RAM Ratings reaffirms AAA rating of Cagamas MBS's CMBS 2005-2

Published on 25 April 2014

RAM Ratings has reaffirmed the AAA/Stable rating of Cagamas MBS Berhad’s RM2.06 billion Residential Mortgage-Backed Securities (CMBS 2005-2). The reaffirmation is premised on the available over-collateralisation (OC) ratio of 70.64% (as at the reporting date of 12 December 2013), backed by the overall performance of the collateral pool, and the credit enhancement afforded by the transaction structure. The stable outlook reflects our opinion that the trends in defaults and losses, and pre-payments on the underlying portfolio of government staff home loans (GSHLs), will continue to fall within our expectations.
The OC ratio is calculated against RM1.72 billion of outstanding GSHLs and RM522.10 million of cash and permitted investments. The level of OC provides sufficient protection against the risk of pre-payment, negative variance in investment returns and defaults under an “AAA” stressed scenario.

As at 31 March 2013, the cumulative net default rate of the underlying financing portfolio stood at 0.62% (as a percentage of the principal balance on the purchase date), well below RAM’s base-case assumption of 4.53%. As at the same date, the portfolio’s cumulative pre-payment rate stood at 10.63% (as a percentage of the principal balance on the purchase date). While still lower than our base-case rate of 12.39%, we observe that pre-payments have hovered at higher levels over the last few years, in line with our expectation that pre-payments pick up as the GSHL pool becomes more seasoned over time. The lower-than-expected default rate of the portfolio further provides a cushion against the low pre-payment cashflows.
The half-month bonus for civil servants, with a minimum payment of RM500, and the RM250 special assistance for pensioners, provided under Budget 2014, in addition to the RM2 billion benefit package for civil servants that took effect on 1 July 2013, will undoubtedly increase disposable incomes. However, the preferential interest rates on GSHLs and mounting concerns over the rising cost of living will moderate any spike in pre-payment levels.
As at 31 March 2013, the portfolio of GSHLs comprised 31,682 accounts, with an average outstanding balance of RM54,345 per account; the weighted-average remaining term stood at 12.90 years.
Media contact
Umar Marzuki
(603) 7628 1055
umar@ram.com.my