The ratings of NHFC balance very strong capital and liquidity with a weak risk profile characterised by deteriorating asset quality and constrained competitive positioning. Despite the challenges arising from the transition to a consolidated entity (consolidated group will eventually become Human Settlements Development Bank (“HSDB”)), including formalisation of group wide risk management, key internal operating policies and integration of the consolidated entities, GCR views NHFC’s solid balance sheet to be a key rating strength which is expected to provide adequate loss absorption capacity amidst a deteriorating operating environment.
The Stable outlook is based on the strong loss absorption buffers currently in place that is expected to support the current credit profile over the outlook horizon. Given the 100% government shareholding, downward rating pressure is limited as GCR would factor in government support should the standalone rating fall below the current rating level, as determined by the applicable operating environment score. Over the longer term, upward rating movement could stem from the entity consistently meeting strategic objectives set out in the company’s mandate, all while maintaining the current levels of capital and liquidity strength.