Wednesday, Sep 20, 2000
Malaysian Rating Corporation Berhad (MARC) has reaffirmed the long-term and short-term issuer ratings of Cagamas Berhad at AAA (Triple A) and MARC-1 respectively.
Cagamas Berhad’s (Cagamas) ratings reflect its exceptionally strong ability to meet existing financial commitments and distinctly superior quality of its portfolio of mortgages, hire purchase and leasing debts (HP&L) and Islamic house financing debts, purchased on full recourse to the primary lenders. Cagamas’ strategic role in the development of the bond market and provision of liquidity in the financial system, its good earnings capacity, prudent asset and liability management policies, strong capitalization and shareholders’ support are positive rating considerations.
On the back of the ample liquidity in the financial system and low interest rates, Cagamas experienced low volume of housing loan purchases in the early part of FY99. In response, the company dropped its Cagamas rates to a historical low in June, thus accelerating purchases in the two months that followed as financial institutions capitalized on the attractive rates.
Despite the challenging conditions, Cagamas achieved its second highest volume record in 1999 with RM6,726 million of loan purchases booked, surpassing the RM5,122 million recorded in the previous year by 31.3%. The growth was largely generated by the purchase of HP&L debts, which benefited from a full year’s effect of the scheme. The HP&L product was launched in December 1998 to enhance the asset-liability management of finance companies by providing them with a source of medium-term financing.
The home ownership campaigns and exemptions from stamp duty on instruments of transfer for houses, coupled with the attractive mortgage packages offered by the originators, are expected to lift the supply of housing loans available for purchase. In addition, Bank Negara’s temporary removal of the RM150,000 cap for purchase of housing loans with recourse for a period of one year to 31 March 2001 should spur higher sales of housing loans to Cagamas in the current year.
MARC views Cagamas’ loans portfolio quality as sound. The low frequency of repurchases due to defective loans reflects the adherence to the stringent eligibility criteria imposed by Cagamas on loans sold by the financial institutions. MARC is comfortable with the primary lenders’ capacity to repurchase irregular loans.
Cagamas launched the purchase of housing loans without recourse during the year that would free up the seller’s capital. Credit risks attached to such purchases will be mitigated by the strict loan eligibility requirements. The lack of urgency to improve their capital adequacy position and the requirement for extensive systems modification had deterred sales under this scheme.
Cagamas continued to be an active issuer in the PDS market with 36 issuances worth RM25.1 billion in FY99, in light of the large purchases and to meet the redemption of its outstanding debt securities. Fixed rate purchases are largely funded by fixed rate bonds, while discount notes are used to fund floating rate loan purchases. This significantly mitigates interest rate risk. Further, in January 2000, Cagamas began using interest rate swaps to hedge its floating rate purchases
The decline in profit before tax by 8.2% to RM220.4 million was due to two factors namely the rundown in its outstanding loan book and lower margins on its purchases. The Company had reduced its margin in order to continue passing on the benefit of low cost funds to the originators and to encourage securitisation of loans and debts. In the current financial year, profits are expected to be challenged by the continued acceleration in loan repurchases on review dates as well as the excess liquidity in the market.
Cagamas’ capitalization is extremely strong, underpinned by prudent operating and asset-liability management strategies. MARC believes that Cagamas’ shareholders’ funds of RM810 million (FY98: RM610 million) would provide more than ample buffer to support its future operations.
Cagamas Berhad’s (Cagamas) ratings reflect its exceptionally strong ability to meet existing financial commitments and distinctly superior quality of its portfolio of mortgages, hire purchase and leasing debts (HP&L) and Islamic house financing debts, purchased on full recourse to the primary lenders. Cagamas’ strategic role in the development of the bond market and provision of liquidity in the financial system, its good earnings capacity, prudent asset and liability management policies, strong capitalization and shareholders’ support are positive rating considerations.
On the back of the ample liquidity in the financial system and low interest rates, Cagamas experienced low volume of housing loan purchases in the early part of FY99. In response, the company dropped its Cagamas rates to a historical low in June, thus accelerating purchases in the two months that followed as financial institutions capitalized on the attractive rates.
Despite the challenging conditions, Cagamas achieved its second highest volume record in 1999 with RM6,726 million of loan purchases booked, surpassing the RM5,122 million recorded in the previous year by 31.3%. The growth was largely generated by the purchase of HP&L debts, which benefited from a full year’s effect of the scheme. The HP&L product was launched in December 1998 to enhance the asset-liability management of finance companies by providing them with a source of medium-term financing.
The home ownership campaigns and exemptions from stamp duty on instruments of transfer for houses, coupled with the attractive mortgage packages offered by the originators, are expected to lift the supply of housing loans available for purchase. In addition, Bank Negara’s temporary removal of the RM150,000 cap for purchase of housing loans with recourse for a period of one year to 31 March 2001 should spur higher sales of housing loans to Cagamas in the current year.
MARC views Cagamas’ loans portfolio quality as sound. The low frequency of repurchases due to defective loans reflects the adherence to the stringent eligibility criteria imposed by Cagamas on loans sold by the financial institutions. MARC is comfortable with the primary lenders’ capacity to repurchase irregular loans.
Cagamas launched the purchase of housing loans without recourse during the year that would free up the seller’s capital. Credit risks attached to such purchases will be mitigated by the strict loan eligibility requirements. The lack of urgency to improve their capital adequacy position and the requirement for extensive systems modification had deterred sales under this scheme.
Cagamas continued to be an active issuer in the PDS market with 36 issuances worth RM25.1 billion in FY99, in light of the large purchases and to meet the redemption of its outstanding debt securities. Fixed rate purchases are largely funded by fixed rate bonds, while discount notes are used to fund floating rate loan purchases. This significantly mitigates interest rate risk. Further, in January 2000, Cagamas began using interest rate swaps to hedge its floating rate purchases
The decline in profit before tax by 8.2% to RM220.4 million was due to two factors namely the rundown in its outstanding loan book and lower margins on its purchases. The Company had reduced its margin in order to continue passing on the benefit of low cost funds to the originators and to encourage securitisation of loans and debts. In the current financial year, profits are expected to be challenged by the continued acceleration in loan repurchases on review dates as well as the excess liquidity in the market.
Cagamas’ capitalization is extremely strong, underpinned by prudent operating and asset-liability management strategies. MARC believes that Cagamas’ shareholders’ funds of RM810 million (FY98: RM610 million) would provide more than ample buffer to support its future operations.