RAM Ratings reaffirms AAA rating of Cagamas MBS’s CMBS 2005-1

Published on 10 January 2014

RAM Ratings has reaffirmed the AAA/Stable rating of Cagamas MBS Berhad’s (Cagamas MBS) RM2.05 billion Sukuk Musyarakah Islamic residential mortgage-backed securities (2005/2020) (CMBS 2005-1). 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 collateral buffer in the form of a 70.62% overcollateralisation (OC) ratio as at the reporting date of 12 August 2013, backed by the overall performance of the collateral pool and the credit support provided by the structural features of the transaction. The OC ratio is calculated against RM1.73 billion of outstanding GSIHFs and RM527.86 million of cash and permitted investments. This level of OC provides sufficient protection against the risk of prepayment, negative variance of investment returns and defaults under an “AAA” stressed scenario. At the same time, the securitised portfolio’s cumulative net default rate stood at 0.52%, below RAM’s base-case assumption. The better-than-assumed default performance had, to some extent, compensated for the potential liquidity pressure arising from the lower-than-assumed cumulative prepayment rate of 8.84%.

As announced through Budget 2014, civil servants will be given half a month’s bonus, with a minimum payment of RM500; pensioners will receive a RM250 special assistance. These incentives are in addition to the RM2 billion benefit package for civil servants that took effect on 1 July 2013. While their disposable incomes will undoubtedly increase, the preferential interest rates on GSIHFs and mounting concerns over the rising cost of living will moderate any spike in prepayment levels. On a separate note, there has been no follow-up announcement on the Government’s restructuring plan for Bahagian Pinjaman Perumahan. We will continue monitoring the developments on this issue and the potential impact on the transaction.

As at 31 March 2013, the portfolio of GSIHFs comprised 32,238 accounts, with an average outstanding balance of RM53,753 per account; the weighted-average remaining term came up to 12.79 years.

Media contact

Ang Jae Han

(603) 7628 1020

angjaehan@ram.com.my