Cagamas Bhd - 2009

MARC has affirmed its AAA/AAAID and MARC-1/MARC-1ID ratings on Cagamas Berhad’s (Cagamas) Conventional and Islamic Medium Term Note Programme of up to RM40 billion (MTN Programme) and its Conventional and Islamic Commercial Paper Programme of up to RM20 billion (CP Programme) respectively. The ratings also take into account Cagamas’ status as Malaysia’s sole national mortgage corporation, its strong financial metrics, management capabilities and ownership structure. The ratings carry a stable outlook.

Incorporated in 1986, Cagamas commenced operations in 1987 to stimulate the secondary residential mortgage market in Malaysia. Since then, Cagamas has widened its operations to purchase other classes of receivables and debts from financial institutions, selected corporations and government bodies. MARC believes that Cagamas’ ability to acquire sufficient volumes of appropriate loan assets from financial institutions during periods of low interest rates and excess market liquidity has somewhat decreased with the progressive development of Malaysia’s financial sector. That said, MARC also notes that Cagamas is cognisant of this and has been formulating strategies to evolve and remain in the forefront of the local financial market.

For instance, in an attempt to cater to evolving market needs, Cagamas has introduced asset purchases under a “Purchase Without Recourse” (PWOR) scheme in 2007, in addition to the “Purchase With Recourse” (PWR) transactions which have been its traditional forte. Since then, the amount of PWOR assets has grown to RM7.0 billion in FY2008 (29% of total assets) from RM2.5 billion in FY2007 (10% of total assets), although total outstanding loans and debts were relatively unchanged at RM22.3 billion as at end-2008 (2007: RM22.8 billion). While MARC notes that the increase in PWOR assets raises Cagamas’ credit risk profile, the agency’s concerns are mitigated by the strict eligibility criteria on originators and purchased assets, which to a great extent help to preserve the asset quality of its portfolio.

In FY2008, Cagamas’ post-tax profits expanded by 43.8% to RM169 million from RM117 million in FY2007. Consequently, post-tax return on assets improved to 0.7% in 2008 from 0.5% in 2007. The improved profit  showing was  supported by growth in its PWOR assets, where interest income  tripled to RM183.4 million from RM61.2 million previously. The improved profitability performance was also supported by income from its Islamic operations which rose to RM77.5 million in FY2008 from RM13.9 million in FY2007.

Despite Cagamas’ core capital and risk weighted capital ratios declining marginally to 20.9% and 21.2% respectively at end-2008 (2007: 23.5% and 23.5%) due to an increase in risk weighted assets, MARC views its capitalisation to be strong while noting that increases in capitalisation are primarily dependent on internal capital generation. Additionally, MARC believes that Cagamas’ stringent asset-liability matching policy and continued favourable access to debt market remain key positives in managing its funding profile. 

The stable outlook on Cagamas’ ratings is underpinned by its steady financial metrics, tight risk management, robust capitalisation and strong support framework. MARC believes that support in the unlikely event of need is likely to be offered by the government, considering Cagamas’ economic importance and the Bank Negara Malaysia’s ultimate 20% shareholding. 

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