Published on 11 Jan 2022.
RAM Ratings has reaffirmed Cagamas Berhad’s (Cagamas or the Company) global, ASEAN and national-scale corporate credit ratings, together with its issue ratings, as tabulated below. The ratings reflect our expectation that the Company’s fundamental credit metrics will remain robust, underscored by its prudent and conservative business practices, despite a potential change in business plan over the near to medium term to remain relevant to the market. Considering Cagamas’ strategic importance as a provider of liquidity to the domestic capital markets and one of the largest issuers of corporate bonds and sukuk, we believe government support will be forthcoming 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/financing assets from financial institutions (FIs), the Government of Malaysia and selected corporations on a purchase with recourse (PWR) or purchase without recourse (PWOR) basis. For FY Dec 2020, Cagamas purchased RM7.0 bil receivables on PWR basis (2019: RM5.0 bil), backed by RM11.7 bil of debt issuances (2019: RM10.2 bil). The increased loan purchases were mainly from FIs with smaller deposit bases that required it to meet Bank Negara Malaysia’s liquidity requirement and/or liquidity needs stemming from the automatic six-month repayment moratorium introduced by the government. There were no PWOR purchases. With RM13.8 bil of total PWR purchases in 2021, Cagamas has achieved its RM9.0 bil target for the year.
Overall, Cagamas’ asset quality stayed robust as a substantial 85% of its PWR exposure as at end-December 2020 is to counterparties rated at least “AA”. The PWOR portfolio recorded an improved gross impaired loans (GIL) ratio of 0.61% as at the same date (end-December 2019: 0.72%), much lower than the banking industry’s average of 1.1% for residential mortgages. To suit market demands, Cagamas has reinstated its purchase of consumer financing for the PWR scheme, allowing counterparties with limited mortgage financing assets access to PWR financing. Exposure to this segment remains minimal to date.
Cagamas enjoys ready access to the domestic capital markets owing to its perceived quasi-government status, although solely reliant on the wholesale market for funding. The Company is exposed to minimal liquidity and refinancing risks due to prudent asset-liability management. Going forward, Cagamas’ purchases will stay challenged in view of ample liquidity in the capital markets, well-capitalised domestic FIs, and slower loan growth in the banking industry.
Cagamas’ new business plan to remain relevant to the market may entail higher risks. Its Capital Management Solution product, for instance, involves providing capital support by subscribing to subordinated debt securities issued by FIs/development financial institutions. While risker given the unsecured and subordinated nature of these instruments, Cagamas’ exposure to the product remains small to date and are subject to risk management parameters.
For FY Dec 2020, Cagamas’ net interest margin stayed moderate at 0.9% (FY Dec 2019: 1.0%) in the absence of high-yielding PWOR purchases. The Company’s total capital ratio was a better 46.2% as at end-June 2021 (end-December 2020: 45.3%), attributed to reduced credit risk-weighted assets as a result of slower purchases of PWR receivables and a shrinking PWOR portfolio. Its capital base is still deemed superior with a common equity tier-1 ratio of 44.5% as at end-June 2021. We expect Cagamas’ capitalisation to be adequate to support its new business plan.
(603) 3385 2515
Lim Chern Yit
(603) 3385 2528
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Ratings on Cagamas Berhad