MARC Ratings has affirmed its ratings on Cagamas Berhad’s bonds and sukuk issuances as follows:

The ratings outlook is stable.

The key rating drivers remain Cagamas’ status as the national mortgage corporation and its strategic importance in the domestic financial system, underpinned by its strong capitalisation and stable liquidity position. Cagamas’ ownership by Bank Negara Malaysia (BNM, 20%) and the rest by commercial and investment banks further lend support to its strategic importance. 

Cagamas purchased RM19.3 billion worth of loans and financing under its purchase-with-recourse (PWR) scheme in 2022, exceeding its target of RM15.0 billion. The significant growth of PWR purchases led to an 18.8% y-o-y increase in total outstanding of its PWR portfolio to RM32.6 billion as at end-2022. The continued liquidity requirement for financial institutions (FIs) to shore up their statutory liquidity ratio has been the catalyst for the vigorous growth of PWR in recent years. This trend is expected to continue in the near term. In contrast, its purchase-without-recourse (PWOR) scheme remains muted with no purchases made in recent years; the outstanding currently stands at RM7.7 billion.  

Cagamas continues to work towards diversifying its product base through alternative businesses, including the Capital Management Solution and the Reverse Mortgage Programme. The exposure from its new products remains modest at this juncture.

Capitalisation remains strong with Common Equity Tier 1 (CET1), Tier 1 capital and total capital ratios of 37.0%, 37.0% and 38.0%. This is attributed to Cagamas' low-risk weight density, minimal impairment losses, and credit exposure to highly rated counterparties, all of which point to sound asset quality metrics. This is because the default risk for the PWR portfolio resides with the originators while the gross impaired ratio (GIL) for the PWOR portfolio is low at 0.45%.

Its funding and liquidity profile remains healthy, benefitting from easy access to the domestic capital market.  Funds raised worth RM24.9 billion (end-2021: RM19.2 billion) were issued in 2022 to facilitate purchases, with a portion allocated to refinancing short-term papers. Cagamas remains active in exploring funding opportunities in both local and foreign currencies to diversify its funding sources. The company observes prudent asset and liability management to ensure cash flow meets its debt obligations, minimising refinancing risk.

Pre-tax profit grew by 6.7% y-o-y to RM300.3 million in 2022 on the increase in PWR purchases and higher investment income. Net interest margin (NIM) remained unchanged at 0.9% given thin profit margins in the PWR portfolio and decline in contribution of net income from the high-yielding PWOR assets. 

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