MARC has reaffirmed the long-term and short-term issuer ratings of Cagamas Bhd (Cagamas) at AAA and MARC-1 respectively. The reaffirmation reflects the strong ability and flexibility of Cagamas to meet its financial commitments, supported by a favourable portfolio of loans and debts with full recourse to the selling institutions, its strong capitalization and capable management team. As the country’s National Mortgage Corporation, Cagamas’ strategic role in the development of the secondary mortgage market and the strength of its shareholders are positive factors.

In 2005, the excess liquidity situation in the banking system combined with low lending rates in the market resulted in financial institutions (FI) resorting to short term deposits as a cheaper alternative source of funding. The consequent lack of interest from the FIs to sell their loans and debts to Cagamas resulted in the total loans and debts purchased by the Company halving to RM3,591 million during the year. In line with the lower amount purchased, total outstanding loans and debts held by Cagamas decreased across all of the various asset classes with the exception of Islamic hire purchase and leasing (HPL) debts bringing the total outstanding loans and debts down to RM23,860 million (FY2004: RM27,508 million).

In spite of the lower amount purchased, housing loans continued to be the dominant asset class, representing 50.6% of total outstanding loans and debts as at December 2005, followed by HPL debts at 49.3%. However, purchase of HPL debts outstripped that of housing loans and is likely to make up a higher composition of outstanding loans and debts over time. Despite the reclassification of its issues from Class-1 to Class-2 liquefiable assets and the abolishment of the compulsory bidding by the Principal Dealers for its issues in September 2004, Cagamas continues to receive firm demand for its primary market issues with commendable oversubscription rates, a reflection of the Company’s good access to the capital and money markets.

In line with the tougher operating environment, the Company earned lower interest income during the year resulting in profit before tax and zakat declining by 19.6% to RM146.8 million. Among the new product enhancements introduced during the year were the bond-swap arrangement and cost-plus pricing.