MARC
has affirmed its ratings on national mortgage corporation Cagamas Berhad’s
(Cagamas) bonds and sukuk issues as follows:
·
Conventional and Islamic Commercial Paper (CP/ICP) Programmes
with a combined aggregate limit of RM20.0 billion at MARC-1/ MARC-1IS
respectively;
·
Conventional and Islamic Medium-Term Notes (MTN/IMTN) Programmes
of up to RM40.0 billion at AAA / AAAIS respectively;
and
·
ICP and IMTN Programmes with a combined aggregate limit of RM5.0
billion at MARC-1IS and AAAIS respectively.
The
outlook on all ratings is stable. The affirmed ratings are premised on
Cagamas’ strong credit profile, as reflected by its sound capitalisation and
liquidity position, both of which are underpinned by a prudent approach to
risk. The ratings also incorporate Cagamas’ systemic importance in the domestic
financial system, arising from its status as the national mortgage corporation
and the largest domestic issuer of corporate bonds.
For
the financial year ended December 31, 2016 (FY2016), Cagamas’ total outstanding
loans and financing rose by 7.1% y-o-y to RM32.5 billion with the acquisition
of loans and financing of RM5.7 billion which was on a purchase with recourse
(PWR) basis. Loans and financing under the purchase without recourse (PWOR)
scheme have not been available for acquisition since 2015. As a consequence,
the proportion of PWOR to PWR assets has continued to decline to 40:60 as at
end-December 2016 (2015: 45:55). This notwithstanding, the increased proportion
of PWR assets in Cagamas’ portfolio is viewed positively given the full
recourse to the originators.
MARC
takes comfort from the low counterparty risk of the originating financial
institutions and corporates given that 86.8% of the PWR assets were purchased
from originators rated AA and above as at end-2016. In respect of the PWOR
assets, credit risk is mitigated by the non-discretionary salary deductions of
borrowers employed in public sector entities. This is evident from the
historically low default rate of the PWOR assets, which stood at 1.0% as at
end-2016. Mortgage assets continued to dominate Cagamas’ portfolio at 95%,
followed by personal loans and financing at 3% and hire purchase loans and
financing at 2%. Cagamas’ plans to diversify its portfolio to include
infrastructure and small- and medium-enterprise (SME) loans is at a nascent
stage.
For
2016, Cagamas recorded a 3.3% y-o-y contraction in pre-tax profit to RM332.0
million, attributable to lower net interest and financing income. The net
interest margin fell to 0.80% (2015: 0.93%) due largely to the decline of higher-yielding
PWOR assets as opposed to PWR assets. Correspondingly, Cagamas’ pre-tax return
on assets and equity measures declined to 1.0% and 10.7% in 2016 from 1.1% and
11.9% respectively in the previous year. The company’s capitalisation remained
strong with core capital and risk-weighted capital ratios standing at 22.3% and
24.1% respectively as at end-December 2016.
Cagamas’
favourable accessibility to the domestic and international debt market and its
demonstrated ability to structure its liabilities to match loans and financing
assets remain key factors in the stability of its funding and liquidity
profile. During 2016, Cagamas raised RM7.4 billion from 21 new debt issuances
(2015: RM7.1 billion; 22 new issuances), enlarging its funding base by 7.4%
y-o-y to RM32.2 billion as of end-2016. This matches Cagamas’ expanded loan
base, which saw the loans-to-funds ratio maintained at 1.01 times (2015: 1.01
times).
The stable outlook reflects
MARC’s expectations that Cagamas will continue to maintain its strong credit
and liquidity profile as well as prudent risk management.
Contacts:
Cheah Wan Kin, +603-2717 2932/ wankin@marc.com.my;
Sharidan Salleh, +603-2717
2954/ sharidan@marc.com.my
August 7, 2017
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