MARC has affirmed its financial institution (FI) rating of AAA on Credit Guarantee Corporation Malaysia Berhad (CGC). The rating carries a stable outlook.

The rating reflects CGC’s status as a development financial institution (DFI) with an explicit public policy role, underpinned by the support provided by the government through Bank Negara Malaysia (BNM), iyts key shareholder. CGC’s status as a DFI with an explicit public policy role, underpinned by the support provided by the government through Bank Negara Malaysia (BNM), its key shareholder, remains the key rating factor. The rating agency has incorporated a very high systemic support extended by BNM which has a 78.6% interest in the DFI. 

CGC provides credit guarantees on loans and financing extended to micro, small and medium-sized enterprises (MSMEs) by FIs. At end-1H2021, CGC’s net loans guaranteed stood higher at RM13.0 billion (1H2020: RM11.6 billion) with the growth coming from funds channelled to MSMEs under relief programmes to lessen the impact of the COVID-19 pandemic on the MSME sector. The main relief programmes include the Special Relief Facility (SRF) and Targeted Relief and Recovery Facility (TRRF), initiated by BNM and launched in 2020, under which CGC guaranteed 80% of the loan/financing amount. CGC has approved RM2.5 billion guarantees under SRF in 2020 and RM2.1 billion under TRRF as of end-September 2021.

Aside from TRRF and other one-off programmes, CGC’s Portfolio Guarantee (PG) and Wholesale Guarantee (WG) schemes remain key products, accounting for 63.5% and 29.5% of the total main guaranteed schemes in 1H2021. Under the PG and WG schemes, CGC provides guarantees with various coverage levels on new and existing loans of participating financial institutions (PFIs). This allows CGC to share its guarantee risks with the PFIs.

Gross non-performing loans/financing (NPL) ratio reduced to 3.5% in 1H2021 (2020: 5.3%), attributed to a combination of write-offs and recovery. We also note that recovery for the subrogated accounts of RM12.5 million in 2020 was lower than in prior years (2019: RM19.3 million, 2018: RM22.8 million) due to the moratorium extended to its customers. In addition, increase in the winding up petition and bankruptcy thresholds have affected recovery efforts.

For 1H2021, its net profit improved to RM127.5 million due to write-back of expected credit losses of RM7.2 million. The improved profitability has led to higher return on assets (ROA) and return on equity (ROE) of 4.89% and 6.81% (1H2020: 3.20%, 4.40%). CGC maintains a stable liquidity profile, supported by strong cash balances and term deposits, accounting for 18.4% of total assets. Debt and sukuk securities constituted around 56.3% of its total investment portfolio as at 1H2021. Of these, around 79.0% comprise bonds/sukuk rated AA and above. 

The stable outlook assumes continued government support to CGC to carry out its mandated role.

The rating could experience downward pressure if there is an explicit decline in financial and/or operational support from the government.