Published on 18 Sep 2020.
RAM Ratings has reaffirmed the ratings of the respective Class A and Class B Notes under Zamarad Assets Berhad’s (the Issuer) Tranche 2 and 3 Sukuk Murabahah. The ratings have a stable outlook (see table below). Zamarad is a special-purpose vehicle incorporated to undertake the securitisation of personal financing (PF) facilities originated through the business partners of RCE Marketing Sdn Bhd (RCEM).
Zamarad’s Tranche 2
Zamarad’s Tranche 3
Each tranche of the Sukuk is backed by its own discrete portfolio of PF receivables from civil servants. As these receivables are repaid through non-discretionary salary deductions processed by Accountant General’s Department and Angkatan Koperasi Kebangsaan Malaysia Berhad (Angkasa), the transaction’s exposure to the credit risks of the customers is significantly reduced so long as they remain in active service.
The reaffirmed ratings are premised on the securitised portfolio’s better than expected default and prepayment performances. These, in turn, provide adequate credit support that is still commensurate with the respective ratings. During the review period, the cumulative net default rates of Tranches 2 and 3 were lower than our base case assumption while monthly prepayment rates hovered within our high and low stressed assumptions, albeit on a rising trend. We observed similar default and prepayment trends for the underlying portfolios of other tranches issued by RCEM via Zamarad and Al Dzahab Assets Berhad.
The default or delinquency rates of Tranches 2 and 3 had not deteriorated during the Movement Control Order period, attributable to the job security enjoyed by civil servants and the non-discretionary salary deductions. In this regard, non-bank financiers like RCEM will only grant customers repayment moratoriums on a case-by-case basis. That said, management has indicated that only less than 0.4% of RCEM’s PF facilities have been placed under moratorium and none of the customers are part of the Originator’s securitised portfolio.
Although still a remote possibility at this juncture, downside risks could arise from changes in guidelines on salary deductions or regulatory policies, which may affect future delinquency rates and the prepayment performance of the underlying receivables. While material downsizing is not expected for the foreseeable future, the recent change in government might lead to a higher incidence of civil servant transfers and, in turn, more administrative delays in salary deductions.
Goh Kwan Kheen, Timothy
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The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
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Rating Rationale: Zamarad Tranche 2
Rating Rationale: Zamarad Tranche 3
Ratings on Zamarad Assets Berhad