Published on 18 May 2017.
RAM Ratings has reaffirmed the AAA/Stable rating of Cagamas MBS Berhad’s RM2.06 billion residential mortgage-backed securities (2005/2025) (CMBS 2005-2). Cagamas MBS is a limited-purpose entity incorporated for the purpose of securitising government staff housing loans (GSHLs) and government staff Islamic home-financing facilities.
The reaffirmation of the rating is based on CMBS 2005-2’s robust credit support, as reflected by the 97.73% overcollateralisation (OC) ratio as at 31 March 2016; this provides an ample buffer to support the stressed default and prepayment levels that commensurate with an AAA rating. The OC ratio is underpinned by an outstanding mortgage portfolio valued at RM1.27 billion as well as RM698.39 million in cash and permitted investments, which is more than sufficient to fully redeem Tranche 5 on its maturity date of 12 December 2017. The rating is further supported by the GSHLs’ non-discretionary repayment structure, i.e. direct deductions from salaries and pensions.
During the period under review, the transaction’s average monthly performance came within expectations. The average monthly default rate oscillated around 0.03%-0.04% while the average monthly prepayment rate was recorded at about 0.10%. This translated into a cumulative net default rate of 0.51% and a cumulative prepayment rate of 14.74%, both of which are well within RAM’s base-case assumptions of 6.05% and 16.85%, respectively. While the transaction allows optional prepayment of the last 2 tranches, this has not been exercised as the cashflow arising from higher-than-assumed prepayments has yet to be achieved, despite having met the minimum threshold of RM90 million in the Collections Account.
Under Budget 2016, the salaries of civil servants were revised upwards by an amount equivalent to 1 annual increment (based on grade) in July 2016. Under Budget 2017, the loan eligibility of civil servants will be increased from RM120,000-RM600,000 to RM200,000-RM750,000. These measures, together with the Government’s targeted completion of 30,000 units of 1Malaysia civil servants’ housing, should further fuel demand for staff housing loans. In this respect, Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) – the newly corporatised body that took over in January 2016 – expects annual funding for such loans to increase to RM10 billion. Nonetheless, we do not expect any impact on this transaction given the portfolio’s static nature.
In the near to medium term, we expect some hiccups in its administrative processes, arising from the migration from salary to pension deductions, given that more than half of the borrowers in the portfolio are approaching or already at pensionable age. That said, any reporting glitches recorded each quarter throughout the reviewed period had noted to be rectified by the subsequent quarters. Due to the revised salary deduction dates from the Attorney General’s Department, efforts have been made by LPPSA to improve its internal process to expedite the update of collection info in its system to minimise posting delay. LPPSA is currently undergoing data-cleansing processes that are expected to be completed by end-2018.
While LPPSA’s earlier efforts to use electronic fund transfers in the collection process will remain the core module in managing portfolio collections, its plans to automate pension deductions are still on hold until its operations stabilise. To date, LPPSA’s servicing quality has remained adequate and stable. Although we expect some delinquency to materialise as the data-cleansing progresses, such delinquencies are likely to stabilise amid LPPSA’s ongoing efforts to improve its operational efficiency and processes. Nonetheless, RAM will continue monitoring LPPSA’s performance as the servicer, as it integrates into the new financial management system.
As at 31 March 2016, the portfolio of GSHLs comprised 28,703 accounts, with an average outstanding balance of RM44,211.82. The weighted-average term to maturity of the CMBS 2005-2 pool stood at 10.12 years as at the same date.
(603) 7628 1076
(603) 7628 1162