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Global Credit Research - 03 Feb 2011
London, 03 February 2011 -- Moody's Investors Service has today assigned a Ba1 long-term foreign
currency issuer rating to the Kenya-based Company for Habitat and
Housing in Africa, commonly known as Shelter-Afrique.
The rating outlook is stable. This is the first time that Moody's
has rated Shelter-Afrique.
Moody's rationale for Shelter-Afrique's Ba1 rating
is based on the following factors:
1. Very high support from the African Development Bank (AfDB),
rated Aaa by Moody's, as the largest shareholder with 22.6%
of the capital. Shelter-Afrique benefits from the support
from its other shareholders, as evidenced by the shareholders'
unanimous decision to double the bank's capital base in 2009.
2. A moderate level of capital adequacy, with a capital adequacy
ratio (in relation to risk assets) at the median compared with that of
the rest of the multilateral development banks (MDBs) rated by Moody's.
However, Shelter-Afrique has no callable capital and the
credit quality of most of its shareholders, with the exception of
the AfDB, is very poor, so their ability to support the bank
in a timely manner is very low, in Moody's view.
3. The bank displays a moderate resilience to shocks driven by
strong liquidity and ongoing efforts to strengthen governance and risk
management, which are improving albeit from a very low level.
4. The bank is characterized by weak asset quality, as reflected
in the high level of gross non-performing loans (NPLs) at 15%
at the end of 2010. However, this is mitigated to a certain
extent by a strong capitalization associated with a low leverage ratio.
Shelter-Afrique's mandate is to address the acute housing
shortage prevalent in most African countries by offering financing for
housing and urban development throughout the continent. In assuming
this responsibility, it is also fulfilling one of the key mandates
of its largest shareholder, the Aaa-rated African Development
"Shelter-Afrique's Ba1 rating balances its moderate capitalization
and shareholder support, strong liquidity and a low leverage ratio
against a lack of callable capital, the poor quality of the loan
portfolio and a high level of non-performing loans (NPLs),"
says Aurelien Mali, Assistant Vice President in Moody's Sovereign
Risk Group. Moody's expects shelter-Afrique's
loan book to grow and its capital ratio to fall, while maintaining
a ratio loans to equity below the 3:1 ratio of their policy.
"The rating, which is forward-looking, takes
into account the likely deterioration of Shelter-Afrique's
financial metrics as the bank continues its rapid growth over the medium
term," Mr. Mali adds.
According to Moody's, Shelter-Afrique's capital
position is strong compared with commercial banks given its Basel II risk-weighted
capital adequacy ratio of 61% at the end of June 2010. Shelter-Afrique's
capital adequacy ratio is relatively similar to ratios of other MDBs rated
by Moody's. At the end of 2009, usable equity (the
sum of paid-in capital, reserves and net income of the year)
represented 100% of the assets held in non-investment-grade
or non-rated countries (i.e. the bank's entire
portfolio). One significant difference compared to other MDBs,
however, is the lack of callable capital in addition to paid-in
and subscribed capital, which could be available in the unlikely
event of financial difficulties. The bank's owners withdrew
their callable capital in 1996.
As evidenced by the high level of gross NPLs (15% at the end of
2010), the average credit quality of Shelter-Afrique's
loan portfolio is poor, mainly reflecting the challenging operating
environment, both in economic and political terms, in which
the bank's operations are located. This is one of the bank's
main rating weaknesses. "The continued increase in NPLs following
the expansion of the balance sheet since 2005 acts as a constraint on
the rating. Nevertheless, Moody's notes that the bank's
recent and ongoing efforts to strengthen governance, risk management
policies and capabilities have strengthened the bank's resilience
to shocks," explains Mr. Mali.
In 2009, the bank's 0.6% return on equity and
0.5% return on assets were particularly weak compared with
their previous five-year averages (5.4% and 5.2%,
respectively). This low profitability in 2009 was mainly a result
of a US$2.8 million provision made on a loan asset and its
Shelter-Afrique is involved in only one type of lending activity:
real estate finance with medium-term maturities of typically less
than five years. Loans for new housing estates and site infrastructure
represented 92% of its lending in 2009. Although the bank's
assets are necessarily concentrated in terms of country exposures --
the largest being Kenya followed by Nigeria (with each holding around
20% of total portfolio) -- concentration in terms of projects
is low. In the future, the bank also intends to develop trade
finance activities related to housing, such as trade finance for
RATING OUTLOOK AND POTENTIAL TRIGGERS FOR AN UPGRADE/DOWNGRADE
The rating outlook for Shelter-Afrique Bank is currently stable,
with the risks to the ratings being equally balanced.
The rating could face downward pressure if the level of NPLs continues
An increase in profitability alongside a decrease in both relative and
nominal terms of NPLs could create pressure for an upgrade. If
Shelter-Afrique were to restore a callable capital mechanism,
it could certainly prompt a multi- notch upgrade. The callable
capital -- a unique characteristic of MDBs, but not of Shelter-Afrique
-- is a powerful line of protection for creditors, especially
when some of the shareholders are highly rated, at Aaa or Aa.
Shelter-Afrique's ratings were assigned by evaluating factors relevant
to the specific characteristics of multilateral development banks,
reflecting in particular their dual nature as financial institutions and
vehicles of international public policy. MDB rating factors include
an assessment of the stand-alone financial strength of the institution
(in particular its level of capitalization, liquidity, its
risk management framework and the quality of its assets), as well
as the multiple forms of support (including in contractual form) provided
by the governments that compose its membership. These attributes
were compared against other issuers both within and outside of Shelter-Afrique's
peer group of multilateral development banks, and Shelter-Afrique's
ratings are believed to be similar to other issuers of similar credit
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
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Please see ratings tab on the issuer/entity page on Moodys.com
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Sovereign Risk Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
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MD-CCO Pub, Proj and Infra Fin
Sovereign Risk Group
Moody's Investors Service
Moody's Investors Service Ltd.
Moody's assigns Ba1 ratings to Shelter-Afrique (Kenya)
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