View Credit Analysis Report (605389012)

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

The affirmed ratings are 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 remains in a position to address the liquidity strain faced by some banks arising from the loans and financing moratorium as well as targeted repayment assistance (TRA) programmes; as at end-2020, the company purchased RM7.0 billion worth of loans and financing through its purchase-with-recourse (PWR) scheme (2019: RM4.98 billion). To date, Cagamas has purchased RM5.0 billion under the PWR scheme, which amounts to 56.0% of its budgeted RM9.0 billion purchases for 2021. Nonetheless, a sharp increase in purchases in the near term is unlikely given the excess liquidity in the banking industry. Notably, there were no purchases under its purchase-without-recourse (PWOR) scheme since 2018. Although somewhat mitigated by continuous purchase momentum, the company’s net outstanding loans and financing portfolio declined to RM33.2 billion (2019: RM37.8 billion) driven by greater maturities of PWR assets and run down of PWOR assets. 

As at end-2020, Cagamas registered lower pre-tax profit of RM301.4 million (2019: RM318.0 million) on the back of a declining asset base. As profitability is largely driven by its loan purchases and pricing strategy, any significant pick-up from the higher-yielding PWOR portfolio and portfolio diversification will improve the company’s profitability performance. Despite the lower earnings, Cagamas’ return on assets (ROA) and equity (ROE) stood at 0.78% and 7.46% for the same period. Profitability is expected to be pressured as Cagamas rebalances its portfolio against the market environment as PWR purchases make up a large proportion of its total portfolio (2020: 68%; 2019: 70%).

Cagamas’ capitalisation continues to remain sound, underpinned by its exposure to highly rated counterparties  as well  as minimal impairment losses. As at end-2020, the  company’s  total  capital ratio stood higher at 45.3% to amply support its future business plans. Notably, its capital base is deemed robust, with share capital and retained earnings constituting the bulk as reflected in its core capital ratio of 43.6% (2019: 29.3%).

The company’s funding and liquidity position has remained healthy with a funding base of RM31.5 billion as at-end 2020. Cagamas also adheres to a prudent liquidity management in which debt issuances are closely matched by its asset purchases ensuring sufficient cash flow to meet debt obligations which minimises refinancing risk. Additionally, given its perceived quasi-government status, Cagamas enjoys ready access to the domestic capital markets.

Rating outlook     

The stable outlook assumes that Cagamas will continue to play a strategic role as the national mortgage corporation and receive government support should it be required.

Rating trajectory

Downside scenario     
The rating could be reassessed if there is a significant weakening in support for Cagamas operations and/or material change in its business strategy.