and

responsibilities, as defined in the Board Charter.

The Shareholder’s Compact is a concise overview of the roles, functions, responsibilities

and powers of the CEO, the Board, and the interaction and relations with the shareholder,

and is reviewed annually with the NDoHS. Through it, the Board retains full and effective

control of the organisation by:

Approving the organisational strategy, the APP and budget, and by monitoring

executive management closely in the implementation thereof;

Observing the legitimate interests of the shareholder;

Monitoring operational and financial performance against the corporate balanced

scorecard, by ensuring that the required control systems are in place;

Reviewing the delegated authority policy that sets out the powers it delegates to

management;

Determining and nurturing the moral and ethical culture of the NHFC by formulating

guidelines and policies that encourage the participation of management, staff and

stakeholders in decision-making processes;

Supporting a culture of innovation and initiative throughout the organisation and with

its clients and stakeholders, and ensuring that all technology systems used by the

company are adequate to guarantee effective and efficient performance; and

Monitoring the socio-economic ethical compass of the NHFC and its interaction with

its clients and stakeholders.

In accordance with government approved guidelines, at the annual general meeting of the

company, the shareholder reviews and approves the remuneration for Non-executive

directors, and these directors’ fees are disclosed in the annual financial statements. The

remuneration is considered in terms of National Treasury Guidelines, the Department of

Public Enterprise’s Guidelines, comparison within the sector enterprises, a comparison

with external service provider annual evaluation reports and internal policy guidelines.

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The MOI provides that one-third in number of the longest serving Non-executive directors,

will automatically retire at the annual general meeting of the company. These directors

may allow themselves to be nominated for re-election for a further period of three years.

Such re-appointment is confirmed by the shareholder.

At the annual general meeting of the NHFC in November 2016, the Minister reconstituted

the Board by appointing members from RHLF and NURCHA as well as advisors to the

Minister, as part of the transitional phase towards the DFI Consolidation and the HSDB.

The Board endeavours to promote gender diversity, and acknowledges the benefits a truly

diverse board would have, in terms of race and gender representation. These are

communicated to the Minister in her consideration of nominations to the Board.

Succession planning is important in ensuring continuity and maintaining the correct mix of

expertise. As a result, the composition of the Board and its committees are reviewed

annually and to ensure that there is a continuation of intellectual capacity and experience

at all levels.

Board Evaluation

It is the policy of the Board to arrange bi-annual external evaluations on its performance

and effectiveness, as well as that of the Board committees. An evaluation was carried out

for the year ended 31 March 2018 and there were no significant findings. In the

intermediate years, the board carries out internal evaluations.

Board Meetings

The Board is required to meet quarterly, and additionally to approve the annual financial

statements. It may meet more frequently as circumstances require. The Chairpersons of

the respective Board Committees report back to the Board at the quarterly Board

meetings.

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NHFC Annual PerformancePlan 2019/20 – 2021/22 Page 94 of 140

Board Charter

The NHFC’s Board Charter is reviewed annually and has been aligned with the

Department of Human Settlements’ framework and King IV. The Charter gives a concise

overview of the demarcation of roles, functions, responsibilities and powers of the CEO,

the Board and the Shareholder. The Board retains full and effective control over the NHFC

by:

Approving the Strategy, Corporate Plan and Budget, and monitoring Management

closely in the implementation thereof;

Monitoring operational and financial performance against the Corporate Balanced

Scorecard; and Reviewing the Delegated Authority document which sets out the

powers that are delegated to Management.

Company Secretary

In terms of the Companies Act and the PFMA, the NHFC is required to appoint a Company

Secretary who is answerable to the Board. The Company Secretary plays a pivotal role in

the corporate governance of the organisation. The Company Secretary maintains an

arm’s length relationship with the Board, who assists with matters of ethics, good

governance and the provision of information and training required by the directors to fully

accomplish their fiduciary responsibilities. Directors have unrestricted access to the

advice and services of the Company Secretary in all aspects of the Board’s mandate and

operations of the NHFC.

Ethics and Managing Conflicts of Interest

In line with the Companies Act and the King Code, the Board is bound to conduct the

business of the NHFC in accordance with sound ethical principles. These are embodied

in the NHFC Code of Conduct (the Code). The Code also sets out the legal requirements

and procedures to be followed in declaring an interest in any business matter before a

Board committee or the Board.

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NHFC Annual PerformancePlan 2019/20 – 2021/22 Page 95 of 140

The declaration of any interest is a standing item on all Board and Board committee

meeting agendas, and in addition, all Board members and Executive managers are

required each year to provide a declaration, which is kept on record in the Company

Secretary’s office. All directors and management are expected to conduct themselves in

a professional manner at meetings, and where there may be potential differences in

matters of principle when discussing individual agenda matters, these differences are

formally noted and handled according to the Compact and Code, and in terms of best

practice.

All directors have unrestricted access to the Chairperson of the Board, the CEO and

executive management should they require any additional information outside of that

provided in meeting packs, in discharging their duties.

Directors may further seek additional independent professional advice concerning the

affairs of the NHFC, by arrangement with the Company Secretary or Board Chairperson.

Board and Statutory Committees

All Board committees have clearly defined terms of reference, which set out the specific

responsibilities delegated to them by the Board. These are reviewed annually in order to

ensure alignment with the NHFC’s mandate from the shareholder, applicable legislation

and regulations, governance standards, the strategic objectives of the NHFC, and to take

account of prevailing underlying conditions in the human settlements sector. All the Board

committees are chaired by Non-executive directors.

Management attends committee meetings by invitation. This attendance provides

committees with an additional perspective on agenda items where necessary, and

enables the Non-executive directors to give direction or request further information where

required. Guidance is also taken from external professional institutions and service

providers, legal firms and audit firms, which collectively issue position papers, professional

opinions, research findings and guidelines, which the NHFC uses to assist itself in its

implementation and compliance with various relevant statutes.

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NHFC Annual PerformancePlan 2019/20 – 2021/22 Page 96 of 140

Audit Committee

The Audit Committee is composed of three independent Non-executive directors. The

members are confirmed and appointed at each annual general meeting by the

shareholder. The current serving members are Mr S Ntsaluba (Chairperson), Mr A Harris

and Ms T Chiliza. The CEO, the Chief Financial Officer (“CFO”) and is also attended by

Executive managers, and the external and internal auditors. During the year, the

committee holds additional in-camera sessions to consider the performance of the CFO,

the performance and relationships with the internal and external auditors, and the

underlying support of the Executive management in the performance of the audits. The

Audit committee meets a quarterly as well as additionally to review the Integrated Annual

Report and the Annual Performance Plan, and its primary objective is to assist the Board

in discharging its duties relating to:

Annual consideration of the Audit Committee terms of reference for confirmation by

the Board;

Oversight of financial reporting, as well as compliance with all applicable legal

requirements and accounting standards;

The operation of adequate systems of internal control and internal audit processes;

Reviewing the annual financial statements, accounting policies, financial provisions,

adjustments, estimates and valuations;

Reviewing the annual integrated report;

Reviewing the effectiveness of management information and systems of internal

control with specific reference to the findings and recommendations of the external

and internal auditors;

Oversight of the external audit process;

Oversight of the internal audit process; and

Review of and approval of quarterly reports to the shareholder as delegated by the

Board.

The NHFC has an outsourced “whistleblowing” practice. All matters that may be raised, are

reported firstly to an independent external third party, which records and assesses the items,

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NHFC Annual PerformancePlan 2019/20 – 2021/22 Page 97 of 140

and then they are handed on to the CEO and/or Chairperson of the Audit Committee, for

investigation and subsequent action.

The internal audit function is outsourced to an external service provider, independent of the

external audit function. The internal auditors conduct periodic reviews of the key processes

related to the significant risk of the company and the subsidiary company, to provide

independent assurance to the Board and management on the effectiveness of the internal

control systems. The Audit Committee reviews the work of the internal auditors, and the lead

auditor of this function has direct unhindered access (as required) to the Chairpersons of the

Audit Committee and the Board, to ensure that any significant audit matters requiring

immediate Board attention, are dealt with.

The internal audit function conforms to the International Standards for the Professional

Practice of Internal Auditors as published by the Institute of Internal Auditors. Since this is an

outsourced function, it is reviewed every three to five years for the service provider to be

appointed following an open tender process.

Board Credit and Investment Committee

The Board Credit and Investment Committee is comprised of five independent Non-executive

directors and the CEO. Meetings are also attended by members of the management team.

The primary objective is to help the Board in fulfilling its credit and investment responsibilities.

The committee therefore:

Annually reviews its terms of reference, the credit philosophy, risk framework and policy,

risk appetite, long-term investment strategy and related policies, for recommendation to

the Board for approval;

Reviews and discharges its functions under the Treasury Management Policy;

Reviews the quarterly Strategic Investments and Credit Reports, noting portfolio

performances and recommending legal action, impairments, loan restructurings, bad debt

write-offs or revaluation of investments where applicable, to other Board committees and

the Board;

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Approves all loan applications for facilities between R25 million up to R160 million, upon

recommendation by the Management Credit and Investment Committee. Loan facilities in

excess of R160 million are referred to the Board for approval;

Approves all long-term investment proposals (equity and quasi equity) up to R100 million.

Investment proposals that exceed R100 million are recommended to the Board; and

Considers annual and post investment reviews of strategic and major clients of the NHFC.

The committee meets twice a quarter to consider funding applications and to review detailed

post investment reports, legal, credit and risk reports, and the performance of strategic

investments.

Delegation of credit and investment approval

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Management Credit and Investment Committee

The Management Credit and Investment Committee is an executive management committee.

It meets on a regular basis and is responsible for approving loan facilities up to, or cumulatively

up to R25 million per client (which is reviewed annually and by the Board Credit and

Investment Committee annually), and recommending amounts in excess of R25 million, to the

Board Credit and Investment Committee.

It also reviews and recommends on all strategic investment proposals (equity and quasi

equity), and credit and investment reports, to the Board Credit and Investment Committee.

Human Resources, Ethics and Remuneration Committee

This committee is composed of three independent non-executive directors and is attended by

the CEO and the Executive Manager: Human Resources.

The Human Resources, Ethics and Remuneration Committee meets quarterly and its

responsibilities include:

Reviews Code of Ethics and monitors compliance;

Annually reviewing its Terms of Reference, the Human Resources Policy and Strategy,

the Remuneration Policy and Balance Scorecard Remuneration Framework and

recommending them to the Board for approval.

Reviewing and monitoring the top HR risks;

Reviewing and monitoring the HR audit findings;

Considering and approving salary increases for all staff other than Executive managers;

Approving the implementation of bonuses and incentives for all staff other than for

Executive Managers;

Reviewing and recommending Executive Managers’ salary increases and incentive

bonuses to the Board for approval;

Review the Provident Fund reports and ensure good stewardship of employees’ retirement

savings by the Board of Trustees;

Reviewing the terms and conditions of Executive Managers’ Service Agreements; and

Annually reviewing and approving succession planning.

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In discharging its duties, the committee gives due cognisance to the NHFC’s remuneration

philosophy, which is to offer remuneration that will attract, incentivise, retain and reward

employees with the appropriate and required skills that will enable the NHFC to deliver on its

strategic objectives.

The NHFC has a zero-tolerance approach to dishonest, corrupt and illegal conduct. This is

central to the Code of Conduct. Criminal behaviour will not be permitted and formal charges

would be laid against perpetrators, who would be dismissed if found to have participated in

unacceptable behaviour.

Social and Ethics Committee

The Social and Ethics Committee (SEC) is a mandatory legal established committee of the

Board as laid down in terms of section 72 (4) of the Companies Act. Its mandate is to report

to the shareholder on its monitoring of the NHFC in response to various principles and

standards of the Organisation for Economic Cooperation and Development, the International

Labour Organisation and the United Nations Global Compact.

In addition to the SEC executing its duties in terms of the Companies Act, it is also guided by

King lV, the PFMA and various other legislation.

Quarterly reporting by executive management and board committees is facilitated by use of

the international benchmark GRI G4 Reporting Framework.

As the SEC is collaborative in nature, its purpose is not to duplicate work done within the

NHFC or by other board committees. The SEC therefore performs its oversight role within the

NHFC to ensure that the company remains committed to being a socially responsible

corporate citizen and creates a sustainable business with regard to the ethical, economic,

transformation, social and environmental impact on the communities within which it operates.

The SEC is composed of two independent non-executive directors and the CEO. Executive

management attend meetings by invitation. It meets quarterly.

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The committee’s terms of reference ensure that the NHFC’s strategy has included the

following social and ethics components in its execution:

The NHFC conducts its business activities in an ethical and socially responsible manner

in fulfilling its duties;

Social and economic development of its employees and other stakeholders that are

impacted by the NHFC.

The NHFC promotes equality and also prevents unfair discrimination;

The NHFC has established a Code of Ethics which includes the prevention of fraud, bribery

and corrupt practices;

The NHFC ensures the protection of human rights;

The NHFC contributes to the development of the communities in which its business

activities are predominantly conducted – which includes poverty alleviation and the

beginning of wealth creation;

The NHFC ensures that appropriate labour and employment practices are adhered to,

both in terms of local legislation and the protocols specified in the Companies Act; and

The NHFC has a framework and strategy for stakeholder engagement.

Board Risk Committee

The Board Risk Committee consists of six independent non-executive directors and is also

attended by the CEO and Executive managers. It meets quarterly as well as to review the

Integrated Annual Report and the Annual Performance Plan. Its primary objective is to help

the Board execute its responsibilities with respect to risk management.

In fulfilling its mandate the committee:

Annually reviews its terms of reference, the Enterprise Risk Management Strategy and

Framework as well as the Fraud Prevention Plan, and monitors management in the

implementation thereof;

Bi-annually reviews and recommends the Risk Appetite Statement and Policy to the Board

for approval;

Evaluates the effectiveness of risk management systems, processes and controls;

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Annually reviews and recommends all risk management policies to the Board for approval;

and

Approves financial risk management strategies as recommended by the Board Credit and

Investment Committee.

Developmental Impact and Strategy Committee

This committee is composed of six independent Non-executive directors and the CEO, and is

attended by Executive management, and meets quarterly.

Its main objectives are to:

Review and recommend the NHFC’s strategy to the Board and to ensure that it is both

relevant and responsive to the affordable housing market;

Give the Board assurance that the NHFC’s strategic objectives are aligned to the NDoHS’s

human settlements strategy;

Review the strategic direction of the NHFC in relation to economic, supply and demand

imperatives in the market;

Recommend amendments to the NHFC’s strategic direction, policy and operational

structures to ensure that the desired developmental impact is achieved;

Monitor the NHFC’s performance against the objectives set for developmental impact; and

Monitor the impact of developmental activities on the NHFC’s financial strategy.

In addition to the above, the Development Impact and Strategy Committee has been providing

oversight and input into the business plan, financial model, policy and legislation for the

formation of the Human Settlements Development Bank.

Governance Over Subsidiary Companies

The NHFC is the sole shareholder of the Cape Town Community Housing Company (Pty) Ltd

(“CTCHC”), which is a managed housing stock development company.

The company is subject to the guiding corporate governance principles of the NHFC, which

ensures that its business is conducted in a proper, ethical and responsible manner.

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The CTCHC has its own Board of two directors, and which meets quarterly. The Chairperson

of the CTCHC Board is the CEO of the NHFC as delegated by the NHFC Board.

In addition, CTCHC has its own Audit Committee which meets quarterly.

CTCHC has appointed a General Manager but oversight of the operations and performance

of CTCHC is managed by the NHFC Chief Operating Officer.

Governance is maintained through delegated authority, to ensure adherence to the NHFC

group’s overall subscription to the principles of ethical leadership and good corporate

governance.

Management Committees

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Executive Management Committee (“EXCOM”)

EXCOM comprises of Executive Management who assist the CEO in managing the day-

to-day business of the NHFC within the powers delegated by the Board. EXCOM is also

responsible for formulating the NHFC’s Strategy and implementing it once approved by

the Board.

Management Assets and Liabilities Committee (“ALCO”)

ALCO is comprised of Executive managers and invitees from Treasury division. In addition

it may invite external specialists to give specific advice and guidance. ALCO’s overall

objectives are to:

manage financial risk emanating from NHFC’s operations and borrowing

programmes, including liquidity, counterparty and market risk (in turn including

interest rate and currency risk);

oversee the management of treasury risk in order to protect the capital of the NHFC,

by proactively managing all assets and liabilities; and

support the strategic direction of the NHFC through the appropriate analysis and

composition of NHFC assets and liabilities.

Information Technology Management Committee (“ITMC”)

ITMC is comprised of executive managers and IT division representatives.

ITMC’s main objectives are to:

develop an IT Governance Framework and oversee the implementation thereof once

it is reviewed by EXCO and approved by the Board Risk Committee;

ensure that the IT strategy is aligned to the Corporate Plan, in reviewing and

recommending it to EXCO;

develop an IT Governance Framework and IT Policies, and oversee the

implementation thereof once approved by BRC;

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obtain independent assurance that the IT Internal Framework is effective and submit

it to EXCO, which in turn must submit it to the Audit Committee;

monitor all IT risks and controls to determine whether they are addressed effectively,

and relevant plans and controls are in place and submit them to EXCO, which in turn

recommends them to the BRC; and

review all IT proposals before submission thereof to EXCO.

Procurement Committee

The Procurement Committee is chaired by the CFO and comprises of representatives

from Finance, Legal, Risk, Business and the Procurement Manager.

The Committee’s main objectives are to:

monitor and oversee the implementation of the Procurement Policy (“the Policy”),

Procedures and Procurement Code of Conduct (“the Code”);

monitor adherence to the policy, procedures and the Code and receive reports on

non-compliance;

deals with matters concerning the adjudication and the appointment of service

providers of the Corporation to ensure that the procurement system is fair, equitable,

transparent and cost effective;

take all reasonable steps to prevent abuse of the Supply Chain Management system;

and

ensure compliance with the laws of South Africa.

Safety and Security Committee (“SASC”)

SASC comprises of the Executive Manager: Human Resources (Chairperson) as well as

Legal, IT and Health and Safety representatives.

SASC is a subcommittee of EXCO and its main objective is to monitor, evaluate,

advise and make decisions in respect of matters concerning health, safety,

environment and security in the NHFC.

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SASC is responsible for monitoring and implementing the Safety and Security Policy

once it is approved by EXCO.

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19 STRATEGIC OBJECTIVES AND PERFORMANCE MANAGEMENT

As provided for in Section 52 of the Public Finance Management Act, Act 1 of 1999 (PFMA),

a Shareholder Compact (the Compact) is entered into annually with the NDOHS and a new

Compact will be signed with this APP.

The Annual Performance Plan documents the key performance measures against which

organisational performance is measured. The Board sets out the NHFC’s strategic objectives

in the Plan, and has adopted the Balanced Scorecard methodology to implement the

Strategy to measure itself against the Key Performance Indicators.

The Board reports to the Shareholder through quarterly reports as well as the Integrated

Annual Report. The Chief Executive Officer (CEO), who is entrusted with the day to day

management of the NHFC’s operations, meets regularly and consults with the Department

of Human Settlements and the Minister.

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BUDGET

2019/20– 2021/22 (3-year period)

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ANNEXURE A: BUDGET FOR THE PERIOD 2019/20 – 2021/22

Overview

The primary scenario used in the financial modelling and developmental impact

targets has assumed that the NHFC secures grant funding of R250 million in the last

two years of the MTEF being 2020/21 (R100 million) and 2021/22 (R150 million).

However, a second scenario has been modelled assuming that the shareholder is

not able to provide such funding. In this scenario, it is assumed the NHFC secures

debt funding to achieve its targets and therefore still disburses the set target with

respect to disbursements (R4.209 billion) but has to service this debt obligation. The

funding would be secured from local or international development finance institutions

(DFIs). The second scenario’s financial projections are included in the APP in

section 1.5 of the Budget.

In both scenarios, the directive received from National Treasury has been complied

with respect to salary adjustments for staff. The increase reflected in the projections

attached are due to:

The consolidation of NURCHA and RHLF from 1 October 2018. These two

entities have 16 and 50 staff respectfully. The NHFC has a staff complement

of 52. So therefore there is a significant increase in the staff complement from

1 October which affects FY 2018/19 (for half the year) and FY 2019/20 for the

full year; and

Staff of RHLF and NURCHA, as agreed in the consolidation process will also

be entitled to a performance related pay, in line with the NHFC Remuneration

Policy.

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Scenario #1: The NHFC Secures Grant Funding of R250 million from NDOHS

The NHFC is budgeting for surplus of R47.7 million at Group level and R56.3 million

at Company level for the 2019/20 financial year. The change in the budget and

medium term forecast for 2019/20 to 2021/22 reflects mainly the impact of the

interest rates, borrowing cost, increased level of disbursements and contribution

from strategic investments.

The main difference between NHFC group and NHFC company results is the

inclusion of the CTCHC results in the Group accounts primarily through the Sales

and the Cost of Sales associated with development units by CTCHC. In addition,

any intra-group revenue is excluded in the group accounts, which would include

interest income generated by NHFC from loans advanced to CTCHC.

CTCHC is a wholly owned subsidiary and is fully consolidated into the budget

numbers. CTCHC has been incurring losses and the focus is on the

implementation of the Board approved restructuring plan, to make the

subsidiary profitable.

A re-organisation is underway which entails the review of the Board and staff.

The skeletal staff retained is key to ensure the successful completion of the

current projects. All outsourced services will be eliminated in order to

streamline costs and achieve efficiencies. The business will is progressively

scaled down at CTCHC to reflect the much lower development activity

The budget takes into account 32.6% of the share of profit for TUHF and 33%

stake in HIP.

The current shareholding in HIP is 33%. HIP however has been incurring

operational losses to date given its incubation stage. No share of profits for

HIP has therefore been included. However a decision on the revenue

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recognition treatment of the Junior Debt investment in Trust 1 and Trust 2 is

being awaited and may have an impact on the budget figures

The budget assumes the sale of the NHFC’s Investment Property by the end

of financial year 2021.The sale is assumed at carrying value.

Forecasting

The budgets have been prepared on the basis of the following scenarios:

Funding is a key consideration for the NHFC and whether it comes in the form

or debt or equity (grant capital). This is an important determinant on the loan

book growth and therefore profitability of the NHFC.

Scenario: The budgeted growth assumes no additional equity funding from

the shareholder. The return of equity increases steadily in the forecasted

MTEF period in response to the long term target of 5%, thus freeing up more

cash in operations which in turn funds the anticipated growth from available

cash reserves. :

Disbursements

R million

FY 2019/20 1 161

FY 2020/21 1 450

FY 2021/22 1 598

TOTAL 4 209

Funding assumptions

The key assumption for this scenario is that no additional debt funding is raised to

fund the operations but rather budgeted growth is funded from future cash reserves

with the shortfall of R 250 million required from the shareholder as new Grant capital

split as R 100 million in 2020/21 and R 150 million in 2021/22.

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Other assumptions

Budget 2019/20 2020/21 2021/22

Prime lending 10.25% 10.25% 10.25%

Disbursements (R’ million) 1 161 1 450 1 598

C.P.I. 5.3% 5.5% 5.5%

Credit loss ratio 2.5% 2.5% 2.5%

The credit loss ratio is an important value driver for lending businesses and must be

viewed in the context of the projected trading environment and the historical trends

as experienced by the NHFC. The historical trends are reflected on page 62 of the

report but are summarized below:

2016/17 2017/18 2018/19

Credit loss ratio: company 4.0% 3.0% 1.9%

Credit loss ratio: group 3.0% 2.8% 1.9%

The longer term average credit loss ratio of the group over the last six years has

averaged 3.2% mainly due to a significant write off and impairments charge in FY

2015/16 which was reflected at R188 million in that year. This resulted in a credit

loss ratio of 8.4% in the group mainly due to write-offs and impairments associated

with certain mega-project developments and unsecured lending clients of the NHFC.

The assumed credit loss ratio for the MTEF has been forecasted at 2.5% mainly due

to a more rigorous credit appraisal process, loan monitoring and improved market

conditions.

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Financial covenants

Assuming Scenario #1: The NHFC Secures Grant Funding of R250 million from

NDOHS

2019 2020 2021 2022

Forecast Budget Budget Budget

Impaired asset ratio 22.5% 20.0% 18.0% 15.0%

Provision for non performing debt 30.0% 34.0% 35.0% 35.0%

Equity to assest 91.2% 91.1% 92.9% 92.4%

Credit outstanding 2.8% 2.4% 1.9% 1.4%

Liquidity 317% 247% 184% 178%

Liquidity 317% 247% 184% 178%

Ratio of impaired loans to equity 2.4% 3.5% 3.5% 3.5%

Capital adequacy 139% 128% 118% 117%

Interest cover 4.3 3.6 9.3 14.8

Impaired asset ratio 10.3% 13.4% 12.5% 12.2%

2.0 times in

year 1 and

2;3.0 times in

year 3

onwards

< 25% in year

1 and 2; <20%

in year 3

onwards

EIB

AFD

>35%

DBSA

<20%

>100%

>100%

< 10%

>20%

< 25%

> 25%

FINANCIAL COVENANTS REQUIRED

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Assuming Scenario #2: The NHFC does not Secures Grant Funding of R250

million from NDOHS and raises debt funding of R370 million

The covenants typically focus on the quality of the loan asset, liquidity of the combined

entity and also profitability. The most difficult to plan of these elements is the quality of

the loan book. The non-performing loan book as a percentage of the total loans &

advances in the historical trends reflects the challenging trading environment in South

2019 2020 2021 2022

Forecast Budget Budget Budget

Impaired asset ratio 22.5% 20.0% 18.0% 15.0%

Provision for non performing debt 30.0% 34.0% 35.0% 35.0%

Equity to assest 91.2% 91.1% 90.6% 86.2%

Credit outstanding 2.8% 2.4% 1.9% 1.5%

Liquidity 317% 247% 180% 177%

Liquidity 317% 247% 180% 177%

Ratio of impaired loans to equity 2.4% 3.5% 3.5% 3.5%

Capital adequacy 139% 128% 118% 118%

Interest cover 4.3 3.6 5.7 4.5

Impaired asset ratio 10.3% 13.4% 12.5% 12.2%

FINANCIAL COVENANTS REQUIRED

< 25%

> 25%

DBSA

<20%

>100%

>100%

< 10%

>20%

2.0 times in

year 1 and

2;3.0 times in

year 3

onwards

< 25% in year

1 and 2; <20%

in year 3

onwards

EIB

AFD

>35%

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Africa which has been characterised by low economic growth, stubbornly high inflation,

and poor business and consumer confidence.

Of the twelve financial covenants currently in place, the following may need active

monitoring in the short to medium term:

Impaired asset ratio [EIB]: This covenant will be improved by growth in the loan book

asset, greater assessment of the new credit applications (for credit quality) and post

investment monitoring. The growth assumptions have been sufficiently backed by funding

through future cash reserves.

Provision for non performing debt [EIB]: On a combined DFI basis, there seems to be

minimal threat to this covenant. The introduction of IFRS 9, as a key change in the

accounting reporting requirements may, however, adversely impact on the recognition of

impairment losses. Most NHFC assets are secured by collateral which has proven to be

effective but not liquid, thus leading to around 30% impairment of the carrying value of

the loan facility. RHLF currently impairs loans based on a general impairment model,

whilst the NHFC and NURCHA impairment models are largely loss event drive. All entities,

however, manage credit risk on a monthly basis through monitoring of clients

performance, site visits, collections etc.

Ratio of impaired loans to equity [AFD]: This covenant focuses on the net non –

performing book, i.e. equity at risk/ serviced portions of available capital. It therefore

assumes that this portion of the loan book is at a risk of being impaired further unless

there is adequate intervention to write it back to the performing book.

Interest cover [DBSA]: The challenge with this ratio is the overall margins generated

by the combined DFI. It also factors the credit impairment charges and the more volatile

the earnings are, the greater the risk of repayment of debt. Also of concern is the

immediate inefficiency of the combined DFI’s cost structure. The other end is the

expected growth in the loan book which is expected to translate to strong revenue line.

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Challenges in the loan book quality impacting March 2019

As noted above, there is a deterioration in the quality of the loan book mainly due to

three clients in Social Housing being Capital City Housing (formally Msunduzi Housing

Association), First Metro, and SOHCO Property Investments. This may cause strain

on the impaired asset and provision for non performing debt covenant in the fourth

quarter. While the NHFC has spent the last couple of months engaging with the clients,

challenges have persisted and as a result a loan restructuring has been proposed for

some of these accounts taking into account commercial viability of the project and

traction of the turn-around plans out in place by the Social Housing Institution.

Planned action

Planning for the impact of the uncertain economic outlook has been and continues to

be a key focus area for management. Multiple risk mitigation plans are being pursued

and continue to be communicated at various levels of engagement.

Rigorous assessment of new applications to ensure they can withstand the

vagaries of the forecast tough trading conditions;

Intensified post-investment monitoring;

Continue the write off of the loan book where the prospects of recovery remain

weak/poor; and

Continued collaborative approach with clients in distress to assist them through

restructuring/rehabilitation of accounts where necessary, whilst mindful of the

protracted nature of these processes and the fact that not all NPLs are impaired

in view of the value of security.

Note: The PIC facility is managed via a special purpose vehicle which only consist

of the PIC facility and the funded loan asset, therefore the PIC financial covenants

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have not been modelled at the combined DFI level as the funding in its nature is

project based.

Scenario #2: The NHFC Has to Raise R370 million from Capital Markets

In this scenario, the NDOHS is unable to provide grant funding to the NHFC and the

company is required to raise debt funding from a local or international DFI and

financial institution.

In this scenario the key assumptions around the debt are:

FY 2019/20 FY 2020/21 FY 2021/22

Equity/grant

funding*

50m NIL NIL

Debt funding

raised

120m 250m

* the R50 million has been approved by the NDOHS in its Budget Allocation for FY 2018/19, 2019/20 and 2020/21 as published

in 2018

The key terms of the funding are:

Term of loan: 180 months

Interest rate: 10%

Frequency of loan repayment: Semi-Annually

As noted previously, the debt funding will not negatively impact the developmental

targets of the company as R4.209 billion will still be disbursed over the MTEF.

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Sustainability of the NHFC

The long term sustainability of the NHFC remains a key focus area. In this regard

through the development of a sustainability model, target ratios have been set to ensure

the financial health of the company whilst mindful of its developmental mandate. Key

steps include the following:

Ensuring that the capital structure of the NHFC is enhanced through the raising of

debt or equity funding in the medium to long term whilst mindful of the impact of

borrowings on the operating cash flows and existing covenants.

Asset growth supported by quality of revenue through a portfolio mix that promotes

sustainability. The growth is however impacted by both the subdued growth in the

economy and the overall market conditions as well as the limited shareholder

support. An average net growth of 11.40% is forecasted, with majority of the

anticipated growth in commitments.

Capital allocation decisions and risk management have been brought to the fore.

Focus remains on the core business that is secured through mortgages, personal

suretyships and guarantees, and active monitoring (and limiting) of exposure to

equity and quasi equity investments.

In addition the current Shareholder prioritisation of Social Housing influences the

capital allocation across the sub-programmes. This in turn impacts the overall

sustainability of the NHFC and reduces the facilitation of private sector funding.

Continuous enhancement of the pricing model of the company, to ensure it better

reflects the true cost of doing business and the risk associated with writing new

business. Where there is cross subsidisation between clients or products in order to

achieve the developmental mandate, this will be more explicit or clearer. In addition,

whilst acknowledging that there are limitations considering that the NHFC is a price

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taker in its lending activities. The contribution from its strategic investment portfolio

is also key towards improved returns and therefore long term sustainability; and

Ongoing effort to rehabilitate certain key accounts that have a material effect

on the non-performing loan book through financial engineering,

recapitalisation of projects (with other funders), and un-locking sales through

our strategic partners. Credit loss ratio is budgeted at 3.0% reflective of risk

appetite. Portfolio risk is enhanced through security arrangements from

borrowers.

The budgets provided below have incorporated the Directive from National Treasury

relating to a salary freeze over the MTEF for certain high income earners. However

it must be noted that the projections below have incorporated the results, operations,

assets & liabilities of RHLF and NURCHA from 1 October 2018. This means that in

the Statement of Finance Performance, the income and expenses of RHLF and

NURCHA have been consolidated from 1 October 2018. So the prior years (FY

2015/16, 2016/17 and 2017/18) includes the performance, assets and liabilities of

only the NHFC.

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Scenario # 1: Shareholder Funding (with shareholder funding of R250 million)

Summary of the Budget

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Forecast Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Interest on Lending operations 156 305 174 770 181 786 202 134 317 000 436 000 530 000

Interest on Investments 42 499 62 519 70 325 59 685 54 000 42 000 34 000

Sale of houses 116 194 34 783 17 685 3 184 46 770 - -

Programme management fees - - - 2 922 5 807 6 114 6 451

Fees on loans for construction projects - - - 4 876 10 701 11 455 13 173

Dividends received 938 884 8 348 3 770 - - -

Rental income 6 459 3 848 13 548 14 070 11 789 12 438 -

Revenue 322 395 276 804 291 692 290 640 446 067 508 007 583 624

Cost of sales (94 411) (31 814) (16 435) (2 863) (51 214) - -

Net impairments and bad debts (187 821) (58 611) (61 725) (70 000) (102 800) (103 681) (121 000)

Gross profit 40 163 186 379 213 532 217 777 292 053 404 326 462 624

Other operating income 15 814 15 557 14 406 21 968 20 290 17 805 17 455

Operating expenses (90 357) (103 933) (112 879) (174 353) (240 560) (247 279) (244 610)

Operating profit (34 380) 98 003 115 059 65 392 71 783 174 852 235 469

Interest paid (21 529) (19 770) (18 532) (23 955) (28 881) (26 150) (23 187)

Fair value adjustment on listed investments (4 258) - - - - - -

Share of profit of an associate 4 388 5 180 3 988 3 427 4 825 5 308 5 839

Surplus before tax (55 779) 83 413 100 515 44 864 47 727 154 010 218 121

Income tax expense 33 924 (37 837) - - - - -

Surplus for the year (21 855) 45 576 100 515 44 864 47 727 154 010 218 121

Group

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Forecast Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Interest on Lending operations 158 041 175 106 172 954 188 091 302 957 421 957 515 957

Interest on Investments 42 183 61 938 69 700 59 685 54 000 42 000 34 000

Programme management fees - - - 2 922 5 807 6 114 6 451

Fees on loans for construction projects - - - 4 876 10 701 11 455 13 173

Dividends received 2 585 3 530 2 591 3 770 - - -

Rental income 600 1 172 10 961 14 070 11 789 12 438 -

Revenue 203 409 241 746 256 206 273 413 385 254 493 964 569 581

Net impairments and bad debts (234 826) (94 888) (72 556) (70 000) (102 800) (103 681) (121 000)

Gross profit (31 417) 146 858 183 650 203 413 282 454 390 283 448 581

Other operating income 8 113 8 819 8 562 28 033 26 355 23 726 23 840

Operating expenses (79 779) (89 921) (94 540) (158 779) (230 741) (237 098) (234 044)

Operating profit (103 083) 65 757 97 672 72 668 78 068 176 911 238 376

Interest paid (21 338) (19 658) (18 532) (16 826) (21 752) (19 021) (16 059)

Fair value adjustment on listed investments 38 713 4 580 18 601 - - - -

Surplus before tax (85 708) 50 679 97 741 55 842 56 316 157 890 222 318

Income tax expense 30 809 (43 419) - - - - -

Surplus for the year (54 899) 7 260 97 741 55 842 56 316 157 890 222 318

Company

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Key Financial Indicators:

Key Financial IndicatorsForecast

2 016 2 017 2 018 2 019 2 020 2 021 2 022

Surplus before tax (R'm) Company -86 51 98 56 56 158 222

Group -56 83 101 45 48 154 218

Return on equity (%) Company -2.0% 0.3% 3.2% 1.3% 1.3% 3.4% 4.5%

Group -0.8% 1.6% 3.2% 1.0% 1.1% 3.3% 4.4%

Return on assets (%) Company -2.8% 1.6% 3.0% 1.2% 1.2% 3.2% 4.2%

Group -1.8% 2.6% 2.9% 0.9% 1.0% 3.0% 4.1%

Cost to income ratio (%) Company 42% 39% 38% 56% 59% 48% 41%

Group 41% 43% 42% 61% 62% 49% 42%

Credit Loss ratio incl bad debts (%) Company 9.0% 4.0% 3.0% 1.9% 2.5% 2.5% 2.5%

Group 8.4% 3.0% 2.8% 1.9% 2.5% 2.5% 2.5%

Debt:Equity (%) Company 12% 10% 8% 8% 7% 6% 4%

Group 12% 10% 8% 10% 8% 7% 5%

Interest cover ratio (times) Company -3.02 3.58 6.27 4.32 3.59 9.30 14.84

Group -1.59 5.22 6.42 2.87 2.65 6.89 10.41

Net loan book growth Company -2% -2% 12% 49% 10% 14% 8%

Group -12% 1% 15% 56% 11% 14% 8%

Return on equity: profit after tax/ closing net assets

Return on assets: profit before taxation/ closing total assets (excluding funds under management)

Cost to income: total operating costs/ total operating income

Debt to equity: interest bearing f inacial liabilitites/ closing net assets

Interest cover ratio: profit before tax excluding interest expense/ interest expense

TARGET

Actual Budget

Credit loss ratio incl bad debts: current year impairment and bad debts charge/ (closing gross loans and advances plus curent year bad debts charge)

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Financials

Consolidated Statement of Financial Performance: Detailed

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Forecast Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Revenue 322 395 276 804 291 692 290 640 446 067 508 007 583 624

Interest on Lending operations 156 305 174 770 181 786 202 134 317 000 436 000 530 000

Interest on Investments 42 499 62 519 70 325 59 685 54 000 42 000 34 000

Sale of houses 116 194 34 783 17 685 3 184 46 770 - -

Programme management fees - - - 2 922 5 807 6 114 6 451

Fees on loans for construction projects - - - 4 876 10 701 11 455 13 173

Dividends received 938 884 8 348 3 770 - - -

Rental income 6 459 3 848 13 548 14 070 11 789 12 438 -

Cost of sales (282 232) (90 425) (78 160) (72 863) (154 014) (103 681) (121 000)

Cost of sales (94 411) (31 814) (16 435) (2 863) (51 214) - -

Net impairments and bad debts (187 821) (58 611) (61 725) (70 000) (102 800) (103 681) (121 000)

Gross profit 40 163 186 379 213 532 217 777 292 053 404 326 462 624

Other operating income 15 814 15 557 14 406 21 968 20 290 17 805 17 455

Operating expenses (90 357) (103 933) (112 879) (174 353) (240 560) (247 279) (244 610)

Employee (51 209) (70 685) (72 032) (111 237) (146 377) (147 397) (158 605)

Travel and accomodation (965) (820) (651) (3 326) (5 280) (5 570) (5 876)

Communication and IT (4 942) (2 149) (4 132) (5 687) (8 317) (8 775) (9 257)

Depreciation (965) (1 399) (1 060) (989) (2 942) (3 104) (3 274)

Marketing,promotions and workshops (1 471) (3 658) (1 364) (1 823) (5 287) (5 440) (3 102)

Office Expenses/Printers and stationery (1 970) (2 907) (2 920) (1 658) (2 485) (2 622) (2 766)

Consulting (8 315) (2 760) (3 625) (3 422) (17 211) (18 799) (15 086)

Audit fees (1 993) (2 504) (2 157) (4 103) (4 172) (4 401) (4 644)

Legal fees (1 257) (2 296) (1 146) (3 098) (6 823) (7 198) (7 594)

Directors fees and expenses (2 816) (3 465) (3 875) (6 157) (6 262) (6 606) (6 970)

Administration (1 230) (2 691) (1 748) (3 699) (6 277) (6 622) (6 986)

Training and development (842) (944) (965) (1 356) (4 500) (4 748) (5 009)

Premises (8 588) (7 641) (6 763) (9 380) (10 290) (10 871) (11 485)

Other (3 794) (14) (10 441) (18 417) (14 337) (15 125) (3 956)

Operating profit (34 380) 98 003 115 059 65 392 71 783 174 852 235 469

Fair value adjustment on listed investments (4 258) - - - - - -

Finance cost (21 529) (19 770) (18 532) (23 955) (28 881) (26 150) (23 187)

Share of profit of an associate 4 388 5 180 3 988 3 427 4 825 5 308 5 839

Surplus before tax (55 779) 83 413 100 515 44 864 47 727 154 010 218 121

Income tax expense 33 924 (37 837) - - - - -

Surplus for the year (21 855) 45 576 100 515 44 864 47 727 154 010 218 121

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Consolidated Statement of Financial Position

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Forecast Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Non Current Assets 2 200 217 2 207 541 2 474 294 3 659 912 4 029 907 4 472 378 4 791 350

Loans asset 1 808 724 1 818 984 2 085 374 3 254 556 3 628 754 4 129 075 4 444 775

Investment property 88 402 91 124 96 222 99 822 103 602 47 571 51 738

Property,plant and equipment 947 930 1 269 3 972 4 597 4 594 4 645

Intangible assets 1 187 814 835 3 205 3 953 4 360 4 760

Investment in associates 134 045 173 204 180 215 196 259 194 798 200 106 205 945

Instalment sale receivable 129 075 122 485 110 379 102 099 94 203 86 672 79 487

Deferred taxation 37 837 - - - - - -

Current Assets 942 190 1 075 390 985 861 1 194 866 871 972 672 106 691 344

Other receivables and prepayments 8 637 10 650 21 935 50 076 42 141 44 739 46 199

Income tax receivable 23 004 32 554 33 912 33 912 - - -

Properties developed for sale 95 694 72 844 65 539 100 753 49 539 49 539 49 539

Cash and cash equivalent 344 570 358 113 330 443 720 725 615 343 438 655 380 101

Held to maturity investment 470 285 601 229 534 032 289 400 164 950 139 173 215 505

Total Assets 3 142 407 3 282 931 3 460 155 4 854 778 4 901 880 5 144 484 5 482 694

Net Assets and Liabilities

Equity 2 755 903 2 924 690 3 125 205 4 290 901 4 388 628 4 642 639 5 010 760

Issued Capital 842 842 842 39 142 39 142 39 142 39 142

Share premium 879 158 879 158 879 158 879 158 879 158 879 158 879 158

Grant capital 530 000 630 000 730 000 1 506 738 1 556 738 1 656 738 1 806 738

Other reserves 28 525 51 736 51 736 251 020 251 020 251 020 251 020

Accumulated surplus/(deficit) 1 317 378 1 362 954 1 463 469 1 614 843 1 662 570 1 816 581 2 034 702

Non current liabilities 283 360 249 274 216 586 370 468 324 576 245 560 187 335

Other financial liabilites 283 360 249 274 216 586 370 468 324 576 245 560 187 335

Current liabilities 103 144 108 967 118 364 193 409 188 676 256 285 284 599

Trade Creditors 13 408 17 439 15 294 49 272 50 052 48 970 48 943

Other financial liabilities 33 711 33 269 32 394 39 484 35 773 79 507 76 399

Funds under mangement 44 883 39 225 52 672 60 505 60 304 82 294 110 504

Provision 11 142 19 034 18 004 44 148 42 547 45 514 48 753

Total Net assets and liabilitites 3 142 407 3 282 931 3 460 155 4 854 778 4 901 880 5 144 484 5 482 694

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Consolidated Statement of Cash Flow

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Fcst Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Cash flow from operating activites

Receipts 338 226 279 889 277 886 312 608 466 357 525 812 601 079

Sale of goods 116 194 34 783 17 685 3 184 46 770 - -

Interest, dividends and rent on land 222 032 235 461 260 201 287 456 399 297 508 007 583 624

Other income - 9 645 - 21 968 20 290 17 805 17 455

Payments (196 675) (187 697) (451 217) (895 807) (695 013) (874 580) (699 728)

Compensation of employees (51 220) (35 704) (69 775) (111 237) (146 377) (147 397) (158 605)

Good and services (284 459) (68 758) (31 761) (65 886) (145 396) (99 882) (86 005)

Interest paid (21 529) (19 770) (18 532) (32 808) (28 881) (26 150) (23 187)

Net cash payment to customers 180 470 (53 915) (331 149) (685 876) (408 270) (601 151) (431 931)

Taxation paid (19 937) (9 550) - - 33 912 - -

Net cash flows from operating activites 141 551 92 192 (173 331) (583 199) (228 656) (348 768) (98 649)

Cash flows from investing activites

Purchase of assets (241) (986) (1 420) - (1 373) (405) (450)

Proceeds from sale of assets - - - (5 073) - - -

Proceeds from sale of financial assets - - - - - 60 000 -

Movement in investment in associates - (6 533) - - - - -

Decrease/(increase) in held to maturity (141 112) (130 944) 67 197 244 632 124 450 25 777 (76 332)

Cash from NURCHA and RHLF - - - 485 117 - - -

Net cash flow from Investing activites (141 353) (138 463) 65 777 724 677 123 077 85 372 (76 783)

Cash flows from Financing activitites

(Repayment)/increase of borrowings (37 368) (34 528) (33 563) (35 515) (49 603) (35 282) (61 333)

Movement in funds under management (148 337) (5 658) 13 447 7 833 (201) 21 990 28 210

Grant capital 100 000 100 000 100 000 80 000 50 000 100 000 150 000

Borrowings from NURCHA and RHLF - - - 196 487 - - -

Net cash flow from financing activites (85 705) 59 814 79 884 248 805 196 86 708 116 877

Net increase or decrease in cash and cash equivalents (85 507) 13 543 (27 670) 390 282 (105 382) (176 688) (58 554)

Cash and cash equivalents at the beginning of the year 430 077 344 570 358 113 330 443 720 725 615 343 438 655

Cash and cash equivalents at the end of the year 344 570 358 113 330 443 720 725 615 343 438 655 380 101

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Consolidated Quarterly Statement of Financial Performance

Quarter 1 Quarter 2 Quarter 3 Quarter 4 2020

Budget Budget Budget Budget Budget

R'000 R'000 R'000 R'000 R'000

Revenue 108 171 110 402 112 632 114 862 446 067

Interest on Lending operations 76 873 78 458 80 043 81 628 317 000

Interest on Investments 13 095 13 365 13 635 13 905 54 000

Sale of houses 11 342 11 576 11 809 12 043 46 770

Programme management fees 1 408 1 437 1 466 1 495 5 807

Fees on loans for construction projects 2 595 2 648 2 702 2 756 10 701

Rental income 2 859 2 918 2 977 3 036 11 789

Cost of sales (27 839) (31 179) (45 314) (49 682) (154 014)

Cost of sales (12 419) (12 675) (12 932) (13 188) (51 214)

Net impairments and bad debts (15 420) (18 504) (32 382) (36 494) (102 800)

Gross profit 80 332 79 222 67 318 65 181 292 053

Other operating income 5 073 5 073 5 073 5 073 20 290

Operating expenses (68 559) (66 154) (54 126) (51 720) (240 560)

Employee (41 718) (40 254) (32 935) (31 471) (146 377)

Travel and accomodation (1 505) (1 452) (1 188) (1 135) (5 280)

Communication and IT (2 370) (2 287) (1 871) (1 788) (8 317)

Depreciation -838.41 (809) (662) (632) (2 942)

Marketing,promotions and workshops (1 507) (1 454) (1 190) (1 137) (5 287)

Office Expenses/Printers and stationery (708) (683) (559) (534) (2 485)

Consulting (4 905) (4 733) (3 872) (3 700) (17 211)

Audit fees (1 189) (1 147) (939) (897) (4 172)

Legal fees (1 945) (1 876) (1 535) (1 467) (6 823)

Directors fees and expenses (1 785) (1 722) (1 409) (1 346) (6 262)

Administration (1 789) (1 726) (1 412) (1 350) (6 277)

Training and development (1 283) (1 238) (1 013) (968) (4 500)

Premises (2 933) (2 830) (2 315) (2 212) (10 290)

Other (4 086) (3 943) (3 226) (3 082) (14 337)

Operating profit 16 845 18 141 18 265 18 533 71 783

Finance cost (7 653) (7 365) (7 076) (6 787) (28 881)

Share of profit of an associate 1 206 1 206 1 206 1 206 4 825

Surplus before tax 10 398 11 982 12 395 12 952 47 727

Income tax expense - - - - -

Surplus for the year 10 398 11 982 12 395 12 952 47 727

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Company Statement of Financial Performance

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Forecast Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Revenue 203 409 241 746 256 206 273 413 385 254 493 964 569 581

Interest on Lending operations 158 041 175 106 172 954 188 091 302 957 421 957 515 957

Interest on Investments 42 183 61 938 69 700 59 685 54 000 42 000 34 000

Programme management fees - - - 2 922 5 807 6 114 6 451

Fees on loans for construction projects - - - 4 876 10 701 11 455 13 173

Dividends received 2 585 3 530 2 591 3 770 - - -

Rental income 600 1 172 10 961 14 070 11 789 12 438 -

Net impairments and bad debts (234 826) (94 888) (72 556) (70 000) (102 800) (103 681) (121 000)

Gross profit -31 417 146 858 183 650 203 413 282 454 390 283 448 581

Other operating income 8 113 8 819 8 562 28 033 26 355 23 726 23 840

Operating expenses (79 779) (89 921) (94 540) (158 779) (230 741) (237 098) (234 044)

Employee (44 218) (61 268) (61 439) (103 212) (143 578) (144 440) (155 481)

Travel and accomodation (847) (621) (508) (2 477) (4 426) (4 711) (5 013)

Communication and IT (4 523) (4 152) (3 664) (5 269) (7 877) (8 311) (8 769)

Depreciation (965) (1 399) (1 060) (989) (2 942) (3 104) (3 274)

Marketing,promotions and workshops (1 391) (3 600) (1 364) (1 823) (5 287) (5 440) (3 102)

Office Expenses/Printers and stationery (1 598) (618) (1 825) (1 385) (2 233) (2 358) (2 489)

Consulting (8 246) (2 741) (3 589) (3 398) (17 186) (18 773) (15 057)

Audit fees (2 002) (2 074) (2 157) (2 547) (2 766) (2 996) (3 238)

Legal fees (950) (1 339) (1 153) (2 163) (6 314) (6 659) (7 022)

Directors fees and expenses (2 816) (3 465) (3 875) (6 157) (6 262) (6 606) (6 970)

Administration (136) (487) (368) (2 557) (5 161) (5 445) (5 745)

Training and development (821) (880) (928) (1 356) (4 500) (4 313) (5 009)

Premises (7 481) (7 262) (5 746) (7 995) (8 838) (9 783) (9 886)

Other (3 785) (14) (6 865) (17 451) (13 371) (14 159) (2 989)

Operating profit (103 083) 65 757 97 672 72 668 78 068 176 911 238 376

Fair value adjustment on listed investments 38 713 4 580 18 601 - - - -

Finance cost (21 338) (19 658) (18 532) (16 826) (21 752) (19 021) (16 059)

Surplus before tax (85 708) 50 679 97 741 55 842 56 316 157 890 222 318

Income tax expense 30 809 (43 419) - - - - -

Surplus for the year (54 899) 7 260 97 741 55 842 56 316 157 890 222 318

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Company Statement of Financial Position

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Forecast Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Non Current Assets 2 250 418 2 169 768 2 427 965 3 518 378 3 840 698 4 281 766 4 599 566

Loans asset 2 020 206 1 971 786 2 209 507 3 283 040 3 610 273 4 110 936 4 428 286

Investment property 58 000 58 400 60 000 60 000 60 000 - -

Property,plant and equipment 829 868 1 121 3 972 4 597 4 594 4 645

Intangible assets 1 174 811 833 3 205 3 953 4 360 4 760

Investment in associates 126 790 137 903 156 504 168 161 161 875 161 875 161 875

Deferred taxation 43 419 - - - - - -

Current Assets 836 923 991 870 910 889 1 171 380 905 875 712 183 763 839

Other receivables and prepayments 9 687 17 322 29 265 162 134 154 198 156 796 158 256

Income tax receivable 23 004 32 554 33 912 33 912 - - -

Cash and cash equivalent 333 947 340 765 313 680 685 934 586 727 416 214 390 078

Held to maturity investment 470 285 601 229 534 032 289 400 164 950 139 173 215 505

Total Assets 3 087 341 3 161 638 3 338 854 4 689 758 4 746 572 4 993 949 5 363 405

Net Assets and Liabilities

Equity 2 710 264 2 817 524 3 015 265 4 219 917 4 326 232 4 584 122 4 956 440

Issued Capital 842 842 842 39 142 39 142 39 142 39 142

Share premium 879 158 879 158 879 158 879 158 879 158 879 158 879 158

Grant capital 530 000 630 000 730 000 1 506 738 1 556 738 1 656 738 1 806 738

Other reserves - - - 199 284 199 284 199 284 199 284

Accumulated surplus/(deficit) 1 300 264 1 307 524 1 405 265 1 595 595 1 651 910 1 809 800 2 032 118

Non current liabilities 282 090 248 773 216 086 300 492 254 600 219 317 178 590

Other financial liabilites 282 090 248 773 216 086 300 492 254 600 219 317 178 590

Current liabilities 94 987 95 341 107 503 169 350 165 740 190 509 228 375

Trade Creditors 7 179 5 239 5 001 25 518 27 421 27 233 28 012

Other financial liabilities 32 394 32 394 32 394 39 484 35 773 35 773 41 411

Funds under mangement 44 883 39 225 52 672 60 505 60 304 82 294 110 504

Provision 10 531 18 483 17 436 43 843 42 242 45 209 48 448

Total Net assets and liabilitites 3 087 341 3 161 638 3 338 854 4 689 758 4 746 572 4 993 949 5 363 405

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Company Statement of Cash Flows

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Fcst Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Cash flow from operating activites

Receipts 211 522 237 799 245 811 301 446 411 609 517 690 593 421

Interest, dividends and rent on land 203 409 232 540 240 206 273 413 385 254 493 964 569 581

Other income 8 113 5 259 5 605 28 033 26 355 23 726 23 840

Payments (58 059) (153 539) (419 564) (822 841) (634 090) (860 282) (685 895)

Compensation of employees (44 229) (30 211) (61 968) (103 212) (143 578) (144 440) (155 481)

Good and services (207 308) (46 465) (28 789) (50 494) (87 163) (92 658) (78 563)

Interest paid (21 338) (19 658) (18 532) (32 808) (21 752) (19 021) (16 059)

Net cash payment to customers 234 753 (47 655) (310 275) (636 327) (415 508) (604 163) (435 792)

Taxation paid (19 937) (9 550) - - 33 912 - -

Net cash flows from operating activites 153 463 84 260 (173 753) (521 394) (222 480) (342 592) (92 474)

Cash flows from investing activites

Purchase of assets (798) (990) (1 289) - (1 373) (405) (450)

Proceeds from sale of assets - - - (5 223) - - -

Proceeds from sale of financial assets - - - - - 60 000 -

Movement in investment in associates - (6 533) - - - - -

Decrease/(increase) in held to maturity (141 112) (130 944) 67 197 244 632 124 450 25 777 (76 332)

Cash from NURCHA and RHLF - - - 474 910 - - -

Net cash flow from Investing activites (141 910) (138 467) 65 908 714 320 123 077 85 372 (76 783)

Cash flows from Financing activitites

(Repayment)/increase of borrowings (32 162) (33 317) (32 687) (35 015) (49 603) (35 283) (35 089)

Movement in funds under management (148 337) (5 658) 13 447 7 833 (201) 21 990 28 210

Grant capital 100 000 100 000 100 000 80 000 50 000 100 000 150 000

Borrowings from NURCHA and RHLF - - - 126 511 - - -

Net cash flow from financing activites (80 499) 61 025 80 760 179 329 196 86 707 143 121

Net increase or decrease in cash and cash equivalents (68 946) 6 818 (27 085) 372 254 (99 207) (170 513) (26 136)

Cash and cash equivalents at the beginning of the year 402 893 333 947 340 765 313 680 685 934 586 727 416 214

Cash and cash equivalents at the end of the year 333 947 340 765 313 680 685 934 586 727 416 214 390 078

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Company Quarterly Statement of Financial Performance

Quarter 1 Quarter 2 Quarter 3 Quarter 4 2020

Budget Budget Budget Budget Budget

R'000 R'000 R'000 R'000 R'000

Revenue 93 424 95 350 97 277 99 203 385 254

Interest on Lending operations 73 467 74 982 76 497 78 011 302 957

Interest on Investments 13 095 13 365 13 635 13 905 54 000

Programme management fees 1 408 1 437 1 466 1 495 5 807

Fees on loans for construction projects 2 595 2 648 2 702 2 756 10 701

Rental income 2 859 2 918 2 977 3 036 11 789

Cost of sales (15 420) (18 504) (32 382) (36 494) (102 800)

Net impairments and bad debts (15 420) (18 504) (32 382) (36 494) (102 800)

Gross profit 78 004 76 846 64 895 62 709 282 454

Other operating income 6 589 6 589 6 589 6 589 26 355

Operating expenses (65 761) (63 454) (51 917) (49 609) (230 741)

Employee -40 919.85 (39 484) (32 305) (30 869) (143 578)

Travel and accomodation (1 261) (1 217) (996) (952) (4 426)

Communication and IT (2 245) (2 166) (1 772) (1 694) (7 877)

Depreciation (838) (809) (662) (632) (2 942)

Marketing,promotions and workshops (1 507) (1 454) (1 190) (1 137) (5 287)

Office Expenses/Printers and stationery (636) (614) (502) (480) (2 233)

Consulting (4 898) (4 726) (3 867) (3 695) (17 186)

Audit fees (788) (761) (622) (595) (2 766)

Legal fees -1 799.55 (1 736) (1 421) (1 358) (6 314)

Directors fees and expenses (1 785) (1 722) (1 409) (1 346) (6 262)

Administration (1 471) (1 419) (1 161) (1 110) (5 161)

Training and development (1 283) (1 238) (1 013) (968) (4 500)

Premises (2 519) (2 430) (1 989) (1 900) (8 838)

Other (3 811) (3 677) (3 008) (2 875) (13 371)

Operating profit 18 832 19 981 19 567 19 688 78 068

Finance cost (5 764) (5 547) (5 329) (5 112) (21 752)

Surplus before tax 13 067 14 435 14 237 14 577 56 316

Income tax expense - - - - -

Surplus for the year 13 067 14 435 14 237 14 577 56 316

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Scenario # 2: Debt funding secured of R370 million

Summary of the Budget

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Forecast Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Interest on Lending operations 156 305 174 770 181 786 202 134 317 000 436 000 530 000

Interest on Investments 42 499 62 519 70 325 59 685 54 000 42 000 34 000

Sale of houses 116 194 34 783 17 685 3 184 46 770 - -

Programme management fees - - - 2 922 5 807 6 114 6 451

Fees on loans for construction projects - - - 4 876 10 701 11 455 13 173

Dividends received 938 884 8 348 3 770 - - -

Rental income 6 459 3 848 13 548 14 070 11 789 12 438 -

Revenue 322 395 276 804 291 692 290 640 446 067 508 007 583 624

Cost of sales (94 411) (31 814) (16 435) (2 863) (51 214) - -

Net impairments and bad debts (187 821) (58 611) (61 725) (70 000) (102 800) (103 681) (121 000)

Gross profit 40 163 186 379 213 532 217 777 292 053 404 326 462 624

Other operating income 15 814 15 557 14 406 21 968 20 290 17 805 17 455

Operating expenses (90 357) (103 933) (112 879) (174 353) (240 560) (247 279) (244 610)

Operating profit (34 380) 98 003 115 059 65 392 71 783 174 852 235 469

Interest paid (21 529) (19 770) (18 532) (23 955) (28 881) (38 150) (60 187)

Fair value adjustment on listed investments (4 258) - - - - - -

Share of profit of an associate 4 388 5 180 3 988 3 427 4 825 5 308 5 839

Surplus before tax (55 779) 83 413 100 515 44 864 47 727 142 010 181 121

Income tax expense 33 924 (37 837) - - - - -

Surplus for the year (21 855) 45 576 100 515 44 864 47 727 142 010 181 121

Group

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Forecast Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Interest on Lending operations 158 041 175 106 172 954 188 091 302 957 421 957 515 957

Interest on Investments 42 183 61 938 69 700 59 685 54 000 42 000 34 000

Programme management fees - - - 2 922 5 807 6 114 6 451

Fees on loans for construction projects - - - 4 876 10 701 11 455 13 173

Dividends received 2 585 3 530 2 591 3 770 - - -

Rental income 600 1 172 10 961 14 070 11 789 12 438 -

Revenue 203 409 241 746 256 206 273 413 385 254 493 964 569 581

Net impairments and bad debts (234 826) (94 888) (72 556) (70 000) (102 800) (103 681) (121 000)

Gross profit (31 417) 146 858 183 650 203 413 282 454 390 283 448 581

Other operating income 8 113 8 819 8 562 28 033 26 355 23 726 23 840

Operating expenses (79 779) (89 921) (94 540) (158 779) (230 741) (237 098) (234 044)

Operating profit (103 083) 65 757 97 672 72 668 78 068 176 911 238 376

Interest paid (21 338) (19 658) (18 532) (16 826) (21 752) (31 021) (53 059)

Fair value adjustment on listed investments 38 713 4 580 18 601 - - - -

Surplus before tax (85 708) 50 679 97 741 55 842 56 316 145 890 185 318

Income tax expense 30 809 (43 419) - - - - -

Surplus for the year (54 899) 7 260 97 741 55 842 56 316 145 890 185 318

Company

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Key Financial Indicators

Key Financial IndicatorsForecast

2 016 2 017 2 018 2 019 2 020 2 021 2 022

Surplus before tax (R'm) Company -86 51 98 56 56 146 185

Group -56 83 101 45 48 142 181

Return on equity (%) Company -2.0% 0.3% 3.2% 1.3% 1.3% 3.3% 4.0%

Group -0.8% 1.6% 3.2% 1.0% 1.1% 3.1% 3.8%

Return on assets (%) Company -2.8% 1.6% 3.0% 1.2% 1.2% 3.0% 3.5%

Group -1.8% 2.6% 2.9% 0.9% 1.0% 2.8% 3.3%

Cost to income ratio (%) Company 42% 39% 38% 56% 59% 49% 43%

Group 41% 43% 42% 61% 62% 51% 45%

Credit Loss ratio incl bad debts (%) Company 9.0% 4.0% 3.0% 1.9% 2.5% 2.5% 2.5%

Group 8.4% 3.0% 2.8% 1.9% 2.5% 2.5% 2.5%

Debt:Equity (%) Company 12% 10% 8% 8% 7% 8% 12%

Group 12% 10% 8% 10% 8% 10% 13%

Interest cover ratio (times) Company -3.02 3.58 6.27 4.32 3.59 5.70 4.49

Group -1.59 5.22 6.42 2.87 2.65 4.72 4.01

Net loan book growth Company -2% -2% 12% 49% 10% 14% 8%

Group -12% 1% 15% 56% 11% 14% 8%

Return on equity: profit after tax/ closing net assets

Return on assets: profit before taxation/ closing total assets (excluding funds under management)

Cost to income: total operating costs/ total operating income

Debt to equity: interest bearing f inacial liabilitites/ closing net assets

Interest cover ratio: profit before tax excluding interest expense/ interest expense

TARGET

Actual Budget

Credit loss ratio incl bad debts: current year impairment and bad debts charge/ (closing gross loans and advances plus curent year bad debts charge)

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Financials

Consolidated Statement of Financial Performance: Detailed

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Forecast Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Revenue 322 395 276 804 291 692 290 640 446 067 508 007 583 624

Interest on Lending operations 156 305 174 770 181 786 202 134 317 000 436 000 530 000

Interest on Investments 42 499 62 519 70 325 59 685 54 000 42 000 34 000

Sale of houses 116 194 34 783 17 685 3 184 46 770 - -

Programme management fees - - - 2 922 5 807 6 114 6 451

Fees on loans for construction projects - - - 4 876 10 701 11 455 13 173

Dividends received 938 884 8 348 3 770 - - -

Rental income 6 459 3 848 13 548 14 070 11 789 12 438 -

Cost of sales (282 232) (90 425) (78 160) (72 863) (154 014) (103 681) (121 000)

Cost of sales (94 411) (31 814) (16 435) (2 863) (51 214) - -

Net impairments and bad debts (187 821) (58 611) (61 725) (70 000) (102 800) (103 681) (121 000)

Gross profit 40 163 186 379 213 532 217 777 292 053 404 326 462 624

Other operating income 15 814 15 557 14 406 21 968 20 290 17 805 17 455

Operating expenses (90 357) (103 933) (112 879) (174 353) (240 560) (247 279) (244 610)

Employee (51 209) (70 685) (72 032) (111 237) (146 377) (147 397) (158 605)

Travel and accomodation (965) (820) (651) (3 326) (5 280) (5 570) (5 876)

Communication and IT (4 942) (2 149) (4 132) (5 687) (8 317) (8 775) (9 257)

Depreciation (965) (1 399) (1 060) (989) (2 942) (3 104) (3 274)

Marketing,promotions and workshops (1 471) (3 658) (1 364) (1 823) (5 287) (5 440) (3 102)

Office Expenses/Printers and stationery (1 970) (2 907) (2 920) (1 658) (2 485) (2 622) (2 766)

Consulting (8 315) (2 760) (3 625) (3 422) (17 211) (18 799) (15 086)

Audit fees (1 993) (2 504) (2 157) (4 103) (4 172) (4 401) (4 644)

Legal fees (1 257) (2 296) (1 146) (3 098) (6 823) (7 198) (7 594)

Directors fees and expenses (2 816) (3 465) (3 875) (6 157) (6 262) (6 606) (6 970)

Administration (1 230) (2 691) (1 748) (3 699) (6 277) (6 622) (6 986)

Training and development (842) (944) (965) (1 356) (4 500) (4 748) (5 009)

Premises (8 588) (7 641) (6 763) (9 380) (10 290) (10 871) (11 485)

Other (3 794) (14) (10 441) (18 417) (14 337) (15 125) (3 956)

Operating profit (34 380) 98 003 115 059 65 392 71 783 174 852 235 469

Fair value adjustment on listed investments (4 258) - - - - - -

Finance cost (21 529) (19 770) (18 532) (23 955) (28 881) (38 150) (60 187)

Share of profit of an associate 4 388 5 180 3 988 3 427 4 825 5 308 5 839

Surplus before tax (55 779) 83 413 100 515 44 864 47 727 142 010 181 121

Income tax expense 33 924 (37 837) - - - - -

Surplus for the year (21 855) 45 576 100 515 44 864 47 727 142 010 181 121

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Consolidated Statement of Financial Position

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Forecast Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Non Current Assets 2 200 217 2 207 541 2 474 294 3 659 912 4 029 907 4 472 378 4 791 349

Loans asset 1 808 724 1 818 984 2 085 374 3 254 556 3 628 754 4 129 075 4 444 774

Investment property 88 402 91 124 96 222 99 822 103 602 47 571 51 738

Property,plant and equipment 947 930 1 269 3 972 4 597 4 594 4 645

Intangible assets 1 187 814 835 3 205 3 953 4 360 4 760

Investment in associates 134 045 173 204 180 215 196 259 194 798 200 106 205 945

Instalment sale receivable 129 075 122 485 110 379 102 099 94 203 86 672 79 487

Deferred taxation 37 837 - - - - - -

Current Assets 942 190 1 075 390 985 861 1 194 866 871 972 672 106 729 677

Other receivables and prepayments 8 637 10 650 21 935 50 076 42 141 44 739 46 199

Income tax receivable 23 004 32 554 33 912 33 912 - - -

Properties developed for sale 95 694 72 844 65 539 100 753 49 539 49 539 49 539

Cash and cash equivalent 344 570 358 113 330 443 720 725 615 343 438 655 380 101

Held to maturity investment 470 285 601 229 534 032 289 400 164 950 139 173 253 838

Total Assets 3 142 407 3 282 931 3 460 155 4 854 778 4 901 880 5 144 484 5 521 027

Net Assets and Liabilities

Equity 2 755 903 2 924 690 3 125 205 4 290 901 4 388 628 4 530 639 4 711 760

Issued Capital 842 842 842 39 142 39 142 39 142 39 142

Share premium 879 158 879 158 879 158 879 158 879 158 879 158 879 158

Grant capital 530 000 630 000 730 000 1 506 738 1 556 738 1 556 738 1 556 738

Other reserves 28 525 51 736 51 736 251 020 251 020 251 020 251 020

Accumulated surplus/(deficit) 1 317 378 1 362 954 1 463 469 1 614 843 1 662 570 1 804 581 1 985 702

Non current liabilities 283 360 249 274 216 586 370 468 324 576 349 560 500 001

Other financial liabilites 283 360 249 274 216 586 370 468 324 576 349 560 500 001

Current liabilities 103 144 108 967 118 364 193 409 188 676 264 285 309 266

Trade Creditors 13 408 17 439 15 294 49 272 50 052 48 970 48 943

Other financial liabilities 33 711 33 269 32 394 39 484 35 773 87 507 101 066

Funds under mangement 44 883 39 225 52 672 60 505 60 304 82 294 110 504

Provision 11 142 19 034 18 004 44 148 42 547 45 514 48 753

Total Net assets and liabilitites 3 142 407 3 282 931 3 460 155 4 854 778 4 901 880 5 144 484 5 521 027

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Consolidated Statement of Cash Flows

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Fcst Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Cash flow from operating activites

Receipts 338 226 279 889 277 886 312 608 466 357 525 812 601 079

Sale of goods 116 194 34 783 17 685 3 184 46 770 - -

Interest, dividends and rent on land 222 032 235 461 260 201 287 456 399 297 508 007 583 624

Other income - 9 645 - 21 968 20 290 17 805 17 455

Payments (196 675) (187 697) (451 217) (895 807) (695 013) (886 580) (736 728)

Compensation of employees (51 220) (35 704) (69 775) (111 237) (146 377) (147 397) (158 605)

Good and services (284 459) (68 758) (31 761) (65 886) (145 396) (99 882) (86 005)

Interest paid (21 529) (19 770) (18 532) (32 808) (28 881) (38 150) (60 187)

Net cash payment to customers 180 470 (53 915) (331 149) (685 876) (408 270) (601 151) (431 931)

Taxation paid (19 937) (9 550) - - 33 912 - -

Net cash flows from operating activites 141 551 92 192 (173 331) (583 199) (228 656) (360 768) (135 649)

Cash flows from investing activites

Purchase of assets (241) (986) (1 420) - (1 373) (405) (450)

Proceeds from sale of assets - - - (5 073) - - -

Proceeds from sale of financial assets - - - - - 60 000 -

Movement in investment in associates - (6 533) - - - - -

Decrease/(increase) in held to maturity (141 112) (130 944) 67 197 244 632 124 450 25 777 (114 666)

Cash from NURCHA and RHLF - - - 485 117 - - -

Net cash flow from Investing activites (141 353) (138 463) 65 777 724 677 123 077 85 372 (115 116)

Cash flows from Financing activitites

(Repayment)/increase of borrowings (37 368) (34 528) (33 563) (35 515) (49 603) 76 718 164 000

Movement in funds under management (148 337) (5 658) 13 447 7 833 (201) 21 990 28 210

Grant capital 100 000 100 000 100 000 80 000 50 000 - -

Borrowings from NURCHA and RHLF - - - 196 487 - - -

Net cash flow from financing activites (85 705) 59 814 79 884 248 805 196 98 708 192 210

Net increase or decrease in cash and cash equivalents (85 507) 13 543 (27 670) 390 282 (105 382) (176 688) (58 554)

Cash and cash equivalents at the beginning of the year 430 077 344 570 358 113 330 443 720 725 615 343 438 655

Cash and cash equivalents at the end of the year 344 570 358 113 330 443 720 725 615 343 438 655 380 101

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Company Statement of Financial Performance: Detailed

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Forecast Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Revenue 203 409 241 746 256 206 273 413 385 254 493 964 569 581

Interest on Lending operations 158 041 175 106 172 954 188 091 302 957 421 957 515 957

Interest on Investments 42 183 61 938 69 700 59 685 54 000 42 000 34 000

Programme management fees - - - 2 922 5 807 6 114 6 451

Fees on loans for construction projects - - - 4 876 10 701 11 455 13 173

Dividends received 2 585 3 530 2 591 3 770 - - -

Rental income 600 1 172 10 961 14 070 11 789 12 438 -

Net impairments and bad debts (234 826) (94 888) (72 556) (70 000) (102 800) (103 681) (121 000)

Gross profit -31 417 146 858 183 650 203 413 282 454 390 283 448 581

Other operating income 8 113 8 819 8 562 28 033 26 355 23 726 23 840

Operating expenses (79 779) (89 921) (94 540) (158 779) (230 741) (237 098) (234 044)

Employee (44 218) (61 268) (61 439) (103 212) (143 578) (144 440) (155 481)

Travel and accomodation (847) (621) (508) (2 477) (4 426) (4 711) (5 013)

Communication and IT (4 523) (4 152) (3 664) (5 269) (7 877) (8 311) (8 769)

Depreciation (965) (1 399) (1 060) (989) (2 942) (3 104) (3 274)

Marketing,promotions and workshops (1 391) (3 600) (1 364) (1 823) (5 287) (5 440) (3 102)

Office Expenses/Printers and stationery (1 598) (618) (1 825) (1 385) (2 233) (2 358) (2 489)

Consulting (8 246) (2 741) (3 589) (3 398) (17 186) (18 773) (15 057)

Audit fees (2 002) (2 074) (2 157) (2 547) (2 766) (2 996) (3 238)

Legal fees (950) (1 339) (1 153) (2 163) (6 314) (6 659) (7 022)

Directors fees and expenses (2 816) (3 465) (3 875) (6 157) (6 262) (6 606) (6 970)

Administration (136) (487) (368) (2 557) (5 161) (5 445) (5 745)

Training and development (821) (880) (928) (1 356) (4 500) (4 313) (5 009)

Premises (7 481) (7 262) (5 746) (7 995) (8 838) (9 783) (9 886)

Other (3 785) (14) (6 865) (17 451) (13 371) (14 159) (2 989)

Operating profit (103 083) 65 757 97 672 72 668 78 068 176 911 238 376

Fair value adjustment on listed investments 38 713 4 580 18 601 - - - -

Finance cost (21 338) (19 658) (18 532) (16 826) (21 752) (31 021) (53 059)

Surplus before tax (85 708) 50 679 97 741 55 842 56 316 145 890 185 318

Income tax expense 30 809 (43 419) - - - - -

Surplus for the year (54 899) 7 260 97 741 55 842 56 316 145 890 185 318

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Company Statement of Financial Position

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Forecast Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Non Current Assets 2 250 418 2 169 768 2 427 965 3 518 378 3 840 698 4 281 766 4 599 566

Loans asset 2 020 206 1 971 786 2 209 507 3 283 040 3 610 273 4 110 936 4 428 286

Investment property 58 000 58 400 60 000 60 000 60 000 - -

Property,plant and equipment 829 868 1 121 3 972 4 597 4 594 4 645

Intangible assets 1 174 811 833 3 205 3 953 4 360 4 760

Investment in associates 126 790 137 903 156 504 168 161 161 875 161 875 161 875

Deferred taxation 43 419 - - - - - -

Current Assets 836 923 991 870 910 889 1 171 380 905 875 712 183 802 173

Other receivables and prepayments 9 687 17 322 29 265 162 134 154 198 156 796 158 256

Income tax receivable 23 004 32 554 33 912 33 912 - - -

Cash and cash equivalent 333 947 340 765 313 680 685 934 586 727 416 214 390 078

Held to maturity investment 470 285 601 229 534 032 289 400 164 950 139 173 253 838

Total Assets 3 087 341 3 161 638 3 338 854 4 689 758 4 746 572 4 993 949 5 401 738

Net Assets and Liabilities

Equity 2 710 264 2 817 524 3 015 265 4 219 917 4 326 232 4 472 122 4 657 440

Issued Capital 842 842 842 39 142 39 142 39 142 39 142

Share premium 879 158 879 158 879 158 879 158 879 158 879 158 879 158

Grant capital 530 000 630 000 730 000 1 506 738 1 556 738 1 556 738 1 556 738

Other reserves - - - 199 284 199 284 199 284 199 284

Accumulated surplus/(deficit) 1 300 264 1 307 524 1 405 265 1 595 595 1 651 910 1 797 800 1 983 118

Non current liabilities 282 090 248 773 216 086 300 492 254 600 323 317 491 256

Other financial liabilites 282 090 248 773 216 086 300 492 254 600 323 317 491 256

Current liabilities 94 987 95 341 107 503 169 350 165 740 198 509 253 042

Trade Creditors 7 179 5 239 5 001 25 518 27 421 27 233 28 012

Other financial liabilities 32 394 32 394 32 394 39 484 35 773 43 773 66 078

Funds under mangement 44 883 39 225 52 672 60 505 60 304 82 294 110 504

Provision 10 531 18 483 17 436 43 843 42 242 45 209 48 448

Total Net assets and liabilitites 3 087 341 3 161 638 3 338 854 4 689 758 4 746 572 4 993 949 5 401 738

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Company Statement of Cash Flows

2016 2017 2018 2019 2020 2021 2022

Actual Actual Actual Fcst Budget Budget Budget

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Cash flow from operating activites

Receipts 211 522 237 799 245 811 301 446 411 609 517 690 593 421

Interest, dividends and rent on land 203 409 232 540 240 206 273 413 385 254 493 964 569 581

Other income 8 113 5 259 5 605 28 033 26 355 23 726 23 840

Payments (58 059) (153 539) (419 564) (822 841) (634 090) (872 282) (722 895)

Compensation of employees (44 229) (30 211) (61 968) (103 212) (143 578) (144 440) (155 481)

Good and services (207 308) (46 465) (28 789) (50 494) (87 163) (92 658) (78 563)

Interest paid (21 338) (19 658) (18 532) (32 808) (21 752) (31 021) (53 059)

Net cash payment to customers 234 753 (47 655) (310 275) (636 327) (415 508) (604 163) (435 792)

Taxation paid (19 937) (9 550) - - 33 912 - -

Net cash flows from operating activites 153 463 84 260 (173 753) (521 394) (222 480) (354 592) (129 474)

Cash flows from investing activites

Purchase of assets (798) (990) (1 289) - (1 373) (405) (450)

Proceeds from sale of assets - - - (5 223) - - -

Proceeds from sale of financial assets - - - - - 60 000 -

Movement in investment in associates - (6 533) - - - - -

Decrease/(increase) in held to maturity (141 112) (130 944) 67 197 244 632 124 450 25 777 (114 666)

Cash from NURCHA and RHLF - - - 474 910 - - -

Net cash flow from Investing activites (141 910) (138 467) 65 908 714 320 123 077 85 372 (115 116)

Cash flows from Financing activitites

(Repayment)/increase of borrowings (32 162) (33 317) (32 687) (35 015) (49 603) 76 717 190 244

Movement in funds under management (148 337) (5 658) 13 447 7 833 (201) 21 990 28 210

Grant capital 100 000 100 000 100 000 80 000 50 000 - -

Borrowings from NURCHA and RHLF - - - 126 511 - - -

Net cash flow from financing activites (80 499) 61 025 80 760 179 329 196 98 707 218 454

Net increase or decrease in cash and cash equivalents (68 946) 6 818 (27 085) 372 254 (99 207) (170 513) (26 136)

Cash and cash equivalents at the beginning of the year 402 893 333 947 340 765 313 680 685 934 586 727 416 214

Cash and cash equivalents at the end of the year 333 947 340 765 313 680 685 934 586 727 416 214 390 078

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ANNEXURE B: TECHNICAL INDICATOR DESCRIPTION

Indicator title

Housing opportunities

Short definition

Program 1 Housing opportunities include housing units, mortgage loans and

Incremental housing loans

Housing units include completed, transferred or rented units.

Affordable Housing – Number of mortgage loans and or units originated

through Strategic Partnerships such as HIP and IHS.

Program 2 Private Rental - estimated number of units arising from signed loan agreements approved in any particular year through funds leveraged by TUHF. Evidence of units may not be actual delivery but expected delivery from loans signed. The TUHF estimated numbers are both greenfield, brownfield and refinanced units. Affordable Housing – estimated number of mortgage loans arising from signed loan agreements approved in any particular year by HIP and estimated housing units arising from deals signed by IHS. Evidence of units may not be actual delivery in respect of HIP but expected delivery from loans signed - the average loan size being R500 000. Leverage funds from third parties include; debt and equity raised by NHFC associate company TUHF, debt and equity raised by Real People a company in which the NHFC holds shares in the form of PIK Notes and equity contributions in deals funded by the NHFC.

Purpose/importance

Mandate

Method of calculation

Units - Completed, transferred or occupied units. Loans – Loan origination and debtors book reports submitted quarterly by clients or partners. NHFC does not keep loan agreements, as these are kept by the respective clients/partners, however, these are, verified on a test basis by NHFC.

Data limitation

Nil

Type of indicator

Outcome

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 139 of 140

Reporting cycle

Quarterly

New indicator

Continues without change

Desired performance

Adequate housing, access to housing finance and improved quality of living environments.

Indicator responsibility Chief Executive Officer

Indicator title

Value of approvals

Short definition

Value of facilities approved for the provision of funding to housing development projects for ownership, social housing and private rental, including inner cities.

Purpose/importance

Mandate

Method of calculation

Facilities approved by the relevant governance structures in line with the delegated authority. Facilities may be withdrawn and/or not taken up by the client.

Data limitation

Nil

Type of indicator

Outcome

Reporting cycle

Quarterly

New indicator

Continues without change

Desired performance

Robust pipeline towards the provision of affordable housing finance solutions to the low-to middle income housing market.

Indicator responsibility Chief Executive Officer

Indicator title

Value of leveraged funds

Short definition

Value of funds from the private sector for the sustainable development of human settlements. These funds include equity contributed by clients and debt from financial institutions or raised by NHFC equity partners.

Purpose/importance

Mandate

Method of calculation

Actual amounts per quarterly reports from clients and partners on equity and debt raised for expansion of affordable housing. For FLISP evidence includes individual home loan agreements and attorney letter confirming bond registration.

Data limitation Nil

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NHFC Annual Performance Plan 2019/20 – 2021/22 Page 140 of 140

Type of indicator

Outcome

Reporting cycle

Quarterly

New indicator

Continues without change

Desired performance

Increased and sustained investment by private sector into human settlement developments.

Indicator responsibility Chief Executive Officer

Indicator title

Value of disbursements targeted towards emerging BEE entrepreneurs

Short definition

Value of disbursements targeted towards emerging BEE entrepreneurs

Purpose/importance

Mandate

Method of calculation

Quarterly actual disbursements to emerging BEE entrepreneurs. TUHF leveraged disbursements to BEE entrepreneurs form part of the calculation.

Data limitation

Nil

Type of indicator

Outcome

Reporting cycle

Quarterly

New indicator

Continues without change

Desired performance

Promotes participation of emerging BEE entrepreneurs in the affordable property market.

Indicator responsibility Chief Executive Officer