KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has affirmed its ratings on national mortgage corporation Cagamas Bhd’s bonds and sukuk issuance of the conventional and Islamic Commercial Papers (CP/ICP) programmes with a combined aggregate limit of RM20.0 billion at MARC-1/ MARC-1IS.
The rating agency also affirmed Cagamas’ Conventional and Islamic Medium-Term Notes (MTN/IMTN) programmes of up to RM40.0 billion at AAA / AAAIS and IMTN programme of RM5.0 billion at AAA.
In a statement released today, MARC said the outlook on all ratings is stable, premised on Cagamas’ sound capitalisation and liquidity position and its systemic importance in the domestic financial system as a facilitator of the secondary mortgage market.
MARC noted that Cagamas currently acquires loans and financing under two schemes - purchase with recourse (PWR) under which it takes on counter party credit risks, and purchase without recourse (PWOR) under which it absorbs all the credit risks of the purchased loans and financing.
The stable outlook reflects Cagamas will continue to maintain its strong credit and liquidity profile as well as prudent risk management.
As at end-December 2017, Cagamas’ total outstanding loans and financing stood at RM37.6 billion, having increased by 15.6 per cent Year-on-Year YoY.
The purchases were mainly conventional mortgages on a PWR basis, which continued to be a preferred option by financial institutions (FI).
The acquisition of loans and financing under the PWOR scheme remains low at about one per cent in 2017, leading to a decline in the proportion of PWOR to PWR assets to 32:68 as at end-2017.
MARC viewed that the increased proportion of PWR assets in Cagamas’ portfolio as positive given the full recourse to the originators.
MARC said it takes comfort from the low counterparty risk of the originating FIs and corporates given that 84.5 per cent of the PWR assets were purchased from originators rated AA and above as at end-2017.
In respect of the PWOR assets, credit risk is mitigated by the non-discretionary salary deductions of borrowers employed in public sector entities as reflected by the historically low default rate of the PWOR assets, which stood at 0.7 per cent as at end-2017.
Mortgage assets continued to dominate Cagamas’ portfolio at 98.8 per cent, followed by hire purchase loans and financing at 0.8 per cent, and personal loans and financing at 0.4 per cent.
As a strategy to diversify its asset class, MARC said Cagamas has sought to include infrastructure and SME loans under its PWR scheme. However, it said those efforts are still at a nascent stage.
Funding and liquidity remain stable and strong, attributable to prudent liquidity management, demonstrated ability to structure its liabilities to match loans and financing assets, and favourable accessibility to the domestic and international debt markets.
Cagamas readily raised RM15.3 billion from 31 new debt issuances compared to RM7.4 billion from 21 new issuances in 2016, while its funding base increased by 16.2 per cent YoY to RM37.4 billion with the loans-to-fund ratio maintained at 1.01 times.
MARC also noted that Cagamas’ ICP programme under its ICP and IMTN programme with a combined aggregate limit of not exceeding RM5.0 billion had expired on August 19, 2017.