RAM Ratings has reaffirmed Cagamas Berhad’s (the Company) global-, ASEAN- and national-scale corporate credit ratings, at a respective gA2/Stable/gP1, seaAAA/Stable/seaP1 and AAA/Stable/P1.

Published on 18 October 2016

RAM Ratings has reaffirmed Cagamas Berhad’s (the Company) global-, ASEAN- and national-scale corporate credit ratings, at a respective gA2/Stable/gP1, seaAAA/Stable/seaP1 and AAA/Stable/P1. The ratings reflect Cagamas’ stand-alone credit profile, as reflected by its solid financial metrics. This is supported by its superior and high-quality capital, with an overall risk-weighted capital adequacy ratio (RWCAR) of 23.6%, particularly given its robust asset quality. In view of the Company’s strategic importance to the domestic capital markets as a liquidity provider and as one of the largest issuers of corporate bond and sukuk, we believe that government support will be readily extended in the event of any financial distress. Concurrently, we have also reaffirmed the Company’s various issue ratings, as tabulated below.

	Rating Action	Rating(s)
Cagamas Berhad
Corporate Credit Ratings	Reaffirmed	gA2/Stable/gP1 seaAAA/Stable/seaP1 AAA/Stable/P1
RM40 billion Islamic and Conventional MTN Programme (2007/2047)	Reaffirmed	AAA/Stable/-
RM5 billion Islamic CP/MTN Programme (2010/2040)	Reaffirmed	AAA/Stable/P1
RM20 billion Islamic and Conventional CP Programme (2015/2022)	Reaffirmed	-/-/P1
Cagamas Global P.L.C.
USD2.5 billion Multicurrency MTN Programme	Reaffirmed	gA2(s)/Stable/-
Cagamas Global Sukuk Bhd
USD2.5 billion Multicurrency Sukuk Programme	Reaffirmed	gA2(s)/Stable/-

As Malaysia’s national mortgage corporation, Cagamas purchases loan/financing assets from financial institutions, the Government of Malaysia and selected corporations on a purchase-with-recourse (PWR) or purchase-without-recourse (PWOR) basis. As at end-December 2015, Cagamas’ PWR portfolio constituted 55% of its total gross receivables; some 88% of its PWR exposures were to highly rated counterparties, i.e. rated AA and above.

Meanwhile, its PWOR portfolio exhibits a healthy performance despite some deterioration, with a gross impaired-loan (GIL) ratio of 1.10% as at the same date vis-à-vis the Malaysian banking system’s 1.15% for residential property mortages. We highlight that Cagamas’ PWOR portfolio is considered of high credit quality given the non-discretionary direct salary deductions for the repayment of these mortgaged assets. The higher GIL ratio is mainly attributable to reporting glitches and delays in the remittance of funds of salary deductions on the part of Lembaga Pembiayaan Perumahan Sektor Awam, which had led to higher delinquencies although collections remained strong. The Company’s overall RWCAR of 23.6% as at the same date is deemed superior, mainly underscored by high-quality capital that includes common shares and retained earnings.

On the other hand, Cagamas’ business model of providing liquidity to the mortgage sector remains challenged by the slower loan growth of the banking industry, the sufficient liquidity in the financial system and the potential shrinking of Cagamas’ client base after a series of consolidation exercises within the domestic banking industry. As most domestic financial institutions are highly rated and able to raise funding directly from the capital markets, Cagamas’ loan pricing will also need to be more cost competitive. To address these challenges, the Company has been diversifying its funding sources abroad and targeting cross-border opportunities. Cagamas is also expanding its product range by including new asset classes for its PWR portfolio and customising its offerings to suit market needs.

Analytical contact                                        Media contact
Lim Chern Yit                                                 Padthma Subbiah
(603) 7628 1035                                            (603) 7628 1162
chernyit@ram.com.my                                   padthma@ram.com.my