KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has affirmed stable ratings on national mortgager Cagamas Bhd’s (Cagamas) bonds and sukuk issuance, attributing to its sound capitalisation and liquidity.
MARC said 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.
“The stable outlook reflects MARC’s expectations that Cagamas will continue to maintain its strong credit, liquidity profile and prudent risk management,” it said.
It noted that in 2016, Cagamas’ total outstanding loans and financing rose 7.1 per cent to RM32.5 billion, with the acquisition of loans and RM5.7 billion financing, 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 declined continuously to 40:60 as at end-December 2016 from 45:55 in 2015,” it said.
On a separate note, Cagamas announced the aggregate issuance of its one year RM410 million bonds/sukuk, comprising RM180 million conventional medium term notes (CMTN) and RM230 billion Islamic medium terms notes (IMTN).
The proceeds will be used to fund the purchase of mortgage loans and Islamic house financing from the financial system.
“We are pleased with the foreign investors' continued participation in the issuances, which signify their confidence and acceptance of the local ringgit denominated issuance, and of Cagamas' papers, in particular.
“We are also pleased that Cagamas’ proactive engagements with foreign investors and continuous initiatives to promote secondary market trading of Cagamas papers have been successful,” said Datuk Chung Chee Leong, chief executive officer of Cagamas.
Foreign fixed income investors’ renewed interest arose from measures introduced by Bank Negara to improve liquidity and trading in the foreign exchange and bond markets.
MARC said the increased proportion of PWR assets in Cagamas’ portfolio is positive, 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 per cent of the PWR assets were purchased from originators rated AA and above, as at end-2016.
In respect of the PWOR assets, MARC said the 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 per cent, as at end-2016. Mortgage assets continued to dominate Cagamas’ portfolio at 95 per cent, followed by personal loans and financing at 3 per cent and hire purchase loans and financing at 2 per cent,” it said.
MARC said Cagamas’ plans to diversify its portfolio to include infrastructure and small- and medium-enterprise (SME) loans is at a nascent stage.
In 2016, Cagamas pre-tax profit fell 3.3 per cent to RM332 million, dented by lower net interest and financing income.
Net interest margin fell to 0.80 per cent from 2015’s 0.93 per cent, due largely to the decline of higher-yielding PWOR assets as opposed to PWR assets.
Cagamas’ favourable access to the domestic and international debt market and ability to structure its liabilities to match loans and financing assets remain key factors in the stability of its funding and liquidity profile.
In 2016, Cagamas raised RM7.4 billion from 21 new debt issuances, enlarging its funding base by 7.4 per cent to RM32.2 billion. In 2015, it had only raised RM7.1 billion from 22 new issuances.
