Credit Guarantee Corporation

The financial strength rating of Credit Guarantee Corporation Malaysia Berhad (CGC) is underpinned by the institution’s healthy financial fundamentals, its sound credit culture and adequate risk governance procedures. While CGC's loan guarantee schemes portfolio intrinsically involves higher credit risks, this has been effectively managed and mitigated. CGC’s liquidity and capital are adequate given the institution's controlled risk profile and moderately low risk appetite, the intrinsic liquidity of its assets, as well as strong shareholder support.

Going forward, we expect the benefit of CGC’s Government Related Issuer (GRI) status to be reflected in enhanced capital markets access. Meanwhile, CGC’s issuer rating is enhanced from its Financial Strength Ratings due to the high support extended by CGC’s main shareholder, Bank Negara Malaysia (BNM). The high degree of support is a function of CGC’s policy role and moral obligation on the part of its main shareholder to support the former’s debt.

CGC’s mission of primarily helping to overcome small & medium enterprises’ (SME) problems with credit availability, a public policy priority, continues to be important. As the SME sector remains critically important to the domestic economy, government support for CGC through BNM and its SME mission will continue. CGC is the sole credit guarantee institution serving SMEs in the country.

CGC has a specific mandate with well-defined permissible activities. Established procedures and guidelines define safe and sound practices as well as regulatory expectations. Corporate governance processes are apparently working as intended, supplemented by BNM’s oversight. BNM exhibits a fairly high degree of involvement in the business affairs of CGC, particularly in its recent role of key architect of CGC’s transformation plan. The current chairman of CGC is the Deputy Governor of BNM.

While CGC’s entry into new activities will likely alter its business risk profile, we expect appropriate mechanisms to be put in place to influence CGC only to take prudent risks, consistent with their mission. Further, BNM oversight will ensure that problems are identified quickly and appropriate responses developed or prompt interventions are carried out in a timely manner to contain emerging problems. It is highly unlikely that the institution can go from being sound to financially imperilled in the foreseeable future. CGC’s adoption of risk adjusted pricing reflects an acknowledged need to balance its public purposes with the profitability needed to ensure its long-term viability.

With its expanded role, CGC will provide a mechanism to link borrowers and lenders with investors in private capital markets. Even in the absence of an explicit government guarantee, MARC believes that there is an extremely high probability of external support for senior debt obligations to be assumed by CGC. Should CGC encounter a financial crisis, MARC believes that BNM would provide financial support to CGC’s senior debt obligations to prevent a default rather than risk the loss of the latter’s credit-facilitation function, and secondary effects such as possible disruption of financial markets.