Published on 24 Dec 2020.
RAM Ratings has reaffirmed Cagamas Berhad’s (Cagamas or the Company) corporate credit ratings, together with its issue ratings, as tabulated below. We have also reaffirmed the ratings of debt programmes of its special purpose subsidiaries which have recourse to Cagamas either via guarantee or purchase undertaking. The rating reaffirmations are premised on our expectation that the Company’s fundamental credit metrics will remain robust, underscored by its prudent and conservative business practices. In view of the Company’s strategic importance to the domestic capital markets as a liquidity provider and the largest issuers of corporate bonds and sukuk by cumulative value, we believe government support will be readily extended in the event of financial distress.
Cagamas Global P.L.C.:
USD2.5 billion Multicurrency MTN Programme
Cagamas Global Sukuk Berhad:
USD2.5 billion Multicurrency Sukuk Issuance Programme
As a liquidity provider to the secondary market for mortgage loans, Cagamas acquires loans and financings from financial institutions (FIs), the Government of Malaysia and selected corporations under purchase with recourse (PWR) or purchase without recourse (PWOR) schemes. For FY Dec 2019, the Company’s total purchases stood at RM4.98 bil against RM12.12 bil the previous year, supported by RM10.24 bil of debt issuances (2018: RM15.75 bil). The lower purchase in 2019 was mainly attributed to ample liquidity in the banking system and Bank Negara Malaysia’s relaxation of the liquidity requirement under Basel III. For fiscal 2020, Cagamas’ purchases slightly behind its RM8 bil target as its purchases standing at RM7 bil as at December, given BNM measures to help the banking system weather the effects of the Covid-19 pandemic.
As the Company’s recourse under its PWR scheme is primarily to its counterparties, Cagamas has not been affected by the automatic six-month loan repayment moratorium introduced by BNM in March 2020. As at end-December 2019, Cagamas’ PWR portfolio constituted 73% of its total gross receivables; about 90% of its counterparties are rated “AA” or higher. At the same time, its PWOR portfolio posted a lower gross impaired loans (GIL) ratio of 0.72%, much lower than the banking industry average GIL of 1.53% for residential mortgages. Overall, RAM expects Cagamas’ asset quality to remain robust, supported by the strong counterparty exposure of its PWR portfolio and the healthy GIL ratio of its PWOR portfolio.
While Cagamas is solely dependent on the wholesale market for funding, the Company enjoys ready access to the domestic capital markets owing to its perceived quasi-government status. Going forward, the business environment will stay challenging for Cagamas as most of the domestic FIs are well-capitalised, and in view of the available liquidity in the market and slower loan growth in the banking industry. In addition, the Company is compelled to price its products more competitively to remain appealing to highly rated FIs that are able to raise funding directly from the capital market. In this regard, Cagamas has been working towards diversifying its product range and customising offerings to suit market needs.
Given the absence of PWOR purchases since 2018 coupled with the run-down of the portfolio, Cagamas’ overall margins are expected to stay under pressure. For 1H FY Dec 2020, the Company’s net interest margin was still low at 0.5% (FY Dec 2019: 1.0%; FY Dec 2018: 1.0%). Cagamas’ overall total capital ratio of 33.9% as at end-June 2020 is deemed superior relative to the Company’s portfolio risks. Its capital base is of high quality, largely comprising common share equity and retained earnings.
Teoh Tze Yit
(603) 3385 2531
(603) 3385 2577
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.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad
Ratings on Cagamas Berhad