PRESENTATION TO THE PORTFOLIO COMMITTEE: HUMAN SETTLEMENT FRIDAY, 12 JUNE 2009

1. PRESENTATION TO THE PORTFOLIO COMMITTEE: HUMAN SETTLEMENT FRIDAY, 12 JUNE 2009

2. Contents • Mandate • Vision and Mission • Strategic Objectives • Financial Performance 2009 Summary Income Statement (draft unaudited) • Financial Performance 2009 • Impact 2009 • Retail Offering • Key Assumptions • Implications of lack of funding • Strategic Plan 2010-2012: Overview • Key Performance Areas • Target Market • Current Provincial Involvement • Planned Provincial Involvement • Collaboration with Nurcha and other DFIs • Public / Private Strategic Partnerships • Deepening and Broadening Access To Housing Finance • Budgeted Income Statement • Balance Sheet • Conclusion 2

3. Mandate The National Department of Housing established the National Housing Finance Corporation Limited (NHFC) as a Development Finance Institution in 1996 with the principal mandate of broadening and deepening access to affordable housing finance for the low to middle income households 3

4. Mandate (cont.) Our Value Proposition NHFC supports and participates in the BNG strategy by: • Making housing finance accessible and affordable for the low to middle income households • By facilitating the development of sustainable human settlements • Facilitating the development of a viable and sustainable low to middle income housing finance market 4

5. Vision and Mission • Vision To be the leader in the development financing of the low to middle income housing market. • Mission Providing innovative and affordable housing finance solutions in the low to middle income market. 5

6. Strategic Objectives Effective delivery of housing finance to support governments’ strategy of reducing housing backlog. Intensify delivery through strategic partnerships. Providing housing finance directly to the end user with the development and implementation of a retail home loans offering. 6

7. Financial Performance 2009 Summary Income Statement (draft unaudited) 7

8. Financial Performance 2009 • Operating Expenses • Under expenditure in employee, marketing, travel, office and computer costs. • (21% below) • Investment and sundry income • Higher than budgeted interest rates for most part of the year. • (51% above) • Financial Performance • Profit before tax • (73% above) • Operating income • Increased level of impairments and write off on book sold (Protea Financial Services Group) • (11% below) 8

9. Impact 2009 • Wholesale • With the rise in building material costs the average incremental housing loan has increased in value and therefore the number provided has reduced the increase in units financed. • In addition the more stringent NCA requirements caused a review in this market and the first half of the year showed very little activity. 9

10. Impact 2009 (cont.) • Projects funded include Social Housing Institutions, Inner City Landlords, BNG Contractors and Integrated Housing Project Developers. Although a difficult market, the results for 2009 were pleasing. 10 Wholesale continued

11. Impact 2009 (cont.) • Total Wholesale • Although the drop in the number of incremental housing loans caused the total impact number to be 25% below budget the increase number of housing units financed resulted in disbursements being 20% above budget. 11

12. Impact 2009 (cont.) • Funds Leveraged • NHFC in providing funding also seeks opportunities to leverage that funding with Private Sector money and in the 2009 the following amounts were leveraged. • Incremental Housing • Through supporting a client, NHFC facilitated further incremental housing funding of 500 million from a financial institution resulting in some 46,000 loans. • Projects • In disbursing R435 million to fund projects, NHFC leveraged an additional R705 million into the housing market through co-funding arrangements. 12

13. Retail Offering In May 2007 NHFC began a pilot retail project, using the Post Office as a partner. For various reasons, the pilot did not meet expectation and was discontinued in mid 2008. In October 2008 a retail offering, HomeFront Finance was quietly launched using various channels, viz call centre, mortgage orginators and employers. The intention of retail was to fulfill the commitment of the expanded mandate and the Presidents’ Statement in the State of the Nation address in February 2006 announcing the transformation of NHFC into a bank.

14. Retail Offering (cont.) In the 2009 year the systems and process were developed and business commenced by year end 2,238 loans had been approved (including 1,559 from an employer) but a model R3.29 million disbursed. With NDoH and National Treasury the retail business of the NHFC in being reviewed.

15. Key Assumptions • Mandate revision in place NHFC was challenged to deepen and broaden its footprint and in 2006 reviewed its business model to do this by offering a more comprehensive product range, including retail and expended project funding. Final confirmation of the expanded mandate is awaited but in the interim the DFI review has been undertaken and could impact on the mandate of the Corporation. The business plan incorporates the broadened mandate. 15

16. Key Assumptions (cont.) • Reclassification to a 3(B) National Government Business Enterprise • NHFC will require funding to meet the outputs of the business plan and has developed a funding model to access additional funding. • It has, therefore, applied to be reclassified from a 3(A) : National Public Entity to a 3(B): National Government Business Enterprise. • This transfer has been recommended by the Minister of Housing and is now with National Treasury.

17. Implications of lack of funding Developmental role and cost of funding As a DFI and one of the agents in the delivery of sustainable human settlements to low income earners, the NHFC needs to fund its activities at no cost or in a least expensive manner that will translate into lower cost of funding to the target client and align with market norms. Capital preservation and sustainability The NHFC is well capitalized and has been sustainable since inception which allowed its capital base to grow from R1,08 billion to R2,5 billion in 2008. The cost of funding for expansion in the MTEF period will have a direct impact on the long term sustainability of the Corporation that would be enhanced through the strengthening of the capital base and minimizing exposure to external borrowings. 17

18. Implications of lack of funding (cont.) • Market conditions • While interest rates have reduced, one of the results of the credit and liquidity crisis, is the aversion by lenders of the “subprime housing market” making external debt an expensive solution. • In particular external debt capital market appetite for retail mortgage-backed paper is weak, given the impact of global “sub-prime housing lending". 18

19. Strategic Plan 2010-2012: Overview Funding Requirements Housing Opportunities Disbursements R1,377 m R1,064 m R909 m R800 m R550 m 32,600 R300m 29,012 26,013 2010 2011 2012 2010 2011 2012 2010 2011 2012 19

20. Key Performance Areas - Impact 20

21. Key Performance Areas - Disbursements 21

22. Target Market NHFC has a target market in affordable housing that covers households with total income of less than R15 000. However, it estimates that 60% of its funding goes to those earning less than R7 500. These would include many of those in inner city private rental units, social housing subsidy beneficiaries, BNG housing beneficiaries in Integrated Housing developments and incremental housing borrowers 22

23. Target Market (cont.) 23

24. Current Provincial Involvement NHFC Funds Disbursed 28 – 48 % 20 - 28 % 2 - 20 % 1 - 2 % 0 - 1% NHFC Wholesale Footprint 24

25. Planned Provincial Involvement These numbers include amounts to be leveraged from other funders 25

26. Collaboration with Nurcha and other DFIs Where there are opportunities in the market NHFC seeks to work with other housing institutions and DFIs. 26

27. Public / Private Strategic Partnerships Housing Investment Partners (HIP) – previously PACH The company now has 3 shareholders: NHFC 25% PACH 25% Old Mutual 50% A CEO has been appointed and the Company will commence operations in April 2009. TUHF NHFC has funded TUHF from inception. It has provided R210 million out of total funding of close to R1 billion made by TUHF. It is undergoing a commercialisation exercise at present and has attracted a further R800 million in private sector funding. 27

28. Deepening and Broadening Access To Housing Finance The Kuyasa Fund NHFC has recently signed a R10 million facility with The Kuyasa Fund that provides incremental loans to the lower end of the market in the Western and Eastern Cape. This is considered a long term partnership that will improve access to housing finance to some of the most disadvantaged home owners. A further request for funding from Kuyasa will be considered during this financial year. 28

29. Budgeted Income Statement 29

30. Balance Sheet 30

31. Conclusion The Business Plan for 2010-2012 takes into account the realities of the current economy but also the understanding that housing demand remains and NHFC has responsibility in addressing the backlog in the target market. The NHFC is very active in the housing finance arena and is constantly looking for partnerships and products that will better serve the consumers needing the benefit of housing and the resultant opportunity to build wealth.