RAM Ratings reaffirms Cagamas' AAA/P1 ratings

Published on 19 August 2011
RAM Ratings has reaffirmed Cagamas Berhad’s (Cagamas or the Company) respective long- and short-term corporate credit ratings at AAA and P1. Concurrently, the AAA and P1 ratings of Cagamas’ RM40 billion Islamic and Conventional Medium-Term Note (MTN) Programme as well as its RM20 billion Islamic and Conventional Commercial Paper (CP) Programme have also been reaffirmed. The AAA/P1 ratings of the Company’s RM5 billion Islamic MTN Programme and Islamic CP Programme have also been reaffirmed. All the long-term ratings have a stable outlook.



The ratings reflect Cagamas’ systemic importance in the domestic capital markets, robust receivables profile, and solid capitalisation. The Company plays the strategic role of a liquidity provider to various institutions and is also the leading issuer of private debt securities in Malaysia. Given Cagamas’ leading role and systemic importance to the Malaysian financial markets, we believe that government support will be readily extended, if required.

Cagamas has healthy asset quality, underpinned by highly rated counterparties within the “purchase with recourse” (PWR) portfolio, and direct salary deductions for financing facilities under its “purchase without recourse” scheme. Some 89% of the Company’s PWR exposures are to entities with at least AA ratings. Given the strong receivables profile, there were zero impairment charges for bad credits in fiscal 2010.

In terms of profitability, Cagamas’ net interest margin (inclusive of income from Islamic operations) stood at 1.6% in fiscal 2010; return on assets came in at 1.4% for the same period. We note that the Company’s profitability will remain driven by market conditions, including the interest-rate cycles and liquidity conditions, as well as its pricing strategies and risk-management policies. Cagamas’ capital position remained healthy as at end-December 2010, with an overall risk-weighted capital-adequacy ratio of 20.8%.

Cagamas’ initial business model, based on providing liquidity to the banking sector, is less relevant in a scenario of ample liquidity. The potential consolidation of the banking sector – which would effectively shrink Cagamas’ clientele – and banks’ priority of balance-sheet expansion are other factors that may affect its businesses. That said, Cagamas’ loan acquisition schemes remain as alternative avenues for financial institutions to manage their liquidity and capital positions, in view of the rising interest rate environment. “While the Company’s risk profile could change as it explores new business opportunities, we draw comfort from the management’s intention to explore areas of growth that complement its core expertise,” notes Siew Suet Ming, RAM Ratings’ Head of Structured Finance Ratings.

Media contact
Peter Su
(603) 7628 1036
petersu@ram.com.my