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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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 2 of 140
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;
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 3 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 4 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 5 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 6 of 140
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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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 8 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 10 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 22 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 24 of 140
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)
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 25 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 26 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 27 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 28 of 140
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;
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;
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:
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 32 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 33 of 140
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.
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
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%
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 36 of 140
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:
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 37 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 38 of 140
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
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 40 of 140
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
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
Ou
tco
me O
rien
ted
Go
al # 5
:
Tra
nsfo
rm N
HF
C t
o a
ssu
me H
SD
B
Outputs
Take on NURCHA &
RHLF’s assets & liabilities
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.
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.
Co
nti
nu
ou
sly
sti
mu
late
th
e h
ou
sin
g s
ecto
r b
y p
rovid
ing
ro
bu
st,
re
lev
an
t an
d t
imely
res
ea
rch
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]
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.
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 46 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 47 of 140
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
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.
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 50 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 51 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 52 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 53 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 54 of 140
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
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
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
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 58 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 59 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 60 of 140
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
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 62 of 140
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%.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 63 of 140
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
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 65 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 66 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 67 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 68 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 69 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 70 of 140
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
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 72 of 140
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
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 74 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 75 of 140
14 OVERVIEW OF BUSINESS SUPPORT UNITS
EWR: enterprise wide risk
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 76 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 77 of 140
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.
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.
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 80 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 81 of 140
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
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
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
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
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
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
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
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
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
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.
NHFC Annual PerformancePlan 2019/20 – 2021/22 Page 91 of 140
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
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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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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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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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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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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 111 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 112 of 140
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%
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 115 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 117 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 118 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 119 of 140
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.
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 120 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 121 of 140
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)
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 122 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 123 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 124 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 125 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 126 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 127 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 128 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 129 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 130 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 131 of 140
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)
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 132 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 133 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 134 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 135 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 136 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 137 of 140
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
NHFC Annual Performance Plan 2019/20 – 2021/22 Page 138 of 140
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
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
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