MARC has affirmed the AAA/AAAID and MARC-1/MARC-1ID ratings on Cagamas Berhad’s (Cagamas) Conventional and Islamic Medium-Term Note Programme of up to RM40.0 billion (MTN Programme) and its Conventional and Islamic Commercial Paper Programme of up to RM20.0 billion (CP Programme) (collectively known as the Programmes), respectively.  The ratings carry a stable outlook. The ratings reflect Cagamas’ strategic role as the national mortgage corporation that entails implicit government support, strong financial flexibility, solid capitalization, capable management team and ownership structure.

Cagamas, the national mortgage corporation, was originally established to promote the domestic secondary residential mortgage market. Through the years, Cagamas’ role has been expanded to include the acquisition of other classes of loans, debts, and receivables from financial institutions (FIs), selected corporations and the government. Cagamas promotes liquidity in the secondary mortgage and loan markets by acquiring loans and receivables directly from primary lenders, and issuing debt securities to finance its purchases. Traditionally, its purchases of loans/debts have largely been on a ‘full recourse’ basis, which obligates sellers to replace or repurchase defaulted loans. In April 2007, Cagamas re-launched its Purchase Without Recourse (PWOR) scheme for mortgage loan purchases. Cagamas’ total outstanding loans/debts as at end-FY2007 stood at RM22.8 billion, 88.8% of which were purchased with full recourse to the sellers.

Asset quality remained strong during the year with repurchases totalling RM5.4 billion (FY2006: RM5.5 billion). Of these, approximately 86.5% were scheduled repayments, whilst 5.4% (FY2006: 5.9%) was accounted by repurchases due to ineligibility.

Despite registering a 10.3% decrease in total income to RM777.6 million, operating profit rose by 19.7% in FY2007, due to lower interest expenses.  As in previous years, interest income from mortgage loans was the main contributor to earnings, amounting to RM478.6 million. Total income from Islamic operations and Islamic debt securities registered a marginal decline of 3.9% year-on-year.

Cagamas is the second largest issuer of debt securities domestically after the Government of Malaysia. Cagamas issued securities amounting to RM14.5 billion in FY2007 (FY2006: RM7.9 billion), of which 72.7% were undertaken under the Programmes. The substantial increase is attributable to the higher amount of total loans and debts purchased during the year. Cagamas purchased loans/debts amounting to RM13.1 billion in FY2007 (FY2006: RM5.8 billion), with conventional housing loans making up more than half of the purchases at RM6.6 billion (FY2006: RM1.3 billion). The sharp rise in acquisitions is attributable to an increased interest amongst selling institutions, which notably include Islamic financial institutions (IFIs) seeking to hedge their profit rate risk, as well as the success of the PWOR scheme. The Company actively monitors its funding gap and maintains a prudent loans and debts-to-funding base ratio of around 1.0 time.  Cagamas has maintained relatively conservative core and risk-weighted capital ratios exceeding 20% since FY2004, which are significantly higher than the domestic banking system’s 9.9% and 13.0%, respectively.

Cagamas and its subsidiaries, Cagamas MBS Berhad, Cagamas SME Berhad and BNM Sukuk Berhad, have become wholly-owned subsidiaries of a newly incorporated holding company, Cagamas Holdings Berhad pursuant to a new organization structure, effective January 2008. Cagamas’ ownership structure, 20:80 shareholding by Bank Negara Malaysia and financial institutions at its holding company’s level, continues to be viewed as an important credit strength for Cagamas.

Contacts:
Azlina Mohamed Noor Beg, 03-2090 2254/ azlina@marc.com.my;
Chia Suil Fun, 03-2090 2253/ sfchia@marc.com.my