The board of Pan-African housing financier Shelter Afrique has approved an increment in the retirement age of its workers and creation of a “bad bank” to manage the huge volume of bad loans as part of its turnaround plan.
The plan is hinged on a $20 million capital injection from shareholders to sustain operations, after a prolonged period of loss making, marked by frequent top management changes.
The lender says the board has made critical resolutions aimed at improving performance and its governance structures, including an approval to increase the retirement age of workers from 60 years to 65 years and the voluntary retirement age from 55 years to 60 years with effect from April 1, 2023.
The lender disclosed in its latest annual report (2023) that during the year, the Board also approved the concept of warehousing and the adoption of a good-bad book approach that will see the creation of a Special Purpose Vehicle (SPV) to house the entire non-performing loans (NPL) portfolio that amounted to $138.1 million as of September 30, 2023.
“The management continued with a broad-based approach to the resolution of NPLs. The sustained loan recoveries efforts are anchored in the existing approved NPL Management Strategy,” the lender says.
“One of the strategic directions adopted by the board and management in 2023 is the decision to separate good and bad book. Good Bank-Bad Bank separation constitutes a technique where all NPL assets are collated and consolidated into a vehicle that is specially set up for this purpose.”
The lender says the new company, which will now be referred to as the “bad bank”, has a singular objective of managing these problem assets (bad loans) with an intention of maximising expected cash inflows.
“The good bank shall now focus on remedying and improving operational efficiency that will address the inherent credit process weaknesses to ensure quality at entry and therefore maintain good asset quality,” the lender says.
The new NPL strategy is expected to present an endgame to the lender’s existing NPL portfolio, which is largely part of the old, legacy portfolio.
Bad loans constitute more than half of the lender’s loan book, with the NPL ratio standing at 51 percent.
The board also approved a proposal for the lender to invest in commercial papers up to a total maximum not exceeding eight percent of the shareholders’ funds and tenor to be advised as per the risk appetite.
But investment in commercial papers will be the last resort after considering existing investment products in the current policy — funds placement with approved commercial banks, and treasury bills and bonds.
The board also approved the restructure and partial write-off the of NPL balances amounting to $19.1 million on transactions where final settlement agreement or consent judgment is issued through courts of law.
The lender is also leveraging the support from governments of member countries to resolve some of the difficult NPL cases. Some of these countries are Mali, Kenya, DRC, Mauritania, Ghana and Rwanda.
Shelter Afrique, which recently rebranded into a development bank, says its continued existence as a “going concern” largely depends on its future profitability and, or injection of new capital into the business by the shareholders.
“The shareholders remain committed to support the business though annual injection of capital, the budget capital to be mobilised from shareholders in financial year ending 31 December 2024 amounts to $20 million.”
The shareholders’ equity capital injection in the business amounted to $7.53 million in 2023, against an annual target of $26 million, merely accounting for 28 percent of the annual target collected.
This is due to domestic macroeconomic challenges coupled with events such as elections, rise in oil prices, civil unrest and the disruptions in global supply chain as a result of the military conflict in the Middle East and Eastern Europe, which have continued to impact shareholders’ ability to honour their funding commitments to the lender.
The Democratic Republic of Congo made the largest contributions, amounting to $3.86 million (51 percent of the total receipts), followed by Lesotho ($1.99 million), Burkina Faso ($0.53 million), Gabon ($0.49 million), Eswatini ($0.27 million), Rwanda ($0.25 million) and Uganda ($0.09 million).
Its net loan book declined by 11 percent to $138.3 million in 2023, from $ 155.01 million in 2022, while its liquidity position decreased 31 percent to $59.43 million, from $86.76 million in the same period.