CREDIT ANALYSIS REPORT

CAGAMAS BERHAD - 2022

Report ID 6053890046799 Popularity 45 views 9 downloads 
Report Date Jun 2022 Product  
Company / Issuer Cagamas Bhd Sector Finance - Others
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Rationale
Rating action     

MARC Ratings has affirmed its rating on national mortgage corporation Cagamas Berhad’s bonds and sukuk issuances as follows:

  • MARC-1/MARC-1IS on Conventional and Islamic Commercial Papers (CP/ICP) programmeswith a combined aggregate limit of RM20.0 billion
  • AAA/AAAIS on Conventional and Islamic Medium-Term Notes (MTN/IMTN) programmesof up to RM60.0 billion

Rationale     

The affirmed ratings continue to be driven by Cagamas’ status as the national mortgage corporation and its strategic role in the domestic financial system, as well as its sound capitalisation and liquidity position. Cagamas’ CCP/ICP programme is due to mature in June 2022, with an outstanding amount of RM1.4 billion. We note that the company is in the midst of establishing its new CCP/ICP programmes to replace its maturing facility. 

Cagamas’ purchases of loans and financing through its purchase-with-recourse (PWR) scheme rose to RM13.8 billion in 2021 (end-2020: RM7.0 billion). The increase was mainly due to purchases from financial institutions with smaller deposit bases which sold loans and financing in order to comply with Bank Negara Malaysia’s (BNM) mandated net stable funding ratio (NSFR) as well as to meet liquidity requirements resulting from the implementation of moratorium and relief measures. The higher PWR purchases made during the year led to an increase in net outstanding loans and financing portfolio to RM36.0 billion (end-2020: RM33.2 billion). In contrast, no purchases have been made under its purchase-without-recourse (PWOR) scheme since 2018. 

As at end-2021, the company registered lower pre-tax profit of RM281.2 million (end-2020: RM301.4 million) on the back of maturing PWR assets and rundown of the PWOR portfolio. Cagamas’ profitability is largely driven by its loan purchases and pricing strategy, while still influenced by interest rate cycles and market liquidity. Over the same period, owing to a decrease in overhead expenses to RM52.2 million (end-2020: RM57.0 million), the company’s cost-to-income ratio improved to 15.9%. Going forward, we are of the view that Cagamas’ operating performance could remain pressured due to its dependence on new loans and financing purchases as well as the pace of loan rundowns. Significant new loans and financing purchased in 2021 should help support Cagamas’ operating performance in FY2022. 

Cagamas’ capitalisation remained strong, with its common equity tier 1 (CET1) and total capital ratios standing at 41.0% and 42.4%, respectively, as at end-2021, ample to support future business growth. The capitalisation ratios were high because of the company’s low risk weight density, given its credit exposures to highly rated counterparties as well as minimal impairment losses. 

The company’s funding and liquidity profile remained healthy, underpinned by the company’s strong access to the domestic capital market in view of its perceived quasi-government status and solid credit metrics. In 2021, Cagamas and its subsidiaries issued RM19.2 billion worth of debt securities to facilitate the RM13.8 billion worth of purchases with the balance used to refinance its short-term papers. Cagamas also adheres to a strict asset-liability policy in which all debt issuances are matched by its asset purchases in terms of size and duration, to ensure cash flow to meet the company’s debt obligations, minimising refinancing risk. 

Rating outlook     
The stable outlook reflects MARC Ratings’ expectation that Cagamas will continue to maintain its strong credit and liquidity profile as well as prudent risk management.

Rating trajectory     

Downside scenario     
The rating will come under pressure if there is significant deterioration in Cagamas’ asset quality and capitalisation.

Key strengths
Strategic importance in the domestic financial system
Strong capitalisation relative to risk profile
Stable funding and liquidity position

Key risk
Executing diversification plans


  

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