Published on 12 Dec 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 Cagamas’ fundamental credit metrics will remain robust, underscored by its prudent and conservative business practices, despite potentially higher-risk business plans over the near to medium term to keep the Company relevant to the market. Considering Cagamas’ strategic position as a liquidity provider to the domestic financial system 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 2021, Cagamas purchased RM13.8 bil of receivables on a PWR basis (2020: RM7.0 bil), backed by RM19.2 bil of debt issuances (2020: RM11.7 bil). The increased y-o-y purchases stemmed mainly from FIs as a means to meet Bank Negara Malaysia’s liquidity requirement and/or liquidity needs arising from the automatic six-month repayment moratorium introduced by the government. There were no PWOR purchases during the year. For 11M FY Dec 2022, the Company purchased RM15.4 bil of PWR receivables, meeting its target total purchases of RM15 bil for the full year.
Overall, Cagamas’ asset quality remains robust, considering the significant proportion of highly rated counterparties for its PWR portfolio and minimal impairment losses from the PWOR portfolio. Some 80% of the Company’s PWR counterparties carry at least AA ratings. As at end-June 2022, the PWOR portfolio recorded an improved gross impaired loans ratio of 0.45%, much lower than the banking industry average of 1.17% for residential mortgages.
While Cagamas is solely dependent on the wholesale market for funding, the Company enjoys ready access to domestic capital markets owing to its perceived quasi-government status. Liquidity and refinancing risks are minimal in view of the Company’s prudent asset-liability management. Going forward, Cagamas’ purchases will stay challenged as the banking system continues to be fuelled by healthy capital and liquidity buffers. That said, some FIs will still utilise Cagamas schemes to meet their liquidity requirements. Depending on the liquidity needs and strategy of the FIs, these schemes remain an easier and convenient option.
For FY Dec 2021 and 1H FY Dec 2022, Cagamas’ net interest margin stayed moderate at 0.9% (FY Dec 2020: 0.9%), attributable to the thin margins of its PWR portfolio amid more competitive pricing. Given that this portfolio is expected to remain the Company’s main earnings driver and the contribution from newer products such as its Capital Management Service is still small, pressure on earnings is not seen to ease in the near term. As at end-June 2022, Cagamas’ Total Capital Ratio and Common Equity Tier-1 ratio remained superior at 42.9% and 41.6%, respectively (end-December 2021: 42.4% and 41.0%), adequate to support its purchases and new business plans.
Lim Chern Yit
(603) 3385 2528
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Ratings on Cagamas Berhad