RAM Ratings reaffirms AAA rating of Cagamas MBS’s CMBS 2007-1-i

Published on 24 April 2013

RAM Ratings has reaffirmed the AAA rating of Cagamas MBS Berhad’s RM2.11 billion Islamic residential mortgage-backed securities, i.e. CMBS 2007-1-i, with a stable outlook. Cagamas MBS – a limited-purpose entity incorporated for the securitisation of government staff home loans and government staff Islamic home-financing facilities (“GSIHFs”) – is the sister company of Cagamas Berhad, the national mortgage corporation that had been established to develop Malaysia’s secondary mortgage market.

The reaffirmation is premised on the available overcollateralisation (“OC”) ratio of 33.67% (as at the reporting date of 29 November 2012), supported by the overall performance of the collateral pool, and the credit enhancement afforded by the transaction structure. This level of OC – backed by RM1.91 billion of outstanding GSIHFs and RM133.24 million of cash and permitted investments – provides sufficient protection against the risks of prepayment, negative variance of investment returns and defaults under an “AAA” stressed scenario.

As at 31 July 2012, the portfolio of GSIHFs comprised 24,245 accounts, with an average outstanding balance of RM78,584 per account; the weighted-average remaining term stood at 15.84 years. As at the same date, the cumulative net default rate for the underlying financing portfolio stood at 0.48% (as a percentage of the principal balance on the purchase date), which compares favourably against RAM’s base-case assumption of 3.31%. Meanwhile, the portfolio’s cumulative prepayment rate of 5.14% (as a percentage of the principal balance on the purchase date) is lower than our base-case cumulative prepayment rate of 8.25%. That said, we observe that prepayments have been hovering at higher levels over the last few years, in line with our expectation that they tend to pick up as the pool becomes more seasoned.

Under Budget 2013, the Government had also announced its intention of outsourcing civil servants’ housing loan and financing schemes to commercial banks to ease its financial burden. This will only involve new government home loans or financing facilities. According to Bahagian Pinjaman Perumahan (“BPP”), the servicer for the transaction, this plan is still in its infancy. While gradual restructuring of functions and a reduction of the workforce under the BPP umbrella are expected to follow the outsourcing exercise, the servicing of the existing securitised portfolios is expected to remain status quo.

It had been announced under Budget 2013 that civil servants would receive a 1.5-month bonus, with a minimum payment of RM500. Pensioners with at least 25 years of service stand to receive higher minimum monthly pension of RM820 (from RM720 previously), in addition to a one-off cash assistance. In March this year, the Prime Minister announced a RM2 billion benefit package for civil servants; this includes a one-off increment of between RM80 and RM320 for civil servants effective 1 July 2013. While civil servants’ disposable incomes will undoubtedly increase, we expect no significant impact on current prepayment levels given the below-market interest rates for the GSIHFs and the rising cost of living.

Media contact

Amy Lo

(603) 7628 1078

amy@ram.com.my