South African Home Loans (SAHL) - International Housing Finance ...

Housing Finance
Workshop For Sub-Saharan Africa
4 November 2008
Johannesburg

Case study – South African Home Loans (SAHL)
� Established in 1998, SAHL was the first non-bank mortgage lender in South Africa
� Standard Bank holds a significant equity stake in SAHL and provides warehouse funding as well as securitisation
services to SAHL
� Securitisation is a core part of SAHL’s funding model
� SAHL launched the first RMBS transaction in South Africa in November 2001 and has gone on to issue a further
6 RMBS transactions (Thekwini 2 to 7)
� Second largest issuer of RMBS in South Africa behind Standard Bank
� SAHL regarded as a pioneer of RMBS in South Africa, being the first also to establish a residential mortgage
warehousing conduit
� SAHL warehousing conduit was the first to issue extendible notes in the South African market as well as short
and long term notes
October 2007
Thekwini Fund 7
ZAR 2.5 billion
Mortgage Backed
Securitization
Joint Lead Manager
October 2006
Thekwini Fund 6
ZAR 2 billion
Mortgage Backed
Securitization
Lead Manager
Thekwini Warehousing
Conduit
ZAR 15 billion
Programme
Mortgage
Warehousing Conduit
Sole Lead Arranger
June 2005 February 2005
2
Thekwini Fund 5
ZAR 3 billion
Mortgage Backed
Securitization
Co Lead Manager
June 2004
The Thekwini Fund 4
ZAR 2.5 billion
Securitisation
Lead Manager
October 2003
Thekwini Fund 3
ZAR 2 billion
Mortgage Backed
Securitization
Lead Manager

Case study – South African Home Loans (SAHL)
SAHL
SAHL
core
core
portfolio
portfolio
-
loan
loan
eligibility
eligibility
criteria
criteria
� Low LTV < 81%
� Low PTI < 31% at grant
� Applicant : 21-65 years of age
� Maximum term : 23.5 years
� Security : mortgage bond
� Ability to redraw prepaid principal (with manual intervention)
� Mostly owner occupied properties
� Homeowners insurance required to be taken out and maintained
Assets
Assets
under
under
management
management
(R
(R
mn)
mn)
3

Case study – South African Home Loans (SAHL)
SAHL
SAHL
core
core
portfolio
portfolio
–
funding
funding
model
model
Main Street 65
Thekwini Warehousing
Conduit
Thekwini 6, 7 etc.
Bank funded warehouse facility Short term money market funding
Daily draw downs Monthly/bi-monthly acquisitions
from Main Street 65
� Thekwini Warehousing Conduit established in 2005 as a means for SAHL to:
�diversify its funding sources
�benefit of short term funding rates
� Thekwini Warehousing Conduit reached a peak of R9bn in February 2008
� Size is currently being reduced due to liquidity pressures in the money market
4
Long term capital market funding
Regular disposals into term
Thekwini securitisations

Case study – South African Home Loans (SAHL)
Conduit
Conduit
funding
funding
spreads
spreads
Spread over Jibar
0.63%
0.42%
0.21%
0.00%
Jan-07
Mar-07
May-07
Jul-07
� Spread widening due to
�liquidity concerns
Sep-07
Nov-07
Jan-08
�negative sentiment from the global credit crisis
�oversupply of commercial paper in the domestic money market
5
Mar-08
May-08
Jul-08
ABSA Standard Bank Investec
Sep-08
RMB Nedbank SA Home Loans

Case study – South African Home Loans (SAHL)
R m bps
3,000
80
2,500
2,000
1,500
1,000
500
SAHL’s cumulative term securitisation
issuance
2001 2002 2003 2004 2005 2006 2007
� 5 year AAA spreads in 2001 were Jibar plus 70bps
6
Spreads on the Thekwini issues
� Lowest spread of Jibar plus 40 bps achieved for Thekwini 6 in 2006 and Thekwini 7 in 2007 achieved pricing of
Jibar plus 55 bps for 5 year AAA notes
� Thekwini 8 postponed due to limited investor appetite
� Questions regarding sustainability of SAHL funding model
� Domestic investors reaching limits for RMBS and adopting a “wait and see” attitude regarding global credit
crunch
� No real performance related concerns on the mortgage portfolio
64
48
32
16
THE1A
THE2A1
THE3A2
THE3A1
THE4A1 THE5A1
THE6A2
THE6A1
THE7A2
THE7A1
0
19-Apr-01 01-Sep-02 14-Jan-04 28-May-05 10-Oct-06 22-Feb-08

RMBS issuance in the securitisation market – South Africa
Total RMBS issuance per year
20,000
16,000
12,000
8,000
4,000
0
R m
SAHL SBSA ABSA Sanlam Investec Eskom Nedbank FNB
2001 2002 2003 2004 2005 2006 2007 2008
Total outstanding RMBS per issuer
SBSA
35%
ABSA
7%
SAHL
19%
FNB
9%
Sanlam
8%
Sources: BESA, Standard Bank Group
Investec
15%
Nedbank
4%
Eskom
3%
7
� Issuance dominated by Standard Bank and South African
Home Loans
� RMBS used by all major banks in South Africa as a funding
mechanism to fund significant asset growth
� Major benefits to banks include:
�management of structural liquidity risk
�reduced capital
�reduced prudential requirements

Overview of the securitisation market – South Africa
Yearly term issuance
45,000
36,000
27,000
18,000
9,000
0
R m
2001 2002 2003 2004 2005 2006 2007 2008
Sources: BESA, Standard Bank Group
� Market started developing in earnest after 2001
8
54%
11%
RMBS CMBS
7%
1%
6%
1%
20%
Store-card receivables Office equipment lease receivables
Vehicle finance receivables Equipment rentals
Synthetic securitisation
� Smooth functioning of capital markets – have been in existence for decades
� Strong macroeconomic fundamentals
� Strong domestic investor base
� Cumulative market issuance in excess of US$15bn
� Issuance dominated by RMBS transactions
Term issuance by asset class (to date)

Spreads in the securitisation market – South Africa
AAA spreads in South Africa
100
75
50
25
0
Bps
0 1 2 3 4 5
Years to maturity
Sources: BESA, Standard Bank Group
� Spreads started to widen mid way through 2007 and are currently significantly wider than those seen in previous
years
� Widening in spreads caused by
�Large volume of paper and oversupply of certain asset classes (particularly RMBS)
�Consumer credit concerns, rising interest rates and weaker inflation outlook
�Negative sentiment in the global economy resulting in a lack of liquidity
�Decreased participation of ABCP conduits
2003 2004 2005 2006 2007 2008 Log. (2008)
9

Recent spreads in the RMBS market – South Africa
Date Issuer Nominal value of
deal
AAA
Sources: BESA, Standard Bank Group
10
Term Spread over 3m Jibar
22 June 07 iKhaya 2 2,884 5yrs 47
1 Aug 07 Sanlam Home Loans 1,113 5yrs 46
20 Aug 07 ABSA Homes 3,292 5yrs 50
18 Oct 07 Thekwini 7 2,500 5yrs 55
14 Nov 07 Private Residential Mortgages 1,590 5yrs 55
26 Nov 07 Green House 1,911 5yrs 60
26 Aug 08 Private Residential Mortgages 1,000 3 yrs 70
22 Oct 08 Sanlam Home Loans 970 1 yr 100
BBB
20 Aug 07 ABSA Homes 3,292 5yrs 215
18 Oct 07 Thekwini 7 2,500 5yrs 220
14 Nov 07 Private Mortgages 1,590 5yrs 200
26 Nov 07 Green House 1,911 5yrs 200
26 Aug 08 Private Residential Mortgages 1,000 3 yrs 300

International comparisons
� Since 2003 UK banks increasingly embraced RMBS off-balance sheet financing
� Non-bank mortgage lenders proliferated due to securitisation market liquidity
� This led to a large “shadow mortgage credit” system being developed in the UK
� Unlike bank balance sheet lending, lending financed by securitisation was largely
unconstrained in terms of capital
� By late 2006, 1 in 3 UK mortgages was funded outside the regulated capital base
Source: Deutsche Bank Global Markets Research
11

International comparisons
Source: Structured Finance Monitor
12

International comparisons
Source: Structured Finance Monitor
13