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.
Analytical contact
Irene Wong
(603) 7628 1076
Media contact
Padthma Subbiah
(603) 7628 1162
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