FW: Government staff reforms, no impact on RAM-rated securitised transactions

 

Published on 01 Jun 2018.

 

In the two weeks since its establishment, the Pakatan Harapan government has announced various initiatives including an intention to terminate the contracts of approximately 17,000 political appointees, the dissolution of several federal agencies and a review of earlier promised salary increments. Notably, the new administration has pledged to reduce the effect of downsizing measures, particularly on those in low-paying positions. 

RAM Ratings’ portfolio at present has four securitised transactions, with an outstanding rated value of RM5.56 billion, that are backed by civil service sector receivables in the form of mortgage or personal financing (see table below). “As these financing facilities are primarily serviced through salary deductions at-source, any payment interruptions due to staff transfers, or change in employment status may increase the risk of delinquencies. In the past, higher prepayment patterns had been triggered by borrowers taking advantage of salary increments to re-leverage and increase borrowings,” says Siew Suet Ming, RAM’s Head of Structured Finance Ratings. “Although the exact timing of the reforms and implementation details are still fluid, we do not anticipate any material impact on the securitised transactions in our rated portfolio involving financing extended to civil servants,” she adds. 

Of the four said transactions, only two entail financing/loans extended to contract employees – MBSB Bank Berhad’s Structured Covered Sukuk and Al Dzahab Assets Berhad’s RM900 million Sukuk Programme. While estimates conveyed indicate that selected tranches under Al Dhazab’s Sukuk Programme have exposures, these are expected to be small at approximately 0.4% of the total outstanding RM797.3 million securitised portfolio. MBSB Bank, meanwhile, has confirmed that it has approximately 0.5% of contract employees, against the entire RM2.9 billion securitised portfolio. Overall, we believe that potential losses arising from contract termination will be minimal, if not negligible, although we may see some temporary disruptions in payroll deductions in view of expected inter-agency transfers.

 

 

Analytical contact
Lim Chern Yit
(603) 7628 1035 
chernyit@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

 

 

*NOTE: RAM update on Al Dzahab assets Berhad, MBSB Bank Berhad, Cendana Sejati Sdn Bhd