Cagamas’ ratings reflect its exceptionally strong ability to meet existing financial commitments and distinctly superior quality of its portfolio of loans and debts purchased on full recourse to the primary lenders. The Company’s strategic role in the development of the secondary bond market and provision of liquidity in the financial system coupled with its good earnings capacity, prudent asset and liability management policies, strong capitalization and shareholders’ support are positive rating considerations.

The continued excess liquidity in the banking system throughout 2000 discouraged the financial institutions from securitizing their loans to Cagamas. To counteract the difficult operating environment, the Company introduced a series of product enhancements and new funding mechanisms to encourage loan sales by financial institutions. These measures, coupled with tightening of money market rates and bond yields in the 2H FY2000, had resulted in Cagamas recording its highest ever level of loans and debts purchases amounting to RM10,909 million, 62% higher than that recorded in 1999.

The growth in purchases was largely accounted for by housing loans which amounted to RM7,591 million in FY2000 and the continued popularity of the Hire Purchase & Leasing Debts (HP&L) scheme. The temporary lift of the cap on value of houses costing above RM150,000 that financial institutions can sell to Cagamas contributed to the boost in purchases of housing loans.

MARC views the quality of Cagamas’ loans and debts portfolio as sound. The level of repurchases due to defective loans and debts remains manageable and reflects the adherence to the stringent eligibility criteria imposed by Cagamas on loans and debts sold by the financial institutions. MARC is comfortable with the primary lenders’ capacity to repurchase the defective loans and debts. The reinvestment risk arising from loan repurchases is mitigated by utilizing the prepayment proceeds to fund new loans and debts purchases.

During the year, Cagamas initiated the use of interest rate swaps to help spur the development and liquidity of the swap market. Cagamas manages the credit risk by limiting the notional principal amount of each swap counter-party. The Company also introduced the Cagamas-Linked Mortgage Rates in January 2001 to facilitate and promote fixed rate housing loans.

Cagamas remained an active issuer in the PDS market with 49 issues amounting to a nominal value of RM22,729 million in FY2000. New issues of fixed rate bonds nearly doubled to RM8,403 million reflecting the increase in the level of fixed rate debt purchases as well as the use of interest rate swaps to hedge purchases of housing loans on a floating rate basis. The issuance of Cagamas Notes remained an important asset-liability management tool for the Company.

Profit before tax declined a second consecutive year to RM197.9 million largely as a result of the Company’s fine pricing policy which was adopted to pass on the benefits of low cost funds to house buyers. The year 2001 will be another challenging year given the flushed liquidity situation and continued low interest rates.

Cagamas’ capitalization remains extremely strong, underpinned by prudent operating and asset-liability management strategies. MARC believes that Cagamas’ huge capital base of RM946.6 million (FY99: RM810.3 million) would provide more than an ample buffer to support its future operations.