Cagamas’ ratings reflect the strong ability and flexibility of the Company to meet its financial commitments, the favorable portfolio of loans and debts with full recourse to the financial institutions, strong capitalization and a proactive and innovative management team. As the country’s national mortgage corporation, the Company’s strategic role in the development of the secondary mortgage market and the strength of the Company’s shareholders are positive factors.

Despite Bank Negara Malaysia lifting the cap on the sale of housing loans for houses costing above RM150,000 to Cagamas, coupled with the Company lowering its 3-year Cagamas Fixed Rate twelve times during 2001, the prevalent high liquidity in the banking system continued to discourage financial institutions from selling their loans and debts to Cagamas. Against this backdrop, loans and debts purchased fell by 33% on a year-on-year comparison.

Composition of hire purchase and leasing (HPL) debts in the Company’s portfolio have been increasing, accounting for 53.8% of total new loans and debts purchased during the year. The presently stronger market incentive for institutions to sell their HPL debts to Cagamas, coupled with the strong demand for motor vehicles is expected to further increase the composition of HPL to total debts. Nevertheless, Cagamas is expected to be able to manage the differing portfolio characteristics as all loans and debts that become defective are repurchased and replaced, with the exception of housing loans, where it remains optional. In addition, the increasing availability of housing loans with longer fixed rate tenors could nevertheless potentially help to sustain the sale of housing loans by financial institutions to Cagamas in the near term. In the long run, Cagamas is expected to further emphasize the development of purchases on a without recourse basis, as the Company pursues its role in developing a true domestic securitization market.

Cagamas employs a close matching of its funding mix with the different interest rate profile of the loans purchased. Proportion of fixed rate purchases funded by fixed rate bonds remains high. Where the types of loans and debts do not match its preferred funding basis, Cagamas uses its swap arrangements to hedge its assets-to-liabilities. The continued adoption of a fine pricing policy will however continue to pressure profit margins.

The Company’s exposure to reinvestment risk is manageable given that 17.4% of total loans and debts portfolio outstanding are on without replacement option as at end-December 2001.

The Company adopts a duration matching strategy to mitigate asset-liability maturity mismatches. Management of the portfolio is facilitated by the fact that a sizeable portion of repurchases are due to repurchases on review date.

In addition to the marketability of Cagamas’ debt issues, the Company has good access to the capital and money markets. The higher component of short term notes issued during the year continues to be utilized to fund Cagamas’ floating rate purchases.

MARC credits Cagamas’ management as proactive and innovative, while employing prudent operating and asset-liability management strategies.